<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 23, 1998.
REGISTRATION NO. 333-45457
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMSCAN HOLDINGS, INC.*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 5110 13-3911462
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
AMSCAN HOLDINGS, INC.
80 GRASSLANDS ROAD
ELMSFORD, NEW YORK 10523
(914) 345-2020
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
COPIES OF ALL COMMUNICATION TO:
<TABLE>
<S> <C>
JAMES M. HARRISON
PRESIDENT MITCHELL S. PRESSER, ESQ.
AMSCAN HOLDINGS, INC. WACHTELL, LIPTON, ROSEN & KATZ
80 GRASSLANDS ROAD 51 WEST 52ND STREET
ELMSFORD, NEW YORK 10523 NEW YORK, NEW YORK 10019
(914) 345-2020 (212) 403-1000
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE
NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: Upon
consummation of the Exchange Offer referred to herein.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G check the following box. [ ]
------------------------
THE REGISTRANTS HEREBY AMEND THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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> 2
* TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY
STANDARD
INDUSTRY I.R.S EMPLOYER
NAME, ADDRESS AND STATE OR OTHER JURISDICTION OF CLASSIFICATION IDENTIFICATION
TELEPHONE NUMBER INCORPORATION OR ORGANIZATION NUMBER NUMBER
- ---------------------------------- ------------------------------ -------------- ---------------
<S> <C> <C> <C>
Amscan Inc. ...................... New York 5110 13-1771359
Trisar, Inc. ..................... California 5110 95-3420659
Am-Source, Inc. .................. Rhode Island 5110 05-0471630
SSY Realty Corp. ................. New York 6519 13-3500756
JCS Realty Corp. ................. New York 6519 13-3431738
</TABLE>
- ---------------
* The address of these additional registrants is 80 Grasslands Road, Elmsford,
New York 10523. Their telephone number is (914) 345-2020.
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement covers the registration of an aggregate
principal amount of $110,000,000 of 9 7/8% Senior Subordinated Notes due 2007
(the "Exchange Notes") of Amscan Holdings, Inc. ("Amscan" or the "Company"),
which will have been registered under the Securities Act pursuant to a
Registration Statement of which this Prospectus is a part, that may be exchanged
for equal principal amounts of Amscan's outstanding 9 7/8% Senior Subordinated
Notes due 2007 (the "Notes") (the "Exchange Offer"). This Registration Statement
also covers the registration of the Exchange Notes for resale by Goldman, Sachs
& Co. in market-making transactions. The complete Prospectus relating to the
Exchange Offer (the "Exchange Offer Prospectus") follows immediately after this
Explanatory Note. Following the Exchange Offer Prospectus are certain pages of
the Prospectus relating solely to such market-making transactions (the
"Market-Making Prospectus"), including alternate front and back cover pages, a
section entitled "Risk Factors -- Trading Market for the Exchange Notes" to be
used in lieu of the section entitled "Risk Factors -- Lack of Public Market for
the Exchange Notes," a new section entitled "Use of Proceeds" and an alternate
section entitled "Plan of Distribution." In addition, the Market-Making
Prospectus will not include the following captions (or the information set forth
under such captions) in the Exchange Offer Prospectus: "Prospectus
Summary -- The Note Offering" and "-- The Exchange Offer," "Risk
Factors -- Exchange Offer Procedures" and "-- Restrictions on Transfer," "The
Exchange Offer," and "Certain Federal Income Tax Consequences of the Exchange
Offer". All other sections of the Exchange Offer Prospectus will be included in
the Market-Making Prospectus.
<PAGE> 4
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 FEBRUARY 23, 1998
[AMSCAN LOGO]
OFFER TO EXCHANGE
ITS
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
($110,000,000 PRINCIPAL AMOUNT)
FOR ALL OF ITS OUTSTANDING
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
($110,000,000 PRINCIPAL AMOUNT OUTSTANDING)
AMSCAN HOLDINGS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON MARCH _ , 1998, UNLESS EXTENDED.
Amscan Holdings, Inc., a Delaware corporation (the "Company"), hereby offers
(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 up to an aggregate principal amount of $110,000,000
of its 9 7/8% Senior Subordinated Notes due 2007 (the "Exchange Notes"), which
will have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this Prospectus
is a part, for an equal principal amount of its outstanding 9 7/8% Senior
Subordinated Notes due 2007 (the "Notes"), in integral multiples of $1,000. The
Exchange Notes will be fully and unconditionally guaranteed on a senior
subordinated basis, jointly and severally, by certain of the Company's
Subsidiaries (the "Guarantors"). The Exchange Notes will be senior subordinated
unsecured obligations of the Company and are substantially identical (including
principal amount, interest rate, maturity and redemption rights) to the Notes
for which they may be exchanged pursuant to this offer, except that (i) the
offering and sale of the Exchange Notes will have been registered under the
Securities Act and (ii) holders of Exchange Notes will not be entitled to
certain rights of holders under the Exchange and Registration Rights Agreement
of the Company dated as of December 19, 1997 (the "Registration Rights
Agreement").
The Exchange Notes will be general, unsecured obligations of the Company,
will be subordinated in right of payment to all Senior Debt of the Company, will
rank pari passu with all senior subordinated debt of the Company and will be
senior in right of payment to all existing and future subordinated debt of the
Company, if any. The claims of Holders of the Exchange Notes will be effectively
subordinated to the Senior Debt, which, as of September 30, 1997, on a pro forma
basis giving effect to the Transaction and the Transaction Financings would have
been approximately $128 million, $117 million of which would have been fully
secured borrowings under the Bank Credit Agreement. The claims of Holders will
be effectively subordinated to the indebtedness and other liabilities of the
Company's Non-Guarantor Subsidiaries through which the Company conducts a
portion of its operations, which indebtedness and other liabilities were
approximately $3 million as of September 30, 1997. See "The Transaction" and
"Capitalization".
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY HOLDERS WHO TENDER NOTES IN THE EXCHANGE OFFER.
---------------------
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.
The date of this Prospectus is February _ , 1998
(Cover text continued on next page)
<PAGE> 5
The Notes have been, and the Exchange Notes will be, issued under an
Indenture dated as of December 19, 1997 (the "Indenture"), among the Company,
the Guarantors and IBJ Schroder Bank & Trust Company, as trustee (the
"Trustee"). See "Description of Exchange Notes". There will be no proceeds to
the Company from this offering; however, pursuant to the Registration Rights
Agreement, the Company will bear certain offering expenses.
The Company will accept for exchange any and all Notes validly tendered or
prior to 5:00 p.m. New York City time, on March , 1998, unless the Exchange
Offer is extended (the "Expiration Date"). Tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date;
otherwise such tenders are irrevocable. IBJ Schroder Bank & Trust Company will
act as Exchange Agent with respect to the Notes (in such capacity, the "Exchange
Agent") in connection with the Exchange Offer. The Exchange Offer is not
conditioned upon any minimum principal amount of Notes being tendered for
exchange, but is otherwise subject to certain customary conditions.
The Notes were sold by the Company on December 19, 1997 in transactions not
registered under the Securities Act in reliance upon the exemption provided in
Section 4(2) of the Securities Act. A portion of the Notes were subsequently
resold to qualified institutional buyers in reliance upon Rule 144A under the
Securities Act. The remainder of the Notes were resold outside the United States
in reliance on Regulation S under the Securities Act. Accordingly, the Notes may
not be reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange Notes
are being offered hereunder in order to satisfy certain obligations of the
Company under the Registration Rights Agreement. See "The Exchange Offer".
The Exchange Notes will bear interest from December 19, 1997, the date of
issuance of the Notes that are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date (as defined herein) to which interest on
such Notes has been paid), at a rate equal to 9 7/8% per annum. Interest on the
Exchange Notes will be payable semi-annually on June 15 and December 15 of each
year, commencing June 15, 1998. The Exchange Notes are redeemable at the option
of the Company, in whole or in part, at any time on or after December 15, 2002,
at the redemption prices set forth herein, plus accrued and unpaid interest to
the date of redemption. See "Description of Exchange Notes".
In addition, at any time prior to December 15, 2000, up to an aggregate of
35% of the principal amount of Exchange Notes will be redeemable at the option
of the Company, on one or more occasions, from the net proceeds of public or
private sales of common stock of, or contributions to the common equity capital
of, the Company at a price of 109.875% of the principal amount of the Exchange
Notes, together with accrued and unpaid interest, if any, to the date of
redemption; provided that at least $65.0 million in aggregate principal amount
of Notes and Exchange Notes remains outstanding immediately after each such
redemption. At any time on or prior to December 15, 2002 the Exchange Notes may
also be redeemed as a whole but not in part at the option of the Company upon
the occurrence of a Change of Control at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium, together with accrued and
unpaid interest, if any, to the date of redemption. If the Company does not
redeem the Exchange Notes upon a Change of Control, the Company will be
obligated to make an offer to purchase the Exchange Notes, in whole or in part,
at a price equal to 101% of the aggregate principal amount of the Exchange
Notes, plus accrued and unpaid interest, if any, to the date of purchase. If a
Change of Control were to occur, the Company may not have the financial
resources to repay all of its obligations under the Bank Credit Agreement, the
Indenture and the other indebtedness that would become payable upon the
occurrence of such Change of Control. See "Risk Factors -- Payment Upon a Change
of Control" and "Description of Exchange Notes".
The Exchange Offer is being made in reliance on certain no-action positions
that have been published by the staff of the Securities and Exchange Commission
(the "Commission"), which
ii
<PAGE> 6
require each tendering noteholder to represent that it acquired the Notes in the
ordinary course of its business and that such holder does not intend to
participate and has no arrangement or understanding with any person to
participate in a distribution of the Exchange Notes. In some cases, certain
broker-dealers may be required to deliver a prospectus in connection with the
resale of Exchange Notes that they receive in the Exchange Offer. See
"Prospectus Summary -- The Note Offering -- The Exchange Offer".
The Company does not intend to list the Exchange Notes on any national
securities exchange or to seek admission thereof to trading in any automated
quotation system. Goldman, Sachs & Co. ("Goldman Sachs") has advised the Company
that it intends to make a market in the Exchange Notes; however, it is not
obligated to do so and any market-making may be discontinued at any time. As a
result, the Company cannot determine whether an active public market will
develop for the Exchange Notes.
ANY NOTES NOT TENDERED AND ACCEPTED IN THE EXCHANGE OFFER WILL REMAIN
OUTSTANDING. TO THE EXTENT ANY NOTES ARE TENDERED AND ACCEPTED IN THE EXCHANGE
OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED NOTES COULD BE ADVERSELY AFFECTED.
FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, THE HOLDERS OF NOTES WILL CONTINUE
TO BE SUBJECT TO THE EXISTING RESTRICTIONS UPON TRANSFER THEREOF AND THE COMPANY
WILL HAVE FULFILLED ONE OF ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS
AGREEMENT. HOLDERS OF NOTES WHO DO NOT TENDER THEIR NOTES GENERALLY WILL NOT
HAVE ANY FURTHER REGISTRATION RIGHTS UNDER THE REGISTRATION RIGHTS AGREEMENT OR
OTHERWISE. SEE "THE EXCHANGE OFFER -- CONSEQUENCES OF FAILURE TO EXCHANGE".
The Exchange Notes issued pursuant to this Exchange Offer generally will be
issued in the form of Global Exchange Notes (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company (the "Depository"
or "DTC") and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Global Exchange Notes representing the Exchange
Notes will be shown on, and transfers thereof will be effected through, records
maintained by the Depository and its participants. Notwithstanding the
foregoing, Notes held in certificated form will be exchanged solely for Exchange
Notes in certificated form. After the initial issuance of the Global Exchange
Notes, Exchange Notes in certificated form will be issued in exchange for the
Global Exchange Notes only on the terms set forth in the Indenture. See
"Description of Exchange Notes -- Book-Entry, Delivery and Form".
------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE EXCHANGE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE EXCHANGE NOTES TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE 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 MAY , 1998 (90 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
iii
<PAGE> 7
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 under the Securities Act for
the registration of the Exchange Notes offered hereby (the "Registration
Statement"). This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits and schedules to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company or the Exchange
Notes offered hereby, reference is made to the Registration Statement, including
the exhibits and financial statement schedules thereto. With respect to each
such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
The Company is presently subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Commission.
The Registration Statement, such reports and other information filed by the
Company can be inspected and copied at the public reference facilities of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and the regional
offices of the Commission located at 7 World Trade Center, New York, New York
10048 and 500 West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies
of such materials may be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at its public reference facilities in New York, New York and Chicago, Illinois
at prescribed rates. The Company makes its filings with the Commission
electronically. The Commission maintains an Internet site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically, which information can be accessed at
,http://www.sec.gov..
As a result of the offering of the Exchange Notes, each of the Guarantors
will become subject to the informational requirements of the Exchange Act. The
Company will fulfill its obligations with respect to such requirements by filing
periodic reports with the Commission on its own behalf or, in the case of the
Guarantors, by including information regarding the Guarantors in the Company's
periodic reports. In addition, the Company will send to each holder of Exchange
Notes copies of annual reports and quarterly reports containing the information
required to be filed under the Exchange Act. So long as the Company is subject
to the periodic reporting requirements of the Exchange Act, it is required to
furnish the information required to be filed with the Commission to the Trustee
and the holders of the Notes and the Exchange Notes. The Company has agreed
that, even if it is not required under the Exchange Act to furnish such
information to the Commission, it will nonetheless continue to furnish
information that would be required to be furnished by the Company by Section 13
of the Exchange Act to the Trustee and the holders of the Notes or Exchange
Notes as if it were subject to such periodic reporting requirements.
iv
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in connection with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus.
THE COMPANY
Amscan Holdings, Inc. ("Amscan" or the "Company") designs, manufactures and
distributes decorative party goods, offering one of the broadest and deepest
product lines in the industry. The Company's products include paper and plastic
tableware (such as plates, napkins, tablecovers, cups and cutlery), accessories
(such as invitations, thank-you cards, table and wall decorations and balloons)
and novelties (such as games and party favors). The Company's products are sold
to party goods superstores, independent card and gift retailers, mass
merchandisers and other distributors which sell Amscan products in more than
20,000 retail outlets throughout the world, including North America, Australia,
the United Kingdom, Germany and Sweden.
The Company currently offers over 250 product ensembles, generally
containing 30 to 150 coordinated items. These ensembles comprise a wide variety
of products to accessorize a party including matching invitations, tableware,
decorations, party favors and thank-you cards. The Company designs, manufactures
and markets party goods for a wide variety of occasions including seasonal
holidays, special events and themed celebrations. The Company's seasonal
ensembles enliven holiday parties throughout the year including New Year's,
Valentine's Day, St. Patrick's Day, Easter, Passover, Fourth of July, Halloween,
Thanksgiving, Hanukkah and Christmas. The Company's special event ensembles
include birthdays, christenings, first communions, bar mitzvahs, confirmations,
graduations, baby and bridal showers and anniversaries, while its theme-oriented
ensembles include Hawaiian luaus, Mardi Gras and '50s rock-and-roll parties.
In addition to its long-standing relationships with independent card and
gift retailers, the Company is a leading supplier to the party superstore
distribution channel. Party goods superstores are growing rapidly by providing
consumers with a one-stop source for all of their party needs, generally at
discounted prices. The retail party goods business has historically been
fragmented among independent stores and drug, discount or department store
chains. However, according to industry analysts, there has been a significant
shift of sales since 1990 to the party goods superstore channel.
Company sales to superstores represented approximately 44% of total sales
in 1996. While the number of party superstores that Amscan supplies has grown at
a compound annual growth rate ("CAGR") in excess of 20% from 1993 to 1996, the
Company's sales to superstores have grown by a 47% CAGR during the same period.
With Amscan products occupying an increasing share of superstore shelf space in
many product categories, Amscan believes it is well positioned to take advantage
of continued growth in the party superstore channel.
Amscan's sales and cash flows have grown substantially over the past five
years. From 1991 to 1996, sales and Adjusted EBITDA (adjusted for non-recurring
items relating to the IPO, other income or expenses, and minority interests)
have grown at compound annual rates of 20% and 28%, respectively. During the
same period, Adjusted EBITDA margins increased from approximately 14% to 20% due
in part to the Company achieving greater economies of scale in manufacturing and
distribution, and significantly reducing selling expenses as a percentage of
sales. Sales and Adjusted EBITDA for the twelve months ended September 30, 1997
were approximately $207 million and $42 million, respectively, representing an
Adjusted EBITDA margin of approximately 20%.
1
<PAGE> 9
PARTY GOODS INDUSTRY OVERVIEW
According to industry analyst reports, the U.S. decorative party goods
industry (including tableware, accessories and novelties) generated
approximately $3.5 billion in retail sales in 1996 and has grown approximately
10% annually over the past several years. The Company believes this growth is
driven by several factors including favorable demographics and consumer spending
patterns, the emergence of the party superstore channel and growth in the number
of party events celebrated and party products available to consumers.
The Company believes that demographic trends favor continued growth in
decorative party goods sales. According to the United States Bureau of the
Census ("The Census Bureau"), between 1997 and 2005, population in the 10-19
year old age bracket is expected to increase by approximately 10%, and
population in the 20-24 year old age bracket is expected to increase by
approximately 15%. This suggests an increase in celebrations revolving around
teenagers and young adults including confirmations, bar mitzvahs, graduations
and bridal and baby showers. In addition, the 45-54 year old age bracket is
expected to increase by over 20% by 2005. According to The Census Bureau and the
United States Bureau of Labor Statistics, this population segment enjoyed the
highest median household income and spent the most money on entertainment in
1995. The Company believes that this population segment is a key buying group of
party goods for children and grandchildren, as well as products for adult
milestone events including birthdays, anniversaries and retirements.
Another factor contributing to growth in the decorative party goods
industry has been the emergence of party goods superstores which, according to
industry analysts, are poised for expansion as national penetration continues.
The Company believes that superstores are popular among consumers because of the
large variety of merchandise and substantial discounts they offer. Industry
analysts report that, over the past several years, the marketplace has begun to
accept a move toward the party goods superstore merchandising concept, similar
to earlier merchandising shifts in such product categories as toys, office
supplies, home furnishings and home improvements.
The Company believes that party goods sales volumes have also increased, in
part, as a result of:
- the creation of new product ensembles both in response to consumer
demand and as a means of stimulating customer purchases;
- the broadening of product lines through the addition of new items and
new accessories within ensembles;
- larger retail environments allowing retailers to employ marketing
techniques which result in increased average sales per customer; and
- the celebration of an increased number of party themes and events, such
as Hawaiian luaus, Mardi Gras and '50s rock-and-roll parties.
The Company believes that by introducing products for new types of
celebrations, offering multiple product ensembles for individual celebrations
(such as multiple Halloween or birthday ensembles) and increasing the number of
"add-on" accessories, party goods suppliers have increased the frequency and
volume of consumer purchases of decorative party goods.
COMPETITIVE STRENGTHS
Leading Supplier to the High Growth and High Volume Party Goods Superstore
Channel. In addition to its long-standing base of business with independent
card and party retailers, the Company believes that its products account for an
increasing portion of the retail sales by major superstore chains, including
Party City Corporation ("Party City"), Party Stores Holdings, Inc. ("Party
Stores Holdings"), Big Party Corporation, The Paper Factory, The Half-Off Card
Shop,
2
<PAGE> 10
Paper Warehouse Inc., and Factory Card Outlet Corp. Approximately 44% of the
Company's sales were generated from superstores last year, and based on
indications from these chains that they intend to continue to expand nationwide,
the Company expects that sales to this segment will continue to grow
significantly.
Single Source Supplier of Decorative Party Goods. The Company provides one
of the most extensive product lines of decorative party goods in the industry,
serving a wide variety of occasions. Amscan produces over 250 different
ensembles, generally containing 30 to 150 coordinated SKUs within each ensemble.
With 14,000 stock keeping units ("SKUs"), the Company is a one-stop shopping,
single-source supplier to retailers of decorative party goods. The Company
believes this breadth of product line provides enough variety that competing
retailers can each purchase Amscan products and still differentiate themselves
by the product they market to the end consumer.
Strong Customer Relationships. The Company has built strong relationships
with its customer base which operates more than 20,000 retail outlets. The
Company strives to provide superior service and, by involving retailers in
product development and marketing, seeks to become a strategic partner to its
customers.
Product Design Leadership. The Company believes one of its strengths is
its leadership in creating innovative designs and party items. The Company
believes its product designs have a level of color, complexity and style that
are attractive to consumers and difficult to replicate. The Company offers
coordinated accessories and novelties which, the Company believes, complement
its tableware designs, enhancing the appeal of its tableware products and
encouraging "add on" impulse purchases.
Strong and Committed Management Team. The Company's management team has
built the business into an industry leader with integrated design,
manufacturing, and distribution capabilities. Current management has been
instrumental in building the Company's strong industry position and in the
Company achieving a 28% CAGR in Adjusted EBITDA since 1991. The management team
and other key employees committed $6.4 million (including restricted stock
grants) to the Transaction.
OPERATIONAL REVIEW
- Design. Amscan's design staff of approximately 70 people develops and
manages the Company's broad line of party goods and keeps the product
line contemporary and fresh by introducing new ensembles each year. For
example, the Company introduced approximately 50 new ensembles for 1997.
- Manufactured Products. The Company is a vertically integrated
manufacturer enabling it to better control costs, monitor quality, manage
inventory and respond quickly to customer needs. The Company's
state-of-the-art facilities in New York, Kentucky, Rhode Island and
California manufacture paper and plastic plates, napkins, cups and other
products. These products constitute approximately 50% of the Company's
net sales. Over the past five years, the Company has purchased or leased
new plant and equipment having an aggregate value of approximately $47
million to support expansion and provide for future growth. Consequently,
the Company believes it is able to expand production by utilizing its
current facilities and equipment.
- Purchased Products. The Company sources approximately 50% of its
products from independently-owned manufacturers, many of whom are located
in the Far East and with whom the Company has long-standing
relationships. The two largest such suppliers operate as exclusive
suppliers to the Company and represent relationships which have been in
place for more than ten years. The Company believes that the quality and
prices of the products manufactured by these suppliers provide a
significant competitive advantage.
3
<PAGE> 11
The Company's business, however, is not dependent upon any single source
of supply for products manufactured for the Company by third parties.
- Sales and Distribution. Amscan's sales and distribution capabilities
are designed to provide a high level of customer service. A domestic
direct employee sales force of approximately 60 professionals services
over 5,000 retail accounts. In addition to this seasoned sales team, the
Company utilizes a select group of manufacturers' representatives to
handle specific account situations. International customers are generally
serviced by employees of the Company's foreign subsidiaries. To support
its marketing effort, the Company produces three catalogues annually, two
for seasonal products and one for everyday products. Products are shipped
from the Company's distribution centers using computer assisted systems
that permit the Company to receive and fill customer orders efficiently
and quickly.
COMPANY STRATEGY
Amscan seeks to become the primary source for consumers' party goods
requirements. The key elements of the Company's strategy are as follows:
- Strengthen Position as a Leading Provider to Party Superstores. The
Company offers convenient "one-stop shopping" for large superstore buyers
and seeks to increase its proportionate share of sales volume and shelf
space in the superstores.
- Offer the Broadest and Deepest Product Line in the Industry. The
Company strives to offer the broadest and deepest product line in the
industry. Amscan helps retailers boost average purchase volume per
consumer through coordinated ensembles that promote "add on" purchases.
- Diversify Distribution Channels, Product Offering and Geographic
Presence. Amscan will seek, through internal growth and acquisitions, to
expand its distribution capabilities internationally, increase its
presence in additional retail channels and further broaden and deepen its
product line.
- Provide Superior Customer Service. The Company strives to achieve high
average fill rates in excess of 95% and ensure short turnaround times.
- Maintain Product Design Leadership. Amscan will continue investing in
art and design to support a steady supply of fresh ideas and create
complex, unique ensembles that appeal to consumers and are difficult to
replicate.
- Maintain State-of-the-Art Manufacturing and Distribution
Technology. Amscan intends to maintain technologically advanced
production and distribution systems in order to enhance product quality,
manufacturing efficiency, cost control and customer satisfaction.
- Pursue Attractive Acquisitions. The Company believes that opportunities
exist to make acquisitions of complementary businesses to leverage the
Company's existing marketing, distribution and production capabilities,
expand its presence in the various retail channels, further broaden and
deepen its product line and penetrate international markets. The Company
receives inquiries from time to time with respect to the possible
acquisition by the Company of other entities and the Company intends to
pursue acquisition opportunities aggressively.
GS CAPITAL PARTNERS II, L.P.
GS Capital Partners II, L.P. ("GSCP II") and its affiliated investment
funds (together with GSCP II, "GSCP") are the primary vehicles of The Goldman
Sachs Group, L.P. ("The Goldman Sachs Group"), for making privately negotiated
equity and equity-related investments in non-real estate transactions. GSCP II
was formed in May 1995 with total committed capital of $1.75 billion,
4
<PAGE> 12
$300 million of which was committed by The Goldman Sachs Group, with the
remainder committed by institutional and individual investors.
Since 1982, The Goldman Sachs Group, directly or through investment
partnerships that it manages, has invested more than $3.7 billion in a
diversified portfolio of over 175 long-term principal investments.
GSCP has invested approximately $61.9 million in the Transaction,
representing approximately 82.5% of the total equity investment.
THE TRANSACTION
Pursuant to an Agreement and Plan of Merger (the "Transaction Agreement"),
dated as of August 10, 1997, by and between the Company and Confetti
Acquisition, Inc. ("MergerCo"), a Delaware corporation affiliated with GSCP, on
December 19, 1997 (the "Effective Time"), MergerCo was merged with and into the
Company (the "Transaction"), with the Company as the surviving corporation. At
the Effective Time, each share of the Common Stock, par value $0.10 per share,
of the Company (the "Company Common Stock"), issued and outstanding immediately
prior to the Effective Time (other than shares of Company Common Stock owned,
directly or indirectly, by the Company or by MergerCo) were converted, at the
election of each of the Company's stockholders, into the right to receive from
the Company either (A) $16.50 in cash (the "Cash Consideration") or (B) $9.33 in
cash plus a retained interest in the Company equal to one share of Company
Common Stock for every 150,000 shares held by such stockholder (the "Mixed
Consideration"), with fractional shares of Company Common Stock paid in cash.
(Together, the Cash Consideration and the Mixed Consideration comprised the
"Transaction Consideration".) The Estate of John A. Svenningsen (the "Estate"),
which owned approximately 72% of the outstanding Company Common Stock
immediately prior to the Effective Time, elected to retain almost 10% of the
outstanding shares of Company Common Stock. No stockholder other than the Estate
elected to retain shares. Also pursuant to the Transaction Agreement, at the
Effective Time each outstanding share of Common Stock, par value $0.10 per
share, of MergerCo ("MergerCo Common Stock"), was converted into an equal number
of shares of Company Common Stock as surviving corporation in the Transaction.
Pursuant to certain employment arrangements, certain employees of the Company
purchased an aggregate of 10 shares of Company Common Stock following the
Effective Time. Accordingly, in the Transaction the 825 shares of MergerCo
Common Stock owned by GSCP immediately prior to the Effective Time were
converted into 825 shares of Company Common Stock, representing approximately
81.7% of the 1,010 issued and outstanding shares of the Company immediately
following the Effective Time.
5
<PAGE> 13
The following table sets forth the sources and uses of cash related to the
Transaction:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
SOURCES OF CASH
Term Loan............................................................. $117,000
Senior Subordinated Notes............................................. 110,000
--------
Total debt....................................................... 227,000
GSCP equity contribution(a)........................................... 61,875
--------
Total....................................................... $288,875
========
USES OF CASH
Purchase equity in the Transaction.................................... $235,916
Redeem Company Stock Options.......................................... 1,901
Repay certain existing debt(b)........................................ 23,908
Debt retirement costs................................................. 1,010
Transaction costs..................................................... 17,152
Cash for working capital purposes..................................... 8,988
--------
Total....................................................... $288,875
========
</TABLE>
- ---------------
(a) In addition to the GSCP equity contribution, certain employees have made an
equity investment in the Company totaling $6.4 million (including
restricted stock grants and $0.8 million contributed by certain employees
immediately following consummation of the Transaction) and the Estate has
retained an interest in the Company of $7.5 million, together constituting
$13.9 million valued at the price per share paid by GSCP.
(b) Excludes existing mortgages on real property owned by Subsidiaries of the
Company in the amount of approximately $5.9 million, capital lease
obligations of approximately $4.6 million, and borrowings under a revolving
credit agreement of a Non-Guarantor Subsidiary of approximately $0.6
million each as of December 19, 1997. All other outstanding debt of the
Company was extinguished at or prior to the completion of the Transaction.
The senior debt portion of the financing for the Transaction was provided
pursuant to a credit agreement (the "Bank Credit Agreement") with Goldman Sachs
Credit Partners L.P. ("GS Credit Partners") and certain other lenders. In
connection with such financing, Goldman Sachs acted as Syndication Agent,
Documentation Agent and Arranger, and Fleet National Bank ("Fleet") is acting as
Administrative Agent. See "Description of Senior Debt" and "Certain
Transactions". The senior debt financing and the financing provided by the Note
Offering is referred to as the "Transaction Financings".
6
<PAGE> 14
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company as of September 30, 1997, and on a pro forma basis to give effect
to the Transaction, including the Transaction Financings and the application of
the proceeds therefrom, as if they had occurred on September 30, 1997. See "Use
of Proceeds". The information set forth below should be read in conjunction with
the Company's Transaction Pro Forma Consolidated Financial Data, the Company's
Consolidated Financial Statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
----------------------------
TRANSACTION
HISTORICAL PRO FORMA
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.......................................... $ 684 $ 3,975
Total debt (including current portion)
Revolving Credit Facility(1)..................................... $ -- $ --
Term Loan........................................................ -- 117,000
Existing revolving credit facility............................... 9,550 --
Senior Subordinated Notes........................................ -- 110,000
Mortgages........................................................ 6,072 6,072
Capital leases and other......................................... 24,782 4,727
--------- ---------
Total debt.................................................... 40,404 237,799
Stockholders' equity (deficit)(2).................................. 89,002 (95,288)
--------- ---------
Total capitalization............................................. $ 129,406 $ 142,511
========= =========
</TABLE>
- ---------------
(1) The Company has the ability to borrow up to $50 million pursuant to its
Revolving Credit Facility. The Revolving Credit Facility is available to
the Company for working capital purposes and acquisitions, subject to
certain limitations and restrictions. See "Description of Senior Debt".
(2) Upon completion of the Transaction, the Company had a negative net worth for
accounting purposes. In the Transaction, GSCP paid $61.9 million for
approximately 82.5% of the Company Common Stock. In addition, certain
employees of the Company acquired and the Estate retained approximately
7.5% and almost 10%, respectively, of the Company Common Stock which, based
upon the price per share paid by GSCP, has an aggregate value of
approximately $13.1 million. Combined with GSCP's payment of $61.9 million,
these holdings have an aggregate value of approximately $75.0 million.
7
<PAGE> 15
THE NOTE OFFERING
THE NOTES.................. The Notes were sold by the Company on December 19,
1997, and were subsequently resold to qualified
institutional buyers pursuant to Rule 144A under
the Securities Act and to certain persons in
transactions outside the United States in reliance
on Regulation S under the Securities Act (the "Note
Offering").
REGISTRATION RIGHTS
AGREEMENT................ In connection with the Note Offering, the Company
entered into the Registration Rights Agreement,
which grants holders ("Holders") of the Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such exchange
and registration rights, which generally terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED......... $110,000,000 aggregate principal amount of 9 7/8%
Senior Subordinated Notes due December 15, 2007.
THE EXCHANGE OFFER......... $1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of Notes.
As of the date hereof, $110,000,000 principal
amount of Notes are outstanding. The Company will
issue the Exchange Notes to holders on or promptly
after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Notes may be offered for resale,
resold and otherwise transferred by any Holder
thereof (other than any such Holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and that
such holder does not intend to participate and has
no arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales
of Exchange Notes received in exchange for Notes
where such Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities. The Company
has agreed that for a period of 195 days after the
Registration Statement is declared effective, it
will make this
8
<PAGE> 16
Prospectus available to any broker-dealer for use
in connection with any such resale.
Any Holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes may not rely on the position of the staff of
the Commission enunciated in Exxon Capital Holdings
Corporation (available April 13, 1989), Morgan
Stanley & Co., Inc. (available June 5, 1991) or
similar no-action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with the resale
of the Exchange Notes. Failure to comply with such
requirements in such instance may result in such
Holder incurring liability under the Securities Act
for which the Holder is not indemnified by the
Company.
The Exchange Offer is not being made to, nor will
the Company accept surrenders for exchange from,
Holders of 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. Prior to the Exchange
Offer, however, the Company will take such actions
it deems necessary or advisable to register or
qualify the Exchange Notes for offer and sale under
the securities or blue sky laws of such
jurisdictions as is necessary to permit
consummation of the Exchange Offer and to enable
the offer and sale in such jurisdiction of the
Exchange Notes.
EXPIRATION DATE............ 5:00 p.m., New York City time, on March , 1998,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
INTEREST ON THE EXCHANGE
NOTES AND THE NOTES...... The Exchange Notes will bear interest from December
19, 1997, the date of issuance of the Notes that
are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date (as defined
below in the Summary of Terms of Exchange Notes) to
which interest on such Notes has been paid).
Accordingly, Holders of Notes that are accepted for
exchange will not receive interest on the Notes
that is accrued but unpaid at the time of tender,
but such interest will be payable on the first
Interest Payment Date after the Expiration Date.
CONDITIONS TO THE EXCHANGE
OFFER.................... Notwithstanding any other term of the Exchange
Offer, the Company shall not be required to accept
for exchange, or to exchange Exchange Notes for,
any Notes, and may terminate or amend the Exchange
Offer as provided herein before the acceptance of
such Notes, if: (a) any law, statute, rule,
regulation or interpretation by the staff of the
Commission is proposed, adopted or enacted, which,
in the reasonable judgment of the Company, might
materially impair the ability of the Company to
proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange
Offer to the Company; or (b) any governmental
approval has not been obtained, which approval the
Company shall,
9
<PAGE> 17
in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated
hereby. See "The Exchange Offer -- Conditions".
PROCEDURES FOR TENDERING
NOTES.................... Each Holder of Notes wishing to accept the Exchange
Offer must complete, sign and date the accompanying
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Notes and any other required documentation
to the Exchange Agent at the address set forth in
the Letter of Transmittal. By executing the Letter
of Transmittal, each Holder will represent to the
Company that, among other things, the Holder or the
person receiving such Exchange Notes, whether or
not such person is the Holder, is acquiring the
Exchange Notes in the ordinary course of business
and that neither the Holder nor any such other
person has any arrangement or understanding with
any person to participate in the distribution of
such Exchange Notes. In lieu of physical delivery
of the certificates representing Notes, tendering
Holders may transfer Notes pursuant to the
procedure for book-entry transfer as set forth
under "The Exchange Offer -- Procedures for
Tendering".
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ Any beneficial owner whose 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
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 its Notes, either make appropriate
arrangements to register ownership of the 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.
GUARANTEED DELIVERY
PROCEDURES............... Holders of Notes who wish to tender their Notes and
whose Notes are not immediately available or who
cannot deliver their Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent (or
comply with the procedures for book-entry transfer)
prior to the Expiration Date must tender their
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures".
WITHDRAWAL RIGHTS.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date
pursuant to the procedures described under "The
Exchange Offer -- Withdrawals of Tenders".
10
<PAGE> 18
ACCEPTANCE OF NOTES
AND DELIVERY OF
EXCHANGE NOTES........... The Company will accept for exchange any and all
Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer".
FEDERAL INCOME TAX
CONSEQUENCES............. The issuance of the Exchange Notes to Holders of
the Notes pursuant to the terms set forth in this
Prospectus will not constitute an exchange for
federal income tax purposes. Consequently, no gain
or loss would be recognized by Holders of the Notes
upon receipt of the Exchange Notes. See "Certain
Federal Income Tax Consequences of the Exchange
Offer".
EFFECT ON HOLDERS OF
NOTES...................... As a result of the making of this Exchange Offer,
the Company will have fulfilled certain of its
obligations under the Registration Rights
Agreement, and Holders of Notes who do not tender
their Notes will generally not have any further
registration rights under the Registration Rights
Agreement or otherwise. Such Holders will continue
to hold the untendered Notes and will be entitled
to all the rights and will be subject to all the
limitations applicable thereto under the Indenture,
except to the extent such rights or limitations, by
their terms, terminate or cease to have further
effectiveness as a result of the Exchange Offer.
All untendered Notes will continue to be subject to
certain restrictions on transfer. Accordingly, if
any Notes are tendered and accepted in the Exchange
Offer, the trading market for the untendered Notes
could be adversely affected.
EXCHANGE AGENT............. IBJ Schroder Bank & Trust Company.
11
<PAGE> 19
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes (which they replace) except that (i) the Exchange Notes have been
registered under the Securities Act of 1933, as amended (the "Securities Act")
and, therefore, will not bear legends restricting the transfer thereof and (ii)
the Holders of Exchange Notes generally will not be entitled to further
registration rights under the Registration Rights Agreement, which rights
generally will be satisfied when the Exchange Offer is consummated. The Exchange
Notes will evidence the same debt as the Notes and will be entitled to the
benefits of the Indenture. See "Description of Exchange Notes".
ISSUER..................... Amscan Holdings, Inc.
SECURITIES OFFERED......... $110.0 million principal amount of 9 7/8% Senior
Subordinated Notes due December 15, 2007 (the
"Exchange Notes").
MATURITY DATE.............. December 15, 2007
GUARANTEES................. The Company's payment obligations under the
Exchange Notes will be jointly and severally
guaranteed on a senior subordinated basis (the
"Senior Subordinated Guarantees") by the current
domestic Subsidiaries of the Company and by each
other Subsidiary of the Company that acts as a
guarantor under the Bank Credit Agreement
(collectively, the "Guarantors"). The Senior
Subordinated Guarantees will be subordinated to the
guarantees of Senior Debt (as defined herein)
issued by the Guarantors under the Bank Credit
Agreement. See "Description of Notes -- Senior
Subordinated Guarantees".
INTEREST PAYMENT DATES..... Interest accrues from December 19, 1997 at an
annual rate of 9 7/8% and will be payable in cash
semi-annually in arrears on June 15 and December 15
of each year, commencing June 15, 1998.
OPTIONAL REDEMPTION........ Except as described below, the Exchange Notes are
not redeemable at the Company's option prior to
December 15, 2002. From and after December 15,
2002, the Exchange Notes will be subject to
redemption at the option of the Company, in whole
or in part, from time to time, at the redemption
prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption.
In addition, at any time prior to December 15,
2000, up to an aggregate of 35% of the principal
amount of Notes and Exchange Notes will be
redeemable at the option of the Company, on one or
more occasions, from the net proceeds of public or
private sales of common stock of, or contributions
to the common equity capital of, the Company, at a
price of 109.875% of the principal amount of the
Notes and Exchange Notes, together with accrued and
unpaid interest, if any, to the date of redemption;
provided that at least $65.0 million in aggregate
principal amount of Notes and Exchange Notes
remains outstanding immediately after each such
redemption.
CHANGE OF CONTROL.......... At any time on or prior to December 15, 2002, the
Exchange Notes may also be redeemed as a whole but
not in part at the option of the Company upon the
occurrence of a Change of Control at a redemption
price equal to 100% of the principal amount thereof
12
<PAGE> 20
plus the Applicable Premium, together with accrued
and unpaid interest, if any, to the date of
redemption.
If the Company does not redeem the Exchange Notes
upon a Change of Control, the Company will be
obligated to make an offer to purchase the Exchange
Notes, in whole or in part, at a price equal to
101% of the aggregate principal amount of the
Exchange Notes, plus accrued and unpaid interest,
if any, to the date of purchase. If a Change of
Control were to occur, the Company may not have the
financial resources to repay all of its obligations
under the Bank Credit Agreement, the Indenture and
the other indebtedness that would become payable
upon the occurrence of such Change of Control. See
"Risk Factors -- Payment Upon a Change of Control"
and "Description of Exchange Notes".
RANKING.................... The Exchange Notes will be general, unsecured
obligations of the Company, will be subordinated in
right of payment to all Senior Debt of the Company,
will rank pari passu with all senior subordinated
debt of the Company and will be senior in right of
payment to all existing and future subordinated
debt of the Company. The claims of Holders of the
Exchange Notes will be subordinated to the Senior
Debt, which, as of September 30, 1997, on a pro
forma basis giving effect to the Transaction and
the Transaction Financings, would have been
approximately $128 million, $117 million of which
would have been fully secured borrowings under the
Bank Credit Agreement. The claims of Holders will
be effectively subordinated to indebtedness and
other liabilities of the Company's Non-Guarantor
Subsidiaries (as defined herein) through which the
Company conducts a portion of its operations which
indebtedness and other liabilities were
approximately $3 million as of September 30, 1997.
See "The Transaction", "Capitalization" and
"Description of Exchange Notes -- Subordination".
CERTAIN COVENANTS.......... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries (as defined
herein) to incur additional indebtedness and issue
Disqualified Stock (as defined herein), pay
dividends or distributions or make investments or
make certain other Restricted Payments (as defined
herein), enter into certain transactions with
affiliates, dispose of assets (including
limitations on the form of consideration to be
received and the use of proceeds therefrom), incur
liens securing pari passu and subordinated
indebtedness of the Company and engage in mergers
and consolidations. See "Description of Exchange
Notes".
EXCHANGE OFFER;
REGISTRATION RIGHTS........ If any Holder of Transfer Restricted Securities (as
defined in the Registration Rights Agreement)
notifies the Company on or prior to the 20th
Business Day following consummation of the Exchange
Offer that it alone or together with Holders who
hold in the aggregate at least $1.0 million in
principal amount of Notes (A) is prohibited by law
or Commission policy from participating in the
Exchange Offer or (B) may not resell the Exchange
Notes acquired by it in the Exchange Offer to the
public without deliver-
13
<PAGE> 21
ing a prospectus and the prospectus contained in
the Exchange Offer Registration Statement is not
appropriate or available for such resales or (C) is
a broker-dealer and owns Notes acquired directly
from the Company or an affiliate of the Company,
the Company and the Guarantors will use their best
efforts to file with the Commission a shelf
registration statement (the "Shelf Registration
Statement") to cover resales of the Notes by the
Holders thereof who satisfy certain conditions
relating to the provision of information in
connection with the Shelf Registration Statement.
Notwithstanding the foregoing, at any time after
Consummation (as defined in the Registration Rights
Agreement) of the Exchange Offer, the Company and
the Guarantors may allow the Shelf Registration
Statement to cease to be effective and usable if
(i) the Board of Directors of the Company
determines in good faith that such action is in the
best interests of the Company, and the Company
notifies the Holders within a certain period of
time after the Board of Directors makes such
determination or (ii) the prospectus contained in
the Shelf Registration Statement or the Shelf
Registration Statement contains an untrue statement
of a material fact required to be stated therein or
omits 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; provided that the period referred to in
the Registration Rights Agreement during which the
Shelf Registration Statement is required to be
effective and usable will be extended by the number
of days during which such registration statement
was not effective or usable pursuant to the
foregoing provisions.
If (a) the Company and the Guarantors fail to file
either of the Registration Statements required by
the Registration Rights Agreement on or before the
date specified for such filing, (b) either of such
Registration Statements is not declared effective
by the Commission on or prior to the date specified
for such effectiveness (the "Effectiveness Target
Date"), (c) the Company and the Guarantors fail to
consummate the Exchange Offer within 45 days of the
Effectiveness Target Date with respect to the
Exchange Offer Registration Statement, or (d) the
Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but
thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted
Securities during the periods specified in the
Registration Rights Agreement (each such event
referred to in clauses (a) through (d) above a
"Registration Default"), then, subject to the last
sentence of the preceding paragraph, the Company
will pay Liquidated Damages to each Holder of
Transfer Restricted Securities, with respect to the
first 90-day period immediately following the
occurrence of such Registration Default in an
amount equal to $0.05 per week per $1,000 in
principal amount of Notes constituting Transfer
Restricted Securities held by such Holder. The
amount of the Liquidated Damages will increase by
an additional $0.05 per week per $1,000 in
principal amount of Notes constituting Transfer
Restricted Securities with respect to each
subsequent 90-day period until all Registration
14
<PAGE> 22
Defaults have been cured, up to a maximum amount of
Liquidated Damages of $0.50 per week per $1,000 in
principal amount of Notes constituting Transfer
Restricted Securities. All accrued Liquidated
Damages will be paid by the Company in cash on each
Damages Payment Date (as defined in the
Registration Rights Agreement) to the Global Note
Holder (and any Holder of Certificated Securities
who has given wire transfer instructions to the
Company at least 10 Business Days prior to the
Damages Payment Date) by wire transfer of
immediately available funds and to all other
Holders of Certificated Securities by mailing
checks to their registered addresses. Following the
cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
RISK FACTORS
See "Risk Factors" beginning on page 20 for a discussion of certain factors
that should be considered in evaluating an investment in the Exchange Notes.
15
<PAGE> 23
SELECTED HISTORICAL AND TRANSACTION PRO FORMA
CONSOLIDATED AND COMBINED FINANCIAL AND OTHER DATA
The following table sets forth selected historical and Transaction pro
forma consolidated and combined financial and other data for the Company. The
historical consolidated and combined financial statements for the Company's four
most recent fiscal years have been audited. The selected historical income
statement data for the three years ended December 31, 1996 and balance sheet
data as of December 31, 1996 and 1995 have been derived from, and should be read
in conjunction with, the audited consolidated and combined financial statements
of the Company and the related notes thereto appearing elsewhere in this
Prospectus. The selected historical data presented below as of December 31,
1992, and for the year then ended, are derived from unaudited combined financial
statements of Amscan Inc. and certain affiliated companies. The selected
historical financial data for the nine month periods ended September 30, 1997
(unaudited) and 1996 (previously audited) have been derived from, and should be
read in conjunction with, the consolidated and combined financial statements of
the Company and the related notes thereto appearing elsewhere in this
Prospectus. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation have
been included in the unaudited consolidated and combined financial statements of
the Company. Results for the nine months ended September 30, 1997 are not
necessarily indicative of results that can be expected for the entire 1997
fiscal year. See "Index to Financial Statements".
The selected Transaction pro forma data is unaudited and intended to
present the effect of certain transactions that have occurred in connection with
the consummation of the Transaction. The selected Transaction pro forma
consolidated statement of income data for the periods presented give effect to
the Transaction as if it were consummated as of January 1, 1996. The selected
Transaction pro forma consolidated statement of income data for the year ended
December 31, 1996 and the twelve months ended September 30, 1997 also include
supplemental pro forma adjustments to give effect to certain events that
occurred in conjunction with the organization of the Company and its
subsidiaries (the "Organization") and the Company's initial public offering in
December 1996 (the "IPO") as if they had occurred as of January 1, 1996. The
selected Transaction pro forma consolidated balance sheet data gives effect to
the Transaction as though it had occurred on September 30, 1997. The historical
and the Transaction pro forma consolidated and combined data should be read in
conjunction with "Capitalization", "Unaudited Transaction Pro Forma Consolidated
Financial Data" and the notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
contained elsewhere in this Prospectus.
16
<PAGE> 24
SELECTED HISTORICAL AND TRANSACTION PRO FORMA
CONSOLIDATED AND COMBINED FINANCIAL AND OTHER DATA
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
ENDED ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------------- ------------------------------ -------------
TRANSACTION TRANSACTION TRANSACTION
PRO FORMA PRO FORMA PRO FORMA
1992 1993 1994 1995 1996 1996 1996 1997 1997 1997
----- ------ ------ ------ ------- ----------- ------ ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IN COME STATEMENT
DATA:
Net sales............. $86.9 $108.9 $132.0 $167.4 $ 192.7 $ 192.7 $147.0 $ 161.3 $ 161.3 $ 207.0
Cost of sales......... 56.5 72.6 86.7 108.7 123.9 123.9 92.9 103.5 103.5 134.5
----- ----- ----- ----- ----- ---------- ----- ----- ------- --- ------- ---
Gross profit.......... 30.4 36.3 45.3 58.7 68.8 68.8 54.1 57.8 57.8 72.5
Selling expenses...... 8.8 9.8 11.3 12.2 11.8 11.8 8.7 9.6 9.6 12.7
General and
administrative
costs................ 9.3 11.1 14.5 15.0 19.3 20.0 14.1 13.2 13.3 18.7
Art and development
costs................ 1.6 2.6 2.8 4.3 5.2 5.2 3.6 3.9 3.9 5.4
Nonrecurring
compensation in
connection with the
IPO(a)............... 15.5
Special bonuses(b).... 0.8 1.1 2.2 2.5 4.2 3.3
----- ----- ----- ----- ----- ---------- ----- ----- ------- --- ------- ---
Income from
operations........... 9.9 11.7 14.5 24.7 12.8 31.8 24.4 31.1 31.0 35.7
Interest expense,
net.................. 2.1 2.3 3.8 5.8 6.7 23.0 4.6 2.7 16.9 23.1
Other (income)
expense, net......... 0.0 0.3 0.1 (0.3) 0.4 0.4 (0.3) (0.2) (0.2) 0.4
----- ----- ----- ----- ----- ---------- ----- ----- ------- --- ------- ---
Income before income
taxes and minority
interests............ 7.8 9.1 10.6 19.2 5.7 8.4 20.1 28.6 14.3 12.2
Income taxes.......... 0.3 0.3 0.4 0.7 2.0 3.6 0.8 11.6 5.8 4.9
Minority interests.... 0.0 0.3 0.2 1.1 1.6 0.2 1.2 0.1 0.1 0.2
----- ----- ----- ----- ----- ---------- ----- ----- ------- --- ------- ---
Net income............ $ 7.5 $ 8.5 $ 10.0 $ 17.4 $ 2.1 $ 4.6 $ 18.1 $ 16.9 $ 8.4 $ 7.1
===== ===== ===== ===== ===== ========== ===== ===== ========== ==========
Pro forma net income
per share............ $ 4,556 $16,734 $ 8,284 $ 6,984
Pro forma weighted
average common shares
outstanding(e)....... 1,010 1,010 1,010 1,010
PRO FORMA DATA
(RELATING TO CHANGE
IN TAX STATUS PRIOR
TO ORGANIZATION AND
IPO:
Income before income
taxes................ $ 7.7 $ 8.8 $ 10.4 $ 18.2 $ 4.1 $ 18.9
Pro forma income
taxes(c)............. 3.2 3.6 4.2 7.4 1.8 7.9
----- ----- ----- ----- ----- -----
Pro forma net
income(c)............ $ 4.5 $ 5.2 $ 6.2 $ 10.8 $ 2.3 $ 11.0
===== ===== ===== ===== ===== =====
Pro forma net income
used for pro forma
net income per share
calculation(d)....... $12,010
Pro forma net income
per share............ $11,891
Pro forma weighted
average common shares
outstanding(e)....... 1,010
NON-GAAP FINANCIAL
DATA:
Adjusted EBITDA(f).... $12.6 $ 15.5 $ 20.4 $ 31.6 $ 37.7 $ 37.2 $ 31.3 $ 35.6 $ 35.5 $ 41.8
Adjusted EBITDA
margin............... 14.5% 14.2% 15.4% 18.9% 19.5% 19.3% 21.3% 22.1% 22.0% 20.2%
Adjusted EBITDA to
cash interest
expense.............. 1.9x
Adjusted EBITDA minus
cash capital
expenditures to cash
interest expense..... 1.5
Total debt to Adjusted
EBITDA(g)............ 5.7
OTHER FINANCIAL DATA:
Gross margin.......... 34.9% 33.3% 34.3% 35.1% 35.7% 35.7% 36.8% 35.9% 35.9% 35.0%
Depreciation and
amortization......... $ 1.8 $ 2.6 $ 3.7 $ 4.3 $ 5.1 $ 5.4 $ 3.6 $ 4.5 $ 4.5 $ 6.1
Cash capital
expenditures......... 3.1 4.7 7.4 4.5 7.6 7.6 5.6 6.9 6.9 8.9
Earnings to fixed
charges(h)........... 4.0x 3.7x 3.2x 3.8x 1.7x 1.3x 4.3x 7.7x 1.8x 1.5x
CASH FLOW STATEMENT
DATA:
Cash flow from
operations........... $ 5.3 $ 9.9 $ 5.1 $ 4.7 $ 12.3 $ 1.6 $ 8.5
Cash flows from
investing............ (3.1) (6.9) (7.3) (4.5) (7.6) (5.6) (6.8)
Cash flows from
financing............ (3.2) (1.9) 2.8 0.1 (6.0) 5.0 (2.5)
BALANCE SHEET DATA:
Working capital....... $ 7.8 $ 4.7 $ (0.4) $ 8.4 $ 45.4 $ 2.1 $ 74.9 $ 96.3
Total assets.......... 60.7 80.1 93.9 114.6 140.3 138.3 162.8 171.5
Total debt............ 37.1 49.1 59.7 70.8 48.3 98.6 40.4 237.8
Stockholders' equity
(deficit)............ 15.6 18.5 20.8 27.2 67.9 24.6 89.0 (95.3)
</TABLE>
17
<PAGE> 25
NOTES TO SELECTED HISTORICAL AND TRANSACTION PRO FORMA CONSOLIDATED
AND COMBINED FINANCIAL AND OTHER DATA
(DOLLARS IN MILLIONS)
(a) In conjunction with the IPO, the Company recorded non-recurring compensation
expense of $15.5 in 1996, including stock and cash payments of $12.5 to
certain executives in connection with the termination of prior employment
agreements and $3.0 for the establishment of an Employee Stock Ownership
Plan for the benefit of the employees of Amscan Holdings, Inc. and the
payment of stock bonuses to certain of such employees.
(b) In each of the five years ended December 31, 1996 and for the nine months
ended September 30, 1996, special bonus arrangements existed with certain
members of management. In connection with the IPO, such special bonus
arrangements were substantially modified and generally replaced by
incentives tied to the value of Company Common Stock.
(c) Prior to the consummation of the IPO, Amscan Inc., Am-Source, Inc. and
certain other subsidiaries of the Company elected to be taxed as S
corporations under the Internal Revenue Code of 1986, as amended. The pro
forma net income amounts give effect to pro forma income tax amounts for
each of the periods shown at statutory rates (40.5%) assuming these
subsidiaries had not elected S corporation status.
(d) Pro forma net income used for the pro forma net income per share calculation
for the year ended December 31, 1996 is higher than the pro forma net
income shown for such period due to adjustments described in Note (16) of
the Notes to Consolidated Financial Statements. See "Notes to Consolidated
Financial Statements -- December 31, 1996."
(e) Represents the number of common shares outstanding after the Effective Time
as described in Note (16) of the Notes to Consolidated Financial
Statements. See "Notes to Consolidated Financial Statements -- December 31,
1996."
(f) "EBITDA" represents earnings before interest, income taxes, depreciation and
amortization. "Adjusted EBITDA" represents EBITDA adjusted for certain
items reflected in the following table. Neither EBITDA nor Adjusted EBITDA
is intended to represent cash flow from operations as defined by generally
accepted accounting principles and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. EBITDA and Adjusted
EBITDA are presented because they are widely accepted financial indicators
of a leveraged company's ability to service and/or incur indebtedness and
because management believes EBITDA and Adjusted EBITDA are relevant
measures of the Company's ability to generate cash without regard to the
Company's capital structure or working capital needs. EBITDA and Adjusted
EBITDA as presented may not be comparable to similarly titled measures used
by other companies, depending upon the non-cash charges included. When
evaluating EBITDA and Adjusted EBITDA, investors should consider that
EBITDA and Adjusted EBITDA (i) should not be considered in isolation but
together with other factors which may influence operating and investing
activities such as changes in operating assets and liabilities and
purchases of property and equipment, (ii) are not a measure of performance
calculated in accordance with generally accepted accounting principles,
(iii) should not be construed as an alternative or substitute for income
from operations, net income or cash flows from operating activities in
analyzing the Company's operating performance, financial position or cash
flows and (iv) should not be used as an indicator of the Company's
operating performance or as a measure of its liquidity.
18
<PAGE> 26
<TABLE>
<CAPTION>
TWELVE MONTHS
NINE MONTHS ENDED ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------- ----------------------------- -------------
TRANSACTION TRANSACTION TRANSACTION
PRO FORMA PRO FORMA PRO FORMA
1992 1993 1994 1995 1996 1996 1996 1997 1997 1997
----- ------ ------ ------ ------ ----------- ------ ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA.................. $11.8 $ 13.8 $ 17.9 $ 28.3 $ 15.9 $ 36.6 $ 27.1 $ 35.7 $ 35.6 $ 41.2
Adjustments-increase
(decrease):
Special bonuses and
non-recurring
compensation......... 0.8 1.1 2.2 2.5 19.8 3.3
Other (income) expense,
net.................. 0.3 0.1 (0.3) 0.4 0.4 (0.3) (0.2) (0.2) 0.4
Minority interests..... 0.3 0.2 1.1 1.6 0.2 1.2 0.1 0.1 0.2
----- ----- ----- ----- ----- ---------- ----- ----- ------- --- ------- ---
Adjusted EBITDA......... $12.6 $ 15.5 $ 20.4 $ 31.6 $ 37.7 $ 37.2 $ 31.3 $ 35.6 $ 35.5 $ 41.8
===== ===== ===== ===== ===== ========== ===== ===== ========== ==========
</TABLE>
(g) For purposes of determining the ratio of total debt to Adjusted EBITDA for
the twelve months ended September 30, 1997, total debt on a pro forma basis
reflects $10.8 of aggregate principal indebtedness under existing mortgage
notes on real property owned by subsidiaries of the Company and capital
lease obligations, $117.0 in aggregate principal amount of indebtedness
under the Term Loan, and $110.0 in aggregate principal amount of the
Exchange Notes offered hereby.
(h) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and minority interests plus
fixed charges. Fixed charges consist of interest expense on all
obligations, amortization of deferred financing costs and one-third of the
rental expense on operating leases representing that portion of rental
expense deemed by the Company to be attributable to interest.
19
<PAGE> 27
RISK FACTORS
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
The Company is, and will continue to be, highly leveraged as a result of
the substantial indebtedness it has incurred in connection with the Transaction.
As of September 30, 1997, after giving pro forma effect to the Transaction and
the Transaction Financings and the application of the net proceeds therefrom,
the Company (i) would have had approximately $238 million of consolidated
indebtedness and (ii) because the distribution to stockholders and all of the
expenses relating to the Transaction will be charged to earnings and
stockholders' equity, would have had a deficit of approximately $95 million of
consolidated stockholders' equity. Of the total of approximately $289 million
used to consummate the Transaction, approximately $227 million (79%) was funded
with debt, and approximately $62 million (21%) was funded by new equity, with
current stockholders of the Company retaining almost 10% of the Company. After
giving pro forma effect to such transactions, the Company's ratio of earnings to
fixed charges would have been 1.5x for the twelve months ended September 30,
1997. Pro forma interest expense for the twelve months ended September 30, 1997
would have been approximately $23 million. The Company may incur additional
indebtedness in the future, subject to limitations imposed by the Indenture and
the Bank Credit Agreement. See "Capitalization" and "Transaction Pro Forma
Consolidated Financial Data".
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the Exchange Notes) and
to satisfy its other obligations will depend upon its future performance, which,
to a certain extent, will be subject to general economic, financial,
competitive, business and other factors beyond its control. Based upon the
current level of operations and anticipated growth, the Company believes that
available cash flow, together with available borrowings under the Bank Credit
Agreement, will be adequate to meet its anticipated future requirements for
working capital and operating expenses, to finance potential acquisitions and to
service its debt requirements as they become due. However, a portion of the
principal payments at maturity on the Exchange Notes may require refinancing.
There can be no assurance that the Company's business will generate sufficient
cash flow from operations or that future borrowings will be available in an
amount sufficient to enable the Company to service its indebtedness, including
the Exchange Notes, or make necessary or desirable capital expenditures or
acquisitions, or that any refinancing would be available on commercially
reasonable terms or at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
The degree to which the Company is now leveraged could have important
consequences to the Company, including the following: (a) the Company's ability
to obtain additional financing for acquisitions, working capital, capital
expenditures or other purposes may be impaired and any such financing, if
available, may not be on terms favorable to the Company; (b) any interest
expense or other debt service may reduce the funds that would otherwise be
available to the Company for its operations and future business opportunities;
(c) certain of the Company's borrowings are at variable rates of interest, which
could result in higher interest expense in the event of increases in interest
rates; (d) a substantial decrease in cash flows from operations or an increase
in expenses of the Company could make it difficult for the Company to meet its
debt service requirements or force it to modify its operations; and (e) high
leverage may place the Company at a competitive disadvantage and may make it
vulnerable to a downturn in its business or the economy generally.
In addition, the Bank Credit Agreement and the Indenture contain financial
and other restrictive covenants that limit the ability of the Company to, among
other things, borrow additional funds and dispose of assets, and require the
Company to maintain certain financial ratios. Failure by the Company to comply
with these covenants could result in an event of default which, if not cured or
waived, could have a material adverse effect on the Company. In addition, the
degree to which the Company is leveraged could prevent it from repurchasing all
of the Exchange Notes tendered to it
20
<PAGE> 28
upon the occurrence of a Change of Control. See "Description of Senior Debt" and
"Description of Exchange Notes".
SUBORDINATION; ASSET ENCUMBRANCES
The Exchange Notes will be subordinated in right of payment to all existing
and future Senior Debt, including the principal of (and premium, if any) and
interest on and all other amounts due on or payable in connection with Senior
Debt. At September 30, 1997, on a pro forma basis after giving effect to the
Transaction and the Transaction Financings, there would have been outstanding
approximately $128 million of Senior Debt, $117 million of which would have been
fully secured borrowings under the Bank Credit Agreement. In addition, the
Exchange Notes will be effectively subordinated to indebtedness and other
liabilities of the Company's Non-Guarantor Subsidiaries through which the
Company conducts a portion of its operations, which indebtedness and other
liabilities were approximately $3 million as of September 30, 1998. By reason of
such subordination, in the event of the insolvency, liquidation, reorganization,
dissolution or other winding-up of the Company or upon a default in payment with
respect to, or the acceleration of, any Senior Debt, the holders of such
accelerated Senior Debt and any other creditors who are holders of Senior Debt
and creditors of Non-Guarantor Subsidiaries must be paid in full before Holders
of the Exchange Notes may be paid. In addition, no payments may be made with
respect to the principal of (and premium, if any) or interest on the Exchange
Notes if a payment default exists with respect to Senior Debt and, under certain
circumstances, no payments may be made with respect to the principal of (and
premium, if any) or interest on the Exchange Notes for a period of up to 179
days if a non-payment default exists with respect to Senior Debt. In addition,
the Indenture permits Subsidiaries of the Company to incur debt under certain
circumstances. Any debt incurred by a Non-Guarantor Subsidiary of the Company
will be structurally senior to the Exchange Notes. See "Description of Exchange
Notes".
The Company has granted to the lenders under the Bank Credit Agreement
security interests in substantially all of the current and future assets of the
Company, including a pledge of all of the issued and outstanding shares of
capital stock of certain of the Company's Subsidiaries. In addition, the
Guarantors have granted to such lenders security interests in substantially all
of the current and future assets of the Guarantors. In the event of a default on
secured indebtedness, including the Senior Subordinated Guarantees (whether as a
result of the failure to comply with a payment or other covenant, a
cross-default, or otherwise), the parties granted security interests will have a
prior secured claim on the assets of the Company and the Guarantors. If these
parties should attempt to foreclose on their collateral, the Company's financial
condition and the value of the Exchange Notes will be materially adversely
affected. See "Description of Senior Debt".
HOLDING COMPANY STRUCTURE
The Company conducts all of its business through Subsidiaries and has no
operations of its own. The Company is dependent on the cash flow of its
Subsidiaries and distributions thereof from its Subsidiaries to the Company in
order to meet its debt service obligations. It is not expected that the Company
will have any assets other than the common stock of its Subsidiaries.
As of September 30, 1997, on a pro forma basis after giving effect to the
Transaction and the Transaction Financings, the aggregate amount of indebtedness
and other obligations of the Non-Guarantor Subsidiaries would have been
approximately $3 million. As a result of the holding company structure of the
Company, Holders of the Exchange Notes will be structurally junior to all
creditors of the Non-Guarantor Subsidiaries, except to the extent that the
Company or a Guarantor is itself recognized as a creditor of such Non-Guarantor
Subsidiary, in which case the claims of the Company or such Guarantor would
still be subordinate to any security in the assets of such Non-Guarantor
Subsidiary and any indebtedness of such Non-Guarantor Subsidiary senior to that
held by the Company or a Guarantor. In the event of the insolvency, liquidation,
reorganization, dissolution or other winding-up of the Non-Guarantor
Subsidiaries, the Company will not receive
21
<PAGE> 29
funds available to pay to Holders of the Exchange Notes in respect of the
Exchange Notes until after the payment in full of the claims of the creditors of
the Non-Guarantor Subsidiaries.
DEPENDENCE ON KEY PERSONNEL
The Company's success will continue to depend to a significant extent on
its executives, managers and other key personnel. Although the Company has
entered into employment agreements with certain employees, pursuant to which
such employees acquired an equity interest in the Company, there can be no
assurance that the Company will be able to retain these executives or other
managers and key personnel or to attract additional qualified management in the
future. The loss of the services of Gerald C. Rittenberg, Chief Executive
Officer, William S. Wilkey, Senior Vice President -- Sales and Marketing of the
Company or James M. Harrison, President, Chief Financial Officer and Treasurer
of the Company, could have an adverse effect on the Company's financial
condition or results of operations. The Company does not maintain key-man life
insurance on any of these executives.
CONTROL BY GSCP; CERTAIN PAYMENTS TO GOLDMAN, SACHS & CO.
Goldman Sachs and its affiliates have certain interests in the Transaction
and in the Company. Terence M. O'Toole and Sanjeev K. Mehra are Managing
Directors of Goldman Sachs, and Joseph P. DiSabato is an Associate of Goldman
Sachs, and each is a director of the Company. The general and managing partners
of each of the GSCP funds (the "GS Fund Partners"), which are affiliates of
Goldman Sachs and The Goldman Sachs Group, will each be deemed to be an
"affiliate" of GSCP, and therefore of the Company. See "Ownership of Capital
Stock". Goldman Sachs received an underwriting discount of approximately $3.3
million in connection with its purchase and resale of the Notes. Goldman Sachs
also served as financial advisor to MergerCo in connection with the Transaction
and received certain fees and had expenses reimbursed in connection therewith as
described herein. Moreover, GS Credit Partners acted as Syndication Agent,
Documentation Agent and Arranger in connection with the Bank Credit Agreement
and received certain fees and had expenses reimbursed in connection therewith.
Goldman Sachs received certain fees for other services rendered to the Company.
See "Certain Transactions".
In excess of 80% of the outstanding shares of Company Common Stock is held
by GSCP. As a result of such ownership, GSCP controls the Company and has the
ability to elect all of its directors, appoint new management and approve any
action requiring the approval of the holders of Company Common Stock, including
adopting amendments to the Company's certificate of incorporation and approving
mergers or sales of all or substantially all of the Company's assets, in each
case subject to whatever contractual restrictions, including pursuant to the
Indenture and the Bank Credit Agreement, apply to the Company. There can be no
assurance that the interests of GSCP will not conflict with the interests of
Holders of the Exchange Notes. See "Management", "Ownership of Capital Stock"
and "Certain Transactions".
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Exchange Notes
may require the Company to repurchase all or a portion of such Holder's Exchange
Notes at 101% of the principal amount of the Exchange Notes, together with
accrued and unpaid interest, if any, to the date of repurchase. If a Change of
Control were to occur, the Company may not have the financial resources to repay
all of its obligations under the Bank Credit Agreement, the Indenture and the
other indebtedness that would become payable upon the occurrence of such Change
of Control.
22
<PAGE> 30
RISKS RELATING TO THE COMPANY'S BUSINESS
Concentration of Customer Sales and Credit Risk. The concentration of
sales by the Company to party goods superstore chains has resulted in a
significant concentration of sales and unsecured trade receivables with such
customers.
Combined sales to the Company's two largest customers, Party City, a public
company with stock listed on the Nasdaq National Market, and Party Stores
Holdings, an independent and privately held party goods superstore chain,
accounted in the aggregate for approximately 10%, 17% and 21% of the Company's
sales in 1994, 1995 and 1996, respectively. In addition, at September 30, 1997,
these two customers together accounted for approximately 14% of the Company's
accounts receivable.
Although the Company believes its relationships with these customers are
good, should either of them significantly reduce their volume of purchases from
the Company, the Company's financial condition and results of operations could
be adversely affected. Moreover, while the Company believes that adequate
provisions for bad debts have been made in its financial statements, should it
be unable to collect receivables from its party superstore customers to any
significant extent, the Company's financial condition and results of operations
could be adversely affected. In January 1998, Party Stores Holdings filed a
voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Code. From time to time, the Company has provided additional reserves or
restructured accounts receivables because of the credit condition of certain
customers. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources".
Importance of Identifying Design Trends and Consumer Preferences. In
manufacturing and distributing party goods, the Company's success depends in
part on its ability to anticipate the tastes and preferences of party goods
retailers and consumers. The Company's strategy has depended to a significant
extent on the regular introduction of new designs which are attractive and
distinctive. The Company's failure to anticipate, identify or react
appropriately to changes in consumer tastes could, among other things, lead to
excess inventories and significant markdowns or a shortage of products and
foregone sales, any of which could have an adverse effect on the Company's
financial condition or results of operations.
Competition. The party goods industry is highly competitive. The Company
competes with many other companies, including smaller, independent specialty
manufacturers as well as divisions or subsidiaries of larger companies with
greater financial and other resources than those of the Company. Certain of
these competitors control licenses for widely recognized images, such as cartoon
or motion picture characters, which could provide them with a competitive
advantage. The Company has pursued a strategy of developing its own designs and
generally has not pursued licensing opportunities.
Impact of Changing Raw Material Costs. The principal raw material used by
the Company in its products is paper, which historically accounts for
approximately 35-40% of the annual cost of production of the Company's paper
plates, cups and napkins. The price of paper is subject to change due to
numerous factors beyond the control of the Company. Any significant increase in
the cost of paper would adversely affect the Company's raw material costs.
Competitive conditions will determine how much of any raw material cost increase
can be passed on to party goods retailers. While historically the Company has
been able to pass on raw material cost increases to its customers, if the
Company is unable to pass future raw materials cost increases to the party goods
retailers, the Company's financial condition and results of operations would be
adversely affected.
Risks Associated with Further Expansion Through Acquisitions. The Company
has from time to time expanded its product line and further vertically
integrated its operations, through strategic acquisitions. The Company believes
that opportunities exist to make acquisitions of complementary businesses to
leverage the Company's existing marketing, distribution and production
capabilities, expand its presence in the various retail channels, further
broaden and deepen its product line and penetrate international markets. The
Company receives inquiries from time to time with respect to
23
<PAGE> 31
the possible acquisition by the Company of other entities and such inquiries
have been received since the announcement of the Transaction. As of the date of
this Prospectus, the Company has not entered into any agreements to acquire
other companies or businesses; however, the Company intends to pursue
acquisition opportunities aggressively. See "Business -- Company Strategy".
There are various risks associated with pursuing acquisitions. The risks
include problems inherent in integrating new businesses, including potential
loss of customers and key personnel and potential disruption of operations.
There can be no assurance that businesses acquired by the Company will generate
significant revenues or profits or satisfy the Company's strategic objectives.
Moreover, there can be no assurance that suitable acquisition candidates will be
available, that acquisitions can be completed on reasonable terms, that the
Company will successfully integrate the operations of any acquired entities or
that the Company will have access to adequate funds to effect any desired
acquisitions. The amount of debt financing available for future acquisitions
will be limited by restrictions contained in the Bank Credit Agreement and the
Indenture for the Exchange Notes.
SEASONALITY
Due to the number of holidays falling in the fourth quarter of the calendar
year, the Company's business is somewhat seasonal, and, as a result, the
quarterly results of operations may not be indicative of those for a full year.
Third quarter sales are generally the highest of the year due to a combination
of increased sales to consumers of the Company's products during summer months
as well as initial shipments of seasonal holiday merchandise as retailers build
inventory. Conversely, fourth quarter sales are generally lower as retailers
sell through inventories purchased during the third quarter. The overall growth
rate of the Company's sales in recent years has, in part, offset this sales
variability. Promotional activities, including special dating and pricing terms,
particularly with respect to Halloween and Christmas products, result in
generally lower margins and profitability in the fourth quarter, as well as
higher accounts receivable balances and associated higher interest costs to
support these balances. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Results".
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Notes are currently owned by a relatively small number of beneficial
owners. The Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for the Exchange Notes. The Exchange Notes will constitute a new issue
of securities with no established trading market. Although the Exchange Notes
will generally be permitted to be resold or otherwise transferred by Holders who
are not affiliates of the Company without compliance with the registration
requirements under the Securities Act, the Company does not intend to list the
Exchange Notes on any national securities exchange or to seek the admission
thereof to trading in any automated quotation system. The Company has been
advised by Goldman Sachs that it presently intends to make a market in the
Exchange Notes. However, Goldman Sachs is not obligated to do so and any
market-making activity with respect to the Exchange Notes may be discontinued at
any time without notice. In addition, such market-making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act.
Accordingly, no assurance can be given that an active public or other market
will develop for the Exchange Notes or as to the liquidity of or the trading
market for the Exchange Notes.
If such a market were to develop, the Exchange Notes could trade at prices
that may be higher or lower than the initial offering price of the Notes
depending on many factors, including prevailing interest rates, the Company's
operating results and the market for similar securities.
Goldman Sachs may be deemed to be an affiliate of the Company and, as such,
may be required to deliver a "market-maker" prospectus in connection with its
market-making activities in the Exchange Notes. Pursuant to the Registration
Rights Agreement, the Company agreed to file and maintain a registration
statement that would allow Goldman Sachs to engage in market-making
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<PAGE> 32
transactions in the Exchange Notes. The registration statement will remain
effective for as long as Goldman Sachs may be required to deliver a prospectus
in connection with secondary transactions in the Exchange Notes.
Notwithstanding the foregoing, at any time after consummation of the
Exchange Offer, the Company and the Guarantors may allow such "market-maker"
prospectus and the related registration statement to cease to be effective and
usable if (i) the Board of Directors of the Company determines in good faith
that such action is in the best interests of the Company, and the Company
notifies the Holders within a certain period of time after the Board of
Directors makes such determination or (ii) such prospectus or such related
registration statement contains an untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
Company has agreed to bear substantially all the costs and expenses related to
such registration statement.
FRAUDULENT CONVEYANCE
Management of the Company believes that the indebtedness represented by the
Notes and the Senior Subordinated Guarantees, and to the extent exchanged for
the Notes, the Exchange Notes, was incurred for proper purposes and in good
faith, and that as a result of, and after giving effect to, the Note Offering
and the Exchange Offer, based on forecasts, asset valuations and other financial
information, the Company was and will be solvent, had and will have sufficient
capital for carrying on its business and was and is able to pay its debts as
they mature. See "Risk Factors -- Substantial Leverage; Ability to Service
Indebtedness". Notwithstanding management's belief, however, if a court of
competent jurisdiction in a suit by an unpaid creditor or a representative of
creditors (such as a trustee in bankruptcy or a debtor-in-possession) were to
find that, at the time of the incurrence of such indebtedness, the Company or
the Guarantors were insolvent, were rendered insolvent by reason of such
incurrence, were engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital, intended to incur, or believed
that they would incur, debts beyond their ability to pay such debts as they
matured, or intended to hinder, delay or defraud their creditors, and that the
indebtedness was incurred for less than reasonably equivalent value, then such
court could, among other things, (a) void all or a portion of the Company's or
the Guarantors' obligations to Holders of the Exchange Notes, the effect of
which would be that Holders of the Exchange Notes may not be repaid in full
and/or (b) subordinate the Company's or the Guarantors' obligations to Holders
of the Exchange Notes to other existing and future indebtedness of the Company
to a greater extent than would otherwise be the case, the effect of which would
be to entitle such other creditors to be paid in full before any payment could
be made on the Exchange Notes or the Senior Subordinated Guarantees.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent of
such Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Notes desiring to tender
such Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects or
irregularities with respect to the tenders of Notes for exchange. Notes that are
not tendered or are tendered but not accepted will, following the consummation
of the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, upon consummation of the Exchange Offer, the registration
rights under the Registration Rights Agreement generally will terminate. In
addition, any holder of Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale. Each broker-dealer that receives Exchange Notes for
its own account
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<PAGE> 33
in exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. To the extent that Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Notes could be
adversely affected. See "The Exchange Offer".
RESTRICTIONS ON TRANSFER
The Notes were offered and sold by the Company in a private offering exempt
from registration pursuant to the Securities Act and have been resold pursuant
to Rule 144A and Regulation S under the Securities Act. As a result, the Notes
may not be reoffered or resold by purchasers except pursuant to an effective
registration statement under the Securities Act, or pursuant to an applicable
exemption from such registration, and the Notes are legended to restrict
transfer as aforesaid. Each Holder (other than any Holder who is an affiliate or
promoter of the Company) who duly exchanges Notes for Exchange Notes in the
Exchange Offer will receive Exchange Notes that are freely transferable under
the Securities Act. Holders of Notes who participate in the Exchange Offer
should be aware, however, that if they accept the Exchange Offer for the purpose
of engaging in a distribution, the Exchange Notes may not be publicly reoffered
or resold without complying with the registration and prospectus delivery
requirements of the Securities Act. As a result, each Holder of Notes accepting
the Exchange Offer will be deemed to have represented, by its acceptance of the
Exchange Offer, that it acquired the Exchange Notes in the ordinary course of
business and that it is not engaged in, and does not intend to engage in, a
distribution of the Exchange Notes. If existing Commission interpretations
permitting free transferability of the Exchange Notes following the Exchange
Offer are changed prior to consummation of the Exchange Offer, the Company will
use its best efforts to register the Notes for resale under the Securities Act.
See "Prospectus Summary -- The Exchange Offer" and "Description of Exchange
Notes -- Registration Rights".
The Notes currently may be sold pursuant to the restrictions set forth in
Rule 144A or Regulation S, or pursuant to another available exemption under the
Securities Act, without registration under the Securities Act. To the extent
that Notes are tendered and accepted in the Exchange Offer, the trading market
for the untendered and tendered but unaccepted Notes could be adversely
affected.
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<PAGE> 34
THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company believes
are the material terms of the Exchange Offer, including those set forth in the
Letter of Transmittal distributed with this Prospectus. This summary is
qualified in its entirety by reference to the full text of the documents
underlying the Exchange Offer, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and are incorporated
by reference herein.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were sold by the Company on December 19, 1997, and were
subsequently resold to qualified institutional buyers pursuant to Rule 144A
under the Securities Act and to certain persons in transactions outside the
United States in reliance on Regulation S under the Securities Act. In
connection with the Note Offering, the Company entered into the Registration
Rights Agreement, which requires, among other things, that promptly following
the completion of the Transaction, the Company and the Guarantors (i) file with
the Commission a registration statement under the Securities Act with respect to
an issue of new notes of the Company identical in all material respects to the
Notes, (ii) use their best efforts to cause such registration statement to
become effective under the Securities Act and (iii) upon the effectiveness of
that registration statement, offer to the Holders of the Notes the opportunity
to exchange their Notes for a like principal amount of Exchange Notes, which
would be issued without a restrictive legend and may be reoffered and resold by
the holder without restrictions or limitations under the Securities Act (other
than any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act). A copy of the Registration Rights Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The term "Holder" with respect to the Exchange Offer means
any person in whose name the Notes are registered on the books of the Company or
any other person who has obtained a properly completed bond power from the
registered holder.
Because the Exchange Offer is for any and all Notes, the number of Notes
tendered and exchanged in the Exchange Offer will reduce the principal amount of
Notes outstanding. Following the consummation of the Exchange Offer, Holders of
the Notes who did not tender their Notes generally will not have any further
registration rights under the Registration Rights Agreement, and such Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for such Notes could be adversely affected. The Notes
are currently eligible for sale pursuant to Rule 144A through the PORTAL System
of the National Association of Securities Dealers, Inc. Because the Company
anticipates that most holders of Notes will elect to exchange such Notes for
Exchange Notes due to the absence of restrictions on the resale of Exchange
Notes under the Securities Act, the Company anticipates that the liquidity of
the market for any Notes remaining after the consummation of the Exchange Offer
may be substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m. New York City time, on the
Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Notes accepted
in the Exchange Offer. Holders may tender some or all of their Notes pursuant to
the Exchange Offer. However, 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 Notes except that (i) the Exchange Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof
and (ii) the holders of the Exchange Notes generally will not be entitled to
certain rights under the Registration Rights Agreement, which rights generally
will terminate upon consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Notes and will be entitled to the benefits of the
Indenture.
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<PAGE> 35
Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of the State of Delaware or the Indenture in connection
with the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder, including Rule 14e-1 thereunder.
The Company shall be deemed to have accepted validly tendered Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering Holders for the
purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender 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 Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, 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
March , 1998, unless the Company, 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.
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered Holders, and, depending upon the significance of the amendment and
the manner of disclosure to the registered Holders, the Company will extend the
Exchange Offer for a period of five to ten business days if the Exchange Offer
would otherwise expire during such five to ten business-day period.
If the Company does not consummate the Exchange Offer, or, in lieu thereof,
the Company does not file and cause to become effective a resale shelf
registration for the Notes within the time periods set forth herein, liquidated
damages will accrue and be payable on the Notes either temporarily or
permanently. See "Description of Exchange Notes -- Registration Rights;
Liquidated Damages".
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
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<PAGE> 36
INTEREST ON EXCHANGE NOTES
The Exchange Notes will bear interest from December 19, 1997, the date of
issuance of the Notes that are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date to which interest on such Notes has been
paid). Accordingly, holders of Notes that are accepted for exchange will not
receive interest that is accrued but unpaid on the Notes at the time of tender,
but such interest will be payable on the first Interest Payment Date after the
Expiration Date. Interest on the Exchange Notes will be payable semiannually on
each June 15 and December 15, commencing June 15, 1998.
PROCEDURES FOR TENDERING
Only a Holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a Holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent so as to be received by the Exchange
Agent at the address set forth below prior to 5.00 p.m., New York City time, on
the Expiration Date. Delivery of the Notes may be made by book-entry transfer in
accordance with the procedures described below. Confirmation of such book-entry
transfer must be received by the Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representation set forth below in the second paragraph under the
heading "-- Resale of Exchange Notes".
The tender by a Holder and the acceptance thereof by the Company will
constitute an agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF 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. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose 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.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power,
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<PAGE> 37
signed by such registered Holder as such registered Holder's name appears on
such Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at the Depository for the purpose of facilitating the Exchange Offer,
and subject to the establishment thereof, any financial institution that is a
participant in the Depository's system may make book-entry delivery of the Notes
by causing the Depository to transfer such Notes into the Exchange Agent's
account with respect to the Notes in accordance with the Depository's procedures
for such transfer. Although delivery of the Notes may be effected through
book-entry transfer into the Exchange Agent's account at the Depository, an
appropriate Letter of Transmittal properly completed and duly executed with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures. Delivery of documents to the Depository does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right, in its reasonable judgment, to waive any defects,
irregularities or conditions of tender as to particular Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Notes must be cured within such time as the Company shall determine. Although
the Company intends to notify Holders of defects or irregularities with respect
to tenders of Notes, neither the Company, the Exchange Agent nor any other
person shall incur any liability for failure to give such notification. Tenders
of Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any 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 the Letter of
Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, 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 ("Notice of Guaranteed Delivery") (by facsimile
transmission, mail or hand delivery) setting forth the name and address of
the Holder, the certificate number(s) of such Notes and the principal
amount of Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof),
together with the certificate(s) representing the Notes (or a confirma-
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<PAGE> 38
tion of book-entry transfer of such Notes into the Exchange Agent's account
at the Depository) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Depository) and all
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three 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 Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of notes transferred by
book-entry transfer, the name and number of the account at the Depository to be
credited), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Notes register the
transfer of such Notes into the name of the person withdrawing the tender and
(iv) specify the name in which any such Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
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 Notes so withdrawn are validly retendered. Any Notes which have been
tendered but which are not accepted for exchange will be returned to the Holder
thereof without cost to such Holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange Exchange Notes for, any
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Notes, if:
(a) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(b) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Notes and
return all tendered Notes to the tendering Holders, (ii) extend the Exchange
Offer and retain all Notes tendered prior to the
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<PAGE> 39
expiration of the Exchange Offer, subject, however, to the rights of Holders to
withdraw such Notes (see "-- Withdrawals of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered Holders, and, depending upon the significance of
the waiver and the manner of disclosure to the registered Holders, the Company
will extend the Exchange Offer for a period of five to ten business days if the
Exchange Offer would otherwise expire during such five to ten business-day
period.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company will act as Exchange Agent for the
Exchange Offer (the "Exchange Agent").
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for copies of the
Notice of Guaranteed Delivery should be directed to the Exchange Agent,
addressed as follows:
By Registered or Certified Mail:
IBJ Schroder Bank & Trust Company
P.O. Box 84
Bowling Green Station
New York, New York 10274-0084
Attention: Reorganization Operations Department
By Overnight Courier or By Hand:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Securities Processing Window, Subcellar One (SC-1)
By Facsimile:
(212) 858-2611
Confirm by Telephone:
(212) 858-2103
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone, facsimile or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and reimburse it
for its reasonable out-of-pocket expenses in connection therewith and pay other
registration expenses, including fees and expenses of the Trustee, filing fees,
blue sky fees and printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Notes pursuant to the Exchange Offer. If, however, certificates
representing the Exchange Notes or the Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Notes tendered, or if
tendered Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of the Notes
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pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or any other person) will be payable
by the tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is the aggregate principal amount of the Notes, as reflected in the
Company's accounting records on the date of exchange. Accordingly, no gain or
loss for accounting purposes will be recognized in connection with the Exchange
Offer. The expenses of the Exchange Offer will be amortized over the term of the
Exchange Notes.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered
for resale, resold and otherwise transferred by any Holder of such Exchange
Notes (other than any such Holder which is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such Holder's
business and such Holder does not intend to participate, and has no arrangement
or understanding with any person to participate, in the distribution of such
Exchange Notes. Any Holder who tenders in the Exchange Offer with the intention
to participate, or for the purpose of participating, in a distribution of the
Exchange Notes may not rely on the position of the staff of the Commission
enunciated in Exxon Capital Holdings Corporation (available April 13, 1989),
Morgan Stanley & Co., Incorporated (available June 5, 1991) or similar no-action
letters, but rather must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with the resale of the Exchange
Notes. In addition, any such resale transaction should be covered by an
effective registration statement containing the selling security holders
information required by Item 507 of Regulation S-K of the Securities Act. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Notes, where such Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, may be a statutory
underwriter and must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes.
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is a Holder,
(ii) neither the Holder nor any such other person is engaged or intends to
engage in, or has an arrangement or understanding with any person to participate
in, the distribution of such Exchange Notes and (iii) the Holder and such other
person acknowledge that if they participate in the Exchange Offer for the
purpose of distributing the Exchange Notes (a) they must, in the absence of an
exemption therefrom, comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the Exchange
Notes and cannot rely on the no-action letters referenced above and (b) failure
to comply with such requirements in such instance could result in such Holder or
such other person incurring liability under the Securities Act for which such
persons are not indemnified by the Company. Further, by tendering in the
Exchange Offer, each Holder or person receiving the Exchange Notes acquired
pursuant thereto that may be deemed an "affiliate" (as defined under Rule 405 of
the Securities Act) of the Company will represent to the Company that such
Holder understands and acknowledges that the Exchange Notes may not be offered
for resale, resold or otherwise transferred by that Holder or such other person
without registration under the Securities Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
33
<PAGE> 41
In connection with the Note Offering, the Company entered into the Registration
Rights Agreement pursuant to which the Company agreed to file and maintain,
subject to certain limitations, a registration statement that would allow
Goldman Sachs to engage in market-making transactions with respect to the Notes
or the Exchange Notes. The Company has agreed to bear all registration expenses
incurred under such agreement, including printing and distribution expenses,
reasonable fees of counsel, blue sky fees and expenses, reasonable fees of
independent accountants in connection with the preparation of comfort letters,
and Commission and the National Association of Securities Dealers, Inc. filing
fees and expenses.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of Notes who do not tender their Notes generally will not have any
further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any Holder of Notes that does not exchange that Holder's
Notes for Exchange Notes will continue to hold the untendered Notes and will be
entitled to all the rights and limitations applicable thereto under the
Indenture, except to the extent that such rights or limitations, by their terms,
terminate or cease to have further effectiveness as a result of the Exchange
Offer.
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii)
pursuant to an effective registration statement under the Securities Act, (iii)
so long as the Notes are eligible for resale pursuant to Rule 144A, to a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, (iv)
outside the United States to a foreign person pursuant to the exemption from the
registration requirements of the Securities Act provided by Regulation S
thereunder, (v) pursuant to an exemption from registration under the Securities
Act provided by Rule 144 thereunder (if available) or (vi) to an institutional
accredited investor in a transaction exempt from the registration requirements
of the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States. See "Risk Factors -- Restrictions on
Transfer".
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Notes are urged to consult
their financial and tax advisors in making their own decision on what action to
take.
The Company may in the future seek to acquire untendered Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plans to acquire any Notes that are not
tendered in the Exchange Offer or to file a registration statement to permit
resales of any untendered Notes.
The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, Holders of 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. Prior to the Exchange Offer,
however, the Company will take such actions it deems necessary or advisable to
register or qualify the Exchange Notes for offer and sale under the securities
or blue sky laws of such jurisdictions as is necessary to permit consummation of
the Exchange Offer and to enable the offer and sale in such jurisdiction of the
Exchange Notes.
34
<PAGE> 42
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
The following discussion 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 "IRS") will not take a contrary
view, and no ruling from the IRS has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conditions set forth herein. Any such
changes or interpretations may or may not be retroactive and could affect the
tax consequences to Holders. Certain Holders of the Notes (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 a
Note should consult his, her or its own tax advisor as to the particular tax
consequences of exchanging such Holder's Notes for Exchange Notes, including the
applicability and effect of any state, local or foreign tax laws.
The issuance of the Exchange Notes to Holders of the Notes pursuant to the
terms set forth in this Prospectus will not constitute an exchange for federal
income tax purposes. Consequently, no gain or loss would be recognized by
Holders of the Notes upon receipt of the Exchange Notes, and ownership of the
Exchange Notes will be considered a continuation of ownership of the Notes. For
purposes of determining gain or loss upon the subsequent sale or exchange of the
Exchange Notes, a Holder's basis in the Exchange Notes should be the same as
such Holder's basis in the Notes exchanged therefor. A Holder's holding period
for the Exchange Notes should include the Holder's holding period for the Notes
exchanged therefor. The issue price and other tax characteristics of the
Exchange Notes should be identical to the issue price and other tax
characteristics of the Notes exchanged therefor.
See also "Description of Certain Federal Income Tax Consequences of an
Investment in the Exchange Notes".
35
<PAGE> 43
THE TRANSACTION
CERTAIN AGREEMENTS
Pursuant to the Transaction Agreement, and following the approval and
adoption of the Transaction Agreement by the vote of a majority of the shares of
Company Common Stock entitled to vote thereon and the satisfaction or waiver of
the other conditions to the Transaction, on December 19, 1997, MergerCo was
merged with and into the Company with the Company as the surviving corporation.
Concurrent with entering into the Transaction Agreement, the Company
entered into the Tax Indemnification Agreement, dated as of August 10, 1997,
with the Estate and Christine Svenningsen (together, the "Svenningsen
Stockholders") (the "Tax Indemnification Agreement"), pursuant to which the
parties agreed to indemnify one another with respect to certain tax liabilities
that may arise in connection with the election by certain Subsidiaries of the
Company to have been treated and operated under the Code as S corporations (as
"S corporation" is defined in the Code). The Tax Indemnification Agreement
provides that the Company will indemnify the Svenningsen Stockholders for any
increase in certain tax liabilities attributable to an understatement of income
previously reported by such Subsidiaries to the extent of any actual reduction
in taxes on the Company or its Subsidiaries for a taxable year after December
18, 1996, the date of the Company's initial public offering. The Tax
Indemnification Agreement also provides that the Svenningsen Stockholders will
indemnify the Company for certain tax liabilities arising out of or resulting
from a claim by any taxing authority that any such Subsidiary was not an S
corporation under the Code at a time when it took such a position. Any payments
made under the Tax Indemnification Agreement will be reduced by any payments
made pursuant to the Tax Indemnification Agreement (the "Prior Tax
Indemnification Agreement"), by and between John A. Svenningsen and the Company,
dated as of December 18, 1996, regarding certain similar matters, which Prior
Tax Indemnification Agreement remains a separate valid and binding agreement.
See "Management -- Certain Relationships and Related Transactions".
Concurrent with the execution of the Transaction Agreement, MergerCo
entered into agreements with certain employees of the Company relating, for
certain of such employees, to their employment with the Company following the
Effective Time and relating to their ownership of Company Common Stock and
options to purchase shares of Company Common Stock following the Transaction
(collectively, the "New Employment Arrangements"). At the Effective Time,
certain of the New Employment Arrangements replaced and superseded prior
employment agreements for such employees. See "Management -- New Employment
Arrangements".
In addition, upon consummation of the Transaction, the Company entered into
a Stockholders' Agreement (the "Stockholders' Agreement") with GSCP and the
Estate and certain employees of the Company listed as parties thereto (including
the Estate, the "Non-GSCP Investors"). See "Ownership of Capital Stock".
36
<PAGE> 44
The following table sets forth the sources and uses of cash related to the
Transaction:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
SOURCES OF CASH
Term Loan...................................................................... $ 117,000
Senior Subordinated Notes...................................................... 110,000
--------
Total debt................................................................... 227,000
GSCP equity contribution(a).................................................... 61,875
--------
Total..................................................................... $ 288,875
========
USES OF CASH
Purchase equity in the Transaction............................................. $ 235,916
Redeem Company Stock Options................................................... 1,901
Repay certain existing debt(b)................................................. 23,908
Debt retirement costs.......................................................... 1,010
Transaction costs.............................................................. 17,152
Cash for working capital purposes.............................................. 8,988
--------
Total..................................................................... $ 288,875
========
</TABLE>
- ---------------
(a) In addition to the equity contribution, certain employees have made an
equity investment in the Company totaling $6.4 million (including
restricted stock grants and $0.8 million contributed by certain employees
immediately following consummation of the Transaction) and the Estate has
retained an interest in the Company of $7.5 million, together constituting
$13.9 million valued at the price per share paid by GSCP.
(b) Excludes existing mortgages on real property owned by Subsidiaries of the
Company in the amount of approximately $5.9 million, capital lease
obligations of approximately $4.6 million, and borrowings under a revolving
credit agreement of a Non-Guarantor Subsidiary of approximately $0.6
million each as of December 19, 1997. All other outstanding debt of the
Company was extinguished at or prior to the completion of the Transaction.
37
<PAGE> 45
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company as of September 30, 1997, and on a pro forma basis to give effect
to the Transaction, including the Transaction Financings and the application of
the proceeds therefrom, as if they had occurred on September 30, 1997. See "The
Transaction". The information set forth below should be read in conjunction with
the Company's Transaction Pro Forma Consolidated Financial Data, the Company's
Consolidated Financial Statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
---------------------------
TRANSACTION
HISTORICAL PRO FORMA
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................... $ 684 $ 3,975
======== ========
Total debt (including current portion)
Revolving Credit Facility(1)...................................... $ -- $ --
Term Loan......................................................... -- 117,000
Existing revolving credit facility................................ 9,550 --
Senior Subordinated Notes......................................... -- 110,000
Mortgages......................................................... 6,072 6,072
Capital leases and other.......................................... 24,782 4,727
-------- --------
Total debt..................................................... 40,404 237,799
Stockholders' equity (deficit)(2)................................... 89,002 (95,288)
-------- --------
Total capitalization........................................... $ 129,406 $ 142,511
======== ========
</TABLE>
- ------------------
(1) The Company has the ability to borrow up to $50 million pursuant to its
Revolving Credit Facility. The Revolving Credit Facility is available to
the Company for working capital purposes and acquisitions, subject to
certain limitations and restrictions. See "Description of Senior Debt".
(2) Upon completion of the Transaction, the Company had a negative net worth for
accounting purposes. In the Transaction, GSCP paid $61.9 million for
approximately 82.5% of the Company Common Stock. In addition, certain
employees of the Company acquired and the Estate retained approximately
7.5% and almost 10%, respectively, of the Company Common Stock which, based
upon the price per share paid by GSCP, has an aggregate value of
approximately $13.1 million. Combined with GSCP's payment of $61.9 million,
these holdings have an aggregate value of approximately $75.0 million.
38
<PAGE> 46
TRANSACTION PRO FORMA CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
The following unaudited Transaction Pro Forma Consolidated Financial Data
have been derived by the application of pro forma adjustments to the Company's
historical consolidated financial statements appearing elsewhere in this
Prospectus giving effect to the merger of MergerCo with and into the Company.
The Transaction Pro Forma Consolidated Statements of Income for the year ended
December 31, 1996 and the nine and twelve month periods ended September 30, 1997
give effect to the Transaction as if it was consummated as of January 1, 1996.
The Transaction Pro Forma Consolidated Statements of Income for the year ended
December 31, 1996 and the twelve months ended September 30, 1997 include
supplemental pro forma adjustments to give effect to certain events that
occurred in conjunction with the Organization and the IPO as if such events had
occurred as of January 1, 1996. The Transaction Pro Forma Consolidated Balance
Sheet gives effect to the Transaction as if it had occurred as of September 30,
1997. The adjustments are described in the accompanying notes. The Transaction
Pro Forma Consolidated Financial Statements should not be considered indicative
of actual results that would have been achieved had the Transaction been
consummated on the date or for the periods indicated and do not purport to
indicate balance sheet data or results of operations as of any future date or
for any future period. The Transaction Pro Forma Consolidated Financial
Statements should be read in conjunction with the Company's historical
consolidated financial statements and the related notes thereto appearing
elsewhere in this Prospectus. See "Index to Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
As a result of the Transaction, the Company incurred various costs of
approximately $27.6 million (pre-tax) in connection with consummation of the
Transaction and the transactions contemplated by the Transaction Agreement.
These costs consist primarily of professional, advisory and investment banking
fees, registration costs, compensation costs and other expenses of approximately
$22.1 million and deferred financing costs of approximately $5.5 million. The
Company has recorded a one-time pre-tax charge of approximately $22.1 million
($17.7 million after tax) in the fourth quarter of 1997 and, as a result, the
Company incurred a significant net loss in that quarter. Because this loss
resulted directly from the one-time charge incurred in connection with the
Transaction, and this charge was funded entirely through the proceeds of the
Transaction Financings, the Company does not expect this loss to materially
impact its liquidity, ongoing operations or market position. See "Risk Factors
- -- Substantial Leverage; Ability to Service Indebtedness" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources".
The pro forma adjustments giving effect to the Transaction were applied to
the respective historical consolidated financial statements to reflect and
account for the Transaction as a recapitalization. Accordingly, the historical
basis of the Company's assets and liabilities has not been impacted by the
Transaction.
39
<PAGE> 47
TRANSACTION PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
AND
SUPPLEMENTAL
PRO FORMA SUPPLEMENTAL
ADJUSTMENTS PRO FORMA
TO GIVE TO GIVE PRO FORMA
EFFECT TO EFFECT ADJUSTMENTS TO
THE TO THE GIVE EFFECT TO
ORGANIZATION ORGANIZATION THE TRANSACTION
HISTORICAL AND THE IPO AND THE IPO TRANSACTION(F) PRO FORMA
---------- ------------ ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
Net sales...................... $ 192,705 $192,705 $ 192,705
Cost of sales.................. 123,913 123,913 123,913
------- ------- -------
Gross profit................. 68,792 68,792 68,792
OPERATING EXPENSES:
Selling expenses............. 11,838 11,838 11,838
General and administrative
expenses.................. 19,266 $ 250(a) 19,516 $ 435(g) 19,951
Art and development costs.... 5,173 5,173 5,173
Non-recurring compensation in
connection with the IPO... 15,535 (15,535)(b) -- --
Special bonuses.............. 4,222 (4,222)(c) -- --
------- ------- -------
Income from operations....... 12,758 32,265 31,830
Interest expense, net.......... 6,691 (2,228)(d) 4,463 18,583(h) 23,046
Other expense, net............. 335 335 335
------- ------- -------
Income before income taxes
and minority interests.... 5,732 27,467 8,449
Income taxes................... 1,952 9,347(e) 11,299 (7,702)(i) 3,597
Minority interests............. 1,653 (1,403)(a) 250 250
------- ------- -------
Net income..................... $ 2,127 $ 15,918 $ 4,602
======= ======= =======
Pro forma net income per
share........................ $ 4,556
Pro forma weighted average
common shares
outstanding(j)............... 1,010
NON-GAAP FINANCIAL DATA:
Adjusted EBITDA(k)............. $ 37,652 $ 37,217
Adjusted EBITDA margin......... 19.5% 19.3%
OTHER FINANCIAL DATA:
Gross margin................... 35.7% 35.7%
Depreciation and
amortization................. $ 5,137 $ 5,387
Cash capital expenditures...... 7,613 7,613
Earnings to fixed charges(l)... 1.7x 1.3x
</TABLE>
See Notes to Transaction Pro Forma Consolidated Statement of Income.
40
<PAGE> 48
NOTES TO TRANSACTION PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
The pro forma financial data giving effect to the Transaction have been derived
by the application of pro forma, supplemental pro forma and Transaction pro
forma adjustments to the Company's historical consolidated financial statements
for the period noted. The adjustments give effect to certain events that
occurred in conjunction with the Organization and the IPO and to certain events
that occurred in connection with the Transaction, as if those events had
occurred as of January 1, 1996, including pro forma adjustments intended to
present the historical results as if certain subsidiaries had terminated their
treatment as S corporations for tax purposes. The Transaction has been accounted
for as a recapitalization, which will have no impact on the historical basis of
the Company's assets and liabilities.
(a) To reflect $250 amortization of goodwill per annum over thirty years and the
elimination of $1,403 for minority interest related to the acquisition of
an additional 50% of Am-Source, Inc. as if it were acquired at the
beginning of the period.
(b) To reflect reductions in compensation expense of $15,535, including stock
and cash of $12,535 for payments to certain executives in connection with
the termination of prior employment agreements and $3,000 for the
establishment of an ESOP for the benefit of the employees of Amscan Inc.
and the payment of stock bonuses to certain of such employees.
(c) To reflect the elimination of special bonuses that will not be recurring due
to the termination of certain employment agreements in connection with the
IPO. No adjustments are reflected or are necessary with respect to
performance-based compensation as the provisions in the employment
agreements entered into in connection with the IPO would have resulted in
performance-based compensation materially equivalent to that reflected in
the historical accounts under the prior employment agreements.
(d) To reflect the reduction of actual interest expense assuming a repayment of
$8,100 of bank loans at the actual rate in effect and an average balance of
$20,000 of loans from Mr. Svenningsen at the actual rate in effect.
(e) To provide for income taxes at a statutory rate of 40.5% on earnings as if
Amscan Inc., Am-Source, Inc. and certain other subsidiaries of the Company
had not been treated as S corporations during the period presented and to
give effect to the tax effect of these adjustments.
(f) The pro forma adjustments to the historical Consolidated Statement of Income
exclude the following items, as described in the notes to the Transaction
Pro Forma Consolidated Balance Sheet, (i) the write-off of $20 of deferred
financing costs associated with the debt being repaid, (ii) $1,010 of debt
retirement costs, (iii) $7,500 of non-recurring compensation expense to be
paid by the Estate and the Svenningsen Trusts, (iv) $1,901 of non-recurring
compensation expense for the redemption of Company Stock Options, and (v)
$11,652 of transaction fees and expenses incurred in connection with the
Transaction. Such amounts represent non-recurring expenses which will be
reflected in the Consolidated Statement of Income for the period in which
the Transaction is included.
(g) To reflect the amortization over a ten-year period of $1,125 of restricted
shares of Company Common Stock issued to an officer of the Company in
connection with the Transaction. See "The Transaction -- Interests of
Certain Persons in the Transaction".
41
<PAGE> 49
(h) To adjust interest expense to reflect the following:
<TABLE>
<CAPTION>
<S> <C>
Interest on historical debt repaid in Transaction...................... $(2,869)
Interest expense on the Term Loan (8.5% rate).......................... 9,945
Interest expense on the Senior Subordinated Notes (9.875% rate)........ 10,863
Amortization of deferred financing costs (7-10 years) on new
indebtedness......................................................... 644
-------
Total adjustment..................................................... $18,583
=======
</TABLE>
For the year ended December 31, 1996, a 0.125% increase or decrease in the
interest rate on the Term Loan would change the Transaction pro forma
interest expense and net income by $146 and $87, respectively.
(i) To reflect the tax effects of the Transaction pro forma adjustments at a
40.5% statutory income tax rate.
(j) Pro forma weighted average common shares outstanding represents the shares
outstanding after the Effective Time (see Notes to the Consolidated
Financial Statements -- December 31, 1996, note (18)).
(k) "Adjusted EBITDA" represents earnings before interest, income taxes,
depreciation and amortization adjusted for special bonuses, non-recurring
compensation, other expenses (income), net and minority interests. Adjusted
EBITDA is presented because it is a widely accepted financial indicator of
a leveraged company's ability to service and/or incur indebtedness and
because management believes Adjusted EBITDA is a relevant measure of the
Company's ability to generate cash without regard to the Company's capital
structure or working capital needs. Adjusted EBITDA as presented may not be
comparable to similarly titled measures used by other companies, depending
upon the non-cash charges included. When evaluating Adjusted EBITDA,
investors should consider that Adjusted EBITDA (i) should not be considered
in isolation but together with other factors which may influence operating
and investing activities such as changes in operating assets and
liabilities and purchases of property and equipment, (ii) is not a measure
of performance calculated in accordance with generally accepted accounting
principles, (iii) should not be construed as an alternative or substitute
for income from operations, net income or cash flows from operating
activities in analyzing the Company's operating performance, financial
position or cash flows and (iv) should not be used as an indicator of the
Company's operating performance or as a measure of its liquidity.
(l) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and minority interests plus
fixed charges. Fixed charges consist of interest expense on all
obligations, amortization of deferred financing costs and one-third of
rental expense on operating leases representing that portion of rental
expense deemed by the Company to be attributable to interest.
42
<PAGE> 50
TRANSACTION PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS TO
GIVE EFFECT TO
THE TRANSACTION
HISTORICAL TRANSACTION(A) PRO FORMA
---------- -------------- -----------
<S> <C> <C> <C>
Net sales............................................ $ 161,286 $ 161,286
Cost of sales........................................ 103,460 103,460
-------- --------
Gross profit....................................... 57,826 57,826
Operating expenses:
Selling expenses................................... 9,598 9,598
General and administrative expenses................ 13,225 $ 104(b) 13,329
Art and development costs.......................... 3,891 3,891
-------- --------
Income from operations.......................... 31,112 31,008
Interest expense, net................................ 2,654 14,238(c) 16,892
Other income, net.................................... (219) (219)
-------- --------
Income before income taxes and minority
interests....................................... 28,677 14,335
Income taxes......................................... 11,627 (5,808)(d) 5,819
Minority interests................................... 149 149
-------- --------
Net income......................................... $ 16,901 $ 8,367
======== ========
Pro forma net income per share....................... $ 8,284
Pro forma weighted average common shares
outstanding(e)..................................... 1,010
NON-GAAP FINANCIAL DATA:
Adjusted EBITDA(f)................................... $ 35,617 $ 35,513
Adjusted EBITDA margin............................... 22.1% 22.0%
OTHER FINANCIAL DATA:
Gross margin......................................... 35.9% 35.9%
Depreciation and amortization........................ $ 4,505 $ 4,505
Cash capital expenditures............................ 6,895 6,895
Earnings to fixed charges(g)......................... 7.7x 1.8x
</TABLE>
See Notes to Transaction Pro Forma Consolidated Statement of Income.
43
<PAGE> 51
NOTES TO TRANSACTION PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
The pro forma financial data giving effect to the Transaction have been derived
by the application of pro forma adjustments to the Company's historical
consolidated financial statements for the period noted. The adjustments give
effect to certain events that occurred in connection with the Transaction, as if
those events had occurred as of January 1, 1996. The Transaction has been
accounted for as a recapitalization, which will have no impact on the historical
basis of the Company's assets and liabilities.
(a) The pro forma adjustments to the historical Consolidated Statement of Income
exclude the following items, as described in the notes to the Transaction
Pro Forma Consolidated Balance Sheet, (i) the write-off of $20 of deferred
financing costs associated with the debt being repaid, (ii) $1,010 of debt
breakage costs, (iii) $7,500 of non-recurring compensation expense to be
paid by the Estate and the Svenningsen Trusts, (iv) $1,901 of non-recurring
compensation expense for the redemption of Company Stock Options, and (v)
$11,652 of the transaction fees and expenses incurred in connection with
the Transaction. Such amounts represent non-recurring expenses which the
Company anticipates will be reflected in the Consolidated Statement of
Income for the period in which the Transaction is included.
(b) To reflect the amortization over a ten-year period of $1,125 of restricted
shares of Company Common Stock issued to an officer of the Company in
connection with the Transaction. See "The Transaction -- Interests of
Certain Persons in the Transaction".
(c) To adjust interest expense, net to reflect the following:
<TABLE>
<S> <C>
Interest on historical debt repaid in Transaction................. $(1,852)
Interest expense on the Term Loan (8.5% rate)..................... 7,459
Interest expense on the Senior Subordinated Notes (9.875% rate)... 8,147
Amortization of deferred financing costs (7-10 years) on new
indebtedness.................................................... 484
-------
Total adjustment............................................. $14,238
=======
</TABLE>
For the nine months ended September 30, 1997, a 0.125% increase or decrease
in the interest rate on the Term Loan would change the Transaction pro
forma interest expense and net income by $110 and $65, respectively.
(d) To reflect the tax effects of the Transaction pro forma adjustments at a
40.5% statutory income tax rate.
(e) Pro forma weighted average common shares outstanding represents the shares
outstanding following the Effective Time (see Notes to Consolidated
Financial Statements -- September 30, 1997, note (7)).
(f) "Adjusted EBITDA" represents earnings before interest, income taxes,
depreciation and amortization adjusted for special bonuses, non-recurring
compensation, other expenses (income), net and minority interests. Adjusted
EBITDA is presented because it is a widely accepted financial indicator of
a leveraged company's ability to service and/or incur indebtedness and
because management believes Adjusted EBITDA is a relevant measure of the
Company's ability to generate cash without regard to the Company's capital
structure or working capital needs. Adjusted EBITDA as presented may not be
comparable to similarly titled measures used by other companies, depending
upon the non-cash charges included. When evaluating Adjusted EBITDA,
investors should consider that Adjusted EBITDA (i) should not be considered
in isolation but together with other factors which may influence operating
and
44
<PAGE> 52
investing activities such as changes in operating assets and liabilities
and purchases of property and equipment, (ii) is not a measure of
performance calculated in accordance with generally accepted accounting
principles, (iii) should not be construed as an alternative or substitute
for income from operations, net income or cash flows from operating
activities in analyzing the Company's operating performance, financial
position or cash flows and (iv) should not be used as an indicator of the
Company's operating performance or as a measure of its liquidity.
(g) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and minority interests plus
fixed charges. Fixed charges consist of interest expense on all
obligations, amortization of deferred financing costs and one-third of the
rental expense on operating leases representing that portion of rental
expense deemed by the Company to be attributable to interest.
45
<PAGE> 53
TRANSACTION PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS TO
GIVE EFFECT TO
THE TRANSACTION
HISTORICAL TRANSACTION PRO FORMA
---------- -------------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 684 $ 3,291(a) $ 3,975
Accounts receivable, net.............................. 56,276 56,276
Inventories........................................... 48,736 48,736
Deposits and other.................................... 9,680 9,680
-------- --------
Total current assets................................ 115,376 118,667
Property, plant and equipment, net.................... 37,157 37,157
Intangible assets, net................................ 7,540 7,540
Deferred financing costs.............................. -- 5,500(b) 5,500
Other assets, net..................................... 2,687 (20)(c) 2,667
-------- --------
Total assets........................................ $ 162,760 $ 171,531
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
Current liabilities:
Loans and notes payable............................... $ 10,020 (10,020)(d) $ --
Accounts payable...................................... 11,153 11,153
Accrued expenses...................................... 7,317 7,317
Income taxes payable.................................. 6,458 (4,334)(e) 2,124
Current portions of long-term obligations............. 5,556 (3,771)(d) 1,785
-------- --------
Total current liabilities........................... 40,504 22,379
Long-term obligations, excluding current portion...... 24,828 211,186(d) 236,014
Deferred tax liabilities.............................. 5,585 5,585
Other................................................. 2,841 2,841
-------- --------
Total liabilities................................... 73,758 266,819
Stockholders' Equity (deficit):
Common Stock(f)....................................... 2,112 (2,112)(g) --
Additional paid-in capital............................ 65,985 63,000(h)
.................................................... 7,500(i)
.................................................... (136,485)(g) --
Unamortized restricted Common Stock award............. (1,125)(h) (1,125)
Retained earnings (deficit)........................... 21,649 (97,609)(g)
.................................................... (17,749)(e) (93,709)
Foreign currency translation adjustment............... (454) (454)
Treasury stock, at cost............................... (290) 290(g) --
-------- --------
Total stockholders' equity (deficit)................ 89,002 (95,288)
-------- --------
Total liabilities and stockholders' equity
(deficit)........................................ $ 162,760 $ 171,531
======== ========
</TABLE>
See Notes to Transaction Pro Forma Consolidated Balance Sheet.
46
<PAGE> 54
NOTES TO TRANSACTION PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
The pro forma financial data giving effect to the Transaction have been derived
by the application of pro forma adjustments to the historical consolidated
balance sheet as of September 30, 1997. The Transaction has been accounted for
as a recapitalization, which will have no impact on the Company's historical
basis of assets and liabilities.
(a) To increase cash by $3,291 to reflect the following:
<TABLE>
<S> <C>
USES OF CASH:
Purchase equity.................................................. $235,916
Redeem Company Stock Options(1).................................. 1,901
Repay historical debt............................................ 29,605
Debt retirement costs(2)......................................... 1,010
--------
Transaction fees and expenses, including deferred financing
costs(3)....................................................... 17,152
--------
Total uses....................................................... 285,584
--------
SOURCES OF CASH:
New debt......................................................... 227,000
New equity....................................................... 61,875
--------
Total sources.................................................... 288,875
--------
Net.............................................................. $ 3,291
========
</TABLE>
(b) To reflect the portion of transaction fees which will be recorded as
deferred financing costs and will be amortized over the life of the debt to
be issued.
(c) To reflect the write-off of deferred financing costs associated with the
historical debt being repaid and the termination of the Company's existing
term loan agreement.
(d) To adjust indebtedness to reflect the following:
<TABLE>
<S> <C>
Repayment of loans and notes payable............................. $(10,020)
Repayment of current portion of long-term obligations............ (3,771)
Adjustments to long-term obligations:
Repayment of long-term obligations (excluding current portion
of $3,771).................................................. (15,814)
Term Loan...................................................... 117,000
Senior Subordinated Notes...................................... 110,000
--------
Net adjustments to long-term obligations....................... 211,186
--------
Total.......................................................... $197,395
========
</TABLE>
47
<PAGE> 55
(e) To adjust retained earnings to reflect the following items as a result of
the Transaction and the related events:
<TABLE>
<S> <C>
Transaction fees and expenses(3)................................. $(11,652)
Redemption of Company Stock Options(1)........................... (1,901)
Debt retirement costs(2)......................................... (1,010)
One-time compensation charge payable by the Estate (see (i)
below)......................................................... (7,500)
Write-off of deferred financing costs(2)......................... (20)
--------
Total expenses(3).............................................. (22,083)
Income tax benefit attributable to deductible costs and
expenses....................................................... 4,334
--------
Total.......................................................... $(17,749)
========
</TABLE>
(f) At September 30, 1997, the Company's authorized capital stock consisted of
5,000,000 shares of Preferred Stock, at $0.10 par value, of which no shares
were issued or outstanding, and 50,000,000 shares of Company Common Stock,
$0.10 par value, of which 21,120,476 shares were issued and 21,098,785
shares were outstanding. Immediately following the Transaction, 1,000
shares of Company Common Stock were outstanding.
(g) To reflect the purchase of 5,801,441 shares of Company Common Stock for the
Cash Consideration of $16.50 per share ($95,724), the cash portion of the
Mixed Consideration paid for the 15,024,616 shares of Company Common Stock
held by the Estate ($140,192) and the retirement of 21,691 shares of
treasury stock ($290).
(h) To reflect the equity contribution of GSCP of $61,875 and the issuance of
$1,125 of restricted stock to an officer of the Company.
(i) To reflect a one-time compensation charge of $7,500 paid by the Estate and
the Svenningsen Trusts to Mr. Rittenberg under the terms of the Stock
Agreement. Such amount is reflected as compensation expense in the
Company's financial statements for the fourth quarter of 1997. The income
tax benefit attributable to the compensation expense is included in the
income tax adjustment of $4,334 in (e) above.
- ---------------
(1) The cost to redeem Company Stock Options is calculated based on the number
of options outstanding and the difference between the weighted average
exercise price of the options and the Cash Consideration of $16.50 per
share.
(2) The costs associated with the early extinguishment of historical debt will
be recognized as an extraordinary loss, net of the related tax benefit, in
the Company's financial statements for the period in which the Transaction
is included.
(3) Total expenses of $22,083 included $11,652 of (i) professional, advisory and
investment banking fees and expenses, (ii) compensation costs and (iii)
miscellaneous fees and expenses, such as printing and filing fees which
were paid, together with $5,500 of deferred financing costs from the
proceeds from the Transaction Financings.
48
<PAGE> 56
TRANSACTION PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
AND
SUPPLEMENTAL
PRO FORMA SUPPLEMENTAL
ADJUSTMENTS PRO FORMA
TO GIVE TO GIVE PRO FORMA
EFFECT TO EFFECT TO ADJUSTMENTS TO
THE THE GIVE EFFECT
ORGANIZATION ORGANIZATION TO THE TRANSACTION
HISTORICAL AND THE IPO AND THE IPO TRANSACTION(F) PRO FORMA
---------- ------------ ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
Net sales........................ $ 206,983 $206,983 $ 206,983
Cost of sales.................... 134,512 134,512 134,512
-------- -------- --------
Gross profit................... 72,471 72,471 72,471
Operating expenses:
Selling expenses............... 12,745 12,745 12,745
General and administrative
expenses..................... 18,378 $ 62(a) 18,440 $ 213(g) 18,653
Art and development costs........ 5,393 5,393 5,393
Non-recurring compensation in
connection with the IPO...... 15,535 (15,535)(b) -- --
Special bonuses................ 922 (922)(c) -- --
-------- -------- --------
Income from operations......... 19,498 35,893 35,680
Interest expense, net............ 4,775 (557)(d) 4,218 18,884(h) 23,102
Other expense, net............... 417 417 417
Income before income taxes and
minority interests............. 14,306 31,258 12,161
Income taxes..................... 12,812 (180)(e) 12,632 (7,734)(i) 4,898
Minority interests............... 560 (351)(a) 209 209
-------- -------- --------
Net income..................... $ 934 $ 18,417 $ 7,054
======== ======== ========
Pro forma net income per share... $ 6,984
Pro forma weighted average common
shares outstanding(j).......... 1,010
NON-GAAP FINANCIAL DATA:
Adjusted EBITDA(k)............... $ 42,018
Adjusted EBITDA margin........... 20.3% 20.2%
OTHER FINANCIAL DATA:
Gross margin..................... 35.0% 35.0%
Depreciation and amortization.... $ 6,063 $ 6,125
Cash capital expenditures........ 8,934 8,934
Earnings to fixed charges(l)..... 2.8x 1.5x
</TABLE>
See Notes to Transaction Pro Forma Consolidated Statement of Income.
49
<PAGE> 57
NOTES TO TRANSACTION PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
The pro forma financial data giving effect to the Transaction have been derived
by the application of pro forma, supplemental pro forma and Transaction pro
forma adjustments to the Company's historical consolidated financial statements
for the period noted. The adjustments give effect to certain events that
occurred in conjunction with the Organization and the IPO and to certain events
that occurred in connection with the Transaction, as if those events had
occurred as of January 1, 1996, including pro forma adjustments intended to
present the historical results as if certain subsidiaries had terminated their
treatment as S corporations for tax purposes. The Transaction has been accounted
for as a recapitalization, which will have no impact on the historical basis of
the Company's assets and liabilities.
(a) To reflect $62 amortization of goodwill and the elimination of $351 for
minority interest for the quarter ended December 31, 1996, related to the
acquisition of an additional 50% of Am-Source, Inc. as if it were acquired
as of January 1, 1996.
(b) To reflect reductions in compensation expense of $15,535, including stock
and cash of $12,535 for payments to certain executives in connection with
the termination of prior employment agreements and $3,000 for the
establishment of an ESOP for the benefit of the employees of Amscan Inc.
and the payment of stock bonuses to certain of such employees.
(c) To reflect the elimination of special bonuses that will not be recurring due
to the termination of certain employment agreements in connection with the
IPO. No adjustments are reflected or are necessary with respect to
performance-based compensation as the provisions in the employment
agreements entered into in connection with the IPO would have resulted in
performance-based compensation materially equivalent to that reflected in
the historical accounts under the prior employment agreements.
(d) To reflect the reduction of interest expense during the quarter ended
December 31, 1996, assuming the repayment of bank loans and loans from Mr.
Svenningsen from net proceeds of the IPO, as if the IPO occurred at January
1, 1996.
(e) To provide for income taxes at a statutory rate of 40.5% on earnings during
the quarter ended December 31, 1996 as if Amscan Inc., Am-Source, Inc. and
certain other subsidiaries of the Company had not been treated as S
corporations during the period and to give effect to the tax effect of
these adjustments.
(f) The pro forma adjustments to the historical Consolidated Statement of Income
exclude the following items, as described in the notes to the Transaction
Pro Forma Consolidated Balance Sheet, (i) the write-off of $20 of deferred
financing costs associated with the debt being repaid, (ii) $1,010 of debt
retirement costs, (iii) $7,500 of non-recurring compensation expense to be
paid by the Estate and the Svenningsen Trusts, (iv) $1,901 of non-recurring
compensation expense for the redemption of Company Stock Options, and (v)
$11,652 of transaction fees and expenses incurred in connection with the
Transaction. Such amounts represent non-recurring expenses which the
Company anticipates will be reflected in the Consolidated Statement of
Income for the period in which the Transaction is included.
(g) To reflect the amortization over a ten-year period of $1,125 of restricted
shares of Company Common Stock issued to an officer of the Company in
connection with the Transaction. See "The Transaction -- Interests of
Certain Persons in the Transaction".
50
<PAGE> 58
(h) To adjust interest expense to reflect the following:
<TABLE>
<S> <C>
Interest on historical debt repaid in Transaction................. $(2,568)
Interest expense on the Term Loan (8.5% rate)..................... 9,945
Interest expense on the Senior Subordinated Notes (9.875% rate)... 10,863
Amortization of deferred financing costs (7-10 years) on new
indebtedness.................................................... 644
-------
Total adjustment............................................. $18,884
=======
</TABLE>
For the twelve months ended September 30, 1997, a 0.125% increase or
decrease in the interest rate on the Term Loan would change the Transaction
pro forma interest expense and net income by $146 and $87, respectively.
(i) To reflect the tax effects of the Transaction pro forma adjustments at a
40.5% statutory income tax rate.
(j) Pro forma weighted average common shares outstanding represents the shares
outstanding following the Effective Time (see Notes to Consolidated
Financial Statements -- September 30, 1997, note (7)).
(k) "Adjusted EBITDA" represents earnings before interest, income taxes,
depreciation and amortization adjusted for special bonuses, non-recurring
compensation, other expenses (income), net and minority interests. Adjusted
EBITDA is presented because it is a widely accepted financial indicator of
a leveraged company's ability to service and/or incur indebtedness and
because management believes Adjusted EBITDA is a relevant measure of the
Company's ability to generate cash without regard to the Company's capital
structure or working capital needs. Adjusted EBITDA as presented may not be
comparable to similarly titled measures used by other companies, depending
upon the non-cash charges included. When evaluating Adjusted EBITDA,
Investors should consider that Adjusted EBITDA (i) should not be considered
in isolation but together with other factors which may influence operating
and investing activities such as changes in operating assets and
liabilities and purchases of property and equipment, (ii) is not a measure
of performance calculated in accordance with generally accepted accounting
principles, (iii) should not be construed as an alternative or substitute
for income from operations, net income or cash flows from operating
activities in analyzing the Company's operating performance, financial
position or cash flows and (iv) should not be used as an indicator of the
Company's operating performance or as a measure of its liquidity.
(l) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and minority interests plus
fixed charges. Fixed charges consist of interest expense on all
obligations, amortization of deferred financing costs and one-third of
rental expense on operating leases representing that portion of rental
expense deemed by the Company to be attributable to interest.
51
<PAGE> 59
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The party goods industry has experienced significant changes in both
distribution channels and product offerings over the last several years. The
retail distribution of party goods has begun to shift from smaller independent
stores and designated departments within drug, discount or department store
chains to superstores dedicated to retailing party goods. In part due to the
success of the superstore channel, party goods manufacturers broadened their
product lines to support the celebration of a greater number of occasions. The
industry's growth has been directly affected by these changes.
The Company's revenues have increased from $132.0 million in 1994 to $192.7
million in 1996, a compound annual growth rate of approximately 21%. The Company
attributes this growth to its ability to create a broad range of unique and
innovative designs for its products and to work closely with its customers to
market and merchandise its products to consumers. In particular, the Company
experienced significant growth with its party superstore customers. Between 1993
and 1996, sales to party superstore customers increased from $26.8 million to
$85.1 million, a 47% compound annual growth rate.
Revenues are generated from sales of approximately 14,000 SKUs consisting
of paper and plastic tableware, accessories and novelties for all occasions.
Tableware (plates, cups, cutlery, napkins and tablecovers) is the Company's core
product category, generating approximately 59% of revenues in 1996. Coordinated
accessories (e.g., balloons and banners) and novelties (e.g., party favors) are
offered to complement the Company's tableware products. To serve its customers
better, the Company has made significant additions to its product line. Through
increased spending on internal product development as well as through
acquisitions, the Company has had a net increase of approximately 6,300 SKUs
since 1991. Revenue growth primarily has been the result of increased orders
from its party superstore customers (new stores and increased same-store sales),
increased international sales and price increases.
The Company's gross profit is influenced by its product mix and paper
costs. Products manufactured by the Company, primarily tableware, represented
approximately 50% of the Company's 1996 sales. The Company has made significant
additions to its manufacturing capacity which have allowed it to improve gross
margins. The Company believes that its manufacturing capabilities enable it to
lower product cost, ensure product quality and be more responsive to customer
demands. Paper and pulp related products are the Company's principal raw
materials. The Company has historically been able to adjust its prices in
response to changes in paper prices.
FINANCIAL IMPACT OF ORGANIZATION OF THE COMPANY
In connection with the IPO in December 1996 and the Organization, certain
events occurred which affected the financial position and results of the
Company. The following is a discussion of these events and the related financial
impact.
ORGANIZATION OF FOUNDER'S INTERESTS
The Company was formed for the purpose of becoming the holding company for
the businesses previously conducted by Amscan Inc., certain affiliated companies
individually owned and independently controlled by Mr. Svenningsen, and certain
affiliated companies less than 100% owned by Mr. Svenningsen, including
Am-Source, Inc., the Company's supplier of plastic plates, cups and bowls. The
transfer of Mr. Svenningsen's ownership in these companies in exchange for
shares of Common Stock of the Company was accounted for in a manner similar to a
pooling of interests and, as such, the historical cost basis of the accounts was
carried over thereby not giving rise to any goodwill.
52
<PAGE> 60
ACQUISITION OF AM-SOURCE, INC.
The Company and the stockholders of Am-Source, Inc., other than Mr.
Svenningsen, entered into an agreement pursuant to which such stockholders
transferred their ownership in Am-Source, Inc. in exchange for shares of Company
Common Stock. The transaction was accounted for as the purchase of the 50%
ownership of Am-Source, Inc. not owned and gave rise to $7.4 million of
goodwill, which is being amortized over 30 years.
TERMINATION OF PRIOR EMPLOYMENT AGREEMENTS
Pursuant to an agreement between Amscan Inc. and Mr. Rittenberg, the
Company's President, Mr. Rittenberg entered into a new employment agreement,
effective upon consummation of the IPO for a period of three years at a base
compensation of approximately $220,000 per year to be increased annually by 5%.
Mr. Rittenberg agreed to the termination of his prior employment agreement upon
consummation of the IPO. The agreement which was terminated provided for Mr.
Rittenberg to receive bonuses equal to approximately 10% of the aggregate net
profits of Amscan Inc. and certain affiliates (as defined in the agreement) in
each of the next three years and an amount equal to 5% of the value of Amscan
Inc. in the event of a change in control or an initial public offering. In
exchange for relinquishing these rights, Mr. Rittenberg received a special
one-time payment of $3.5 million in cash and shares of Company Common Stock
equal to approximately 3% of the total shares outstanding (excluding shares
issued upon exercise of the underwriters' over-allotment option) immediately
following the IPO. The aggregate value paid to Mr. Rittenberg in cash and stock
was $11.5 million.
During the periods presented, certain other executives also had employment
agreements which entitled them to receive a percentage of the pre-tax profits.
These arrangements for Mr. Rittenberg and such other executives between 1994 and
1996 ranged from 18% to 20% of pre-tax profits in the aggregate. In conjunction
with the IPO, these agreements were substantially modified and these bonus
arrangements replaced by a combination of specific incentive plans and/or cash
payments and stock option grants. The aggregate of the special bonuses to Mr.
Rittenberg and the other executives and senior managers were $2.2 million, $2.6
million and $4.2 million for the years ended December 31, 1994, 1995 and 1996,
respectively.
ESTABLISHMENT OF AN EMPLOYEE STOCK OWNERSHIP PLAN AND PAYMENT OF STOCK BONUSES
In conjunction with the IPO, the Company incurred a compensation expense of
$3.0 million for the establishment of the Company's Employee Stock Ownership
Plan (the "ESOP") for the benefit of the employees of Amscan Inc. and the
payment of stock bonuses to certain of such employees. At the time of the IPO,
there was a special one-time contribution of 250,000 shares of Company Common
Stock to the ESOP, subject to reduction as described in the next sentence,
allocated to participant accounts based upon a formula which was weighted based
upon both years of service and compensation. To the extent that application of
this formula resulted in a contribution to the ESOP on behalf of a participant
which exceeded the maximum contribution permitted under applicable law, the
contribution to the ESOP for such participant was reduced to the maximum
permitted and the balance determined under the formula was paid to such
participant in the form of a stock bonus. The ESOP will be amended in certain
respects in connection with the Transaction.
CHANGE IN TAX STATUS OF CORPORATIONS
Prior to the IPO, Amscan Inc., Am-Source, Inc. and certain other
subsidiaries of the Company were operated as S corporations for federal income
and, where available, for state income tax purposes. As a result, these
corporations did not record or pay any federal or state income tax except in
states which do not recognize S corporation status. Following the IPO, the
Company has been taxed as a C corporation under the Code (as "C corporation" is
defined therein) and it is anticipated that the Company will have an effective
income tax rate of approximately 40.5%.
53
<PAGE> 61
The Company has presented pro forma tax provisions and pro forma net income and
per share data. These pro forma amounts represent the income tax provision and
the net income of the Company had it been a C corporation and thus subject to
income tax for all periods. See the consolidated financial statements included
elsewhere in this Prospectus.
STOCKHOLDER DISTRIBUTIONS
As S corporations, the accumulated profits of Amscan Inc., Am-Source, Inc.
and certain other subsidiaries of the Company were distributed to the
stockholders through December 18, 1996, the effective date of the IPO. Net
profits after the consummation of the IPO are added to the retained earnings of
the Company and used to fund the capital requirements of the business.
Additionally, prior to the IPO, Amscan Inc. and certain affiliates declared
dividends representing distributions of accumulated profits and a return of
capital. These amounts were reflected as subordinated debt and nearly all of the
previous balances of subordinated debt were repaid from the net proceeds of the
IPO.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Percentage of Net Sales
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
----- ------
<S> <C> <C>
Net Sales............................................................. 100.0% 100.0%
Cost of sales......................................................... 64.1 63.2
------ ------
Gross profit........................................................ 35.9 36.8
Operating expenses:
Selling expenses.................................................... 6.0 5.9
General and administrative expenses................................. 8.2 9.6
Art and development costs........................................... 2.4 2.5
Special bonuses..................................................... -- 2.2
------ ------
Total operating expenses.............................................. 16.6 20.2
------ ------
Income from operations.............................................. 19.3 16.6
Interest expense, net................................................. 1.6 3.1
Other income, net..................................................... (0.1) (0.2)
------ ------
Income before income taxes and minority interests................... 17.8 13.7
Income tax expense.................................................... 7.2 0.5
Minority interests.................................................... 0.1 0.9
------ ------
Net income.......................................................... 10.5% 12.3%
====== ======
</TABLE>
NET SALES
Net sales for the nine months ended September 30, 1997 were $161.3 million,
an increase of 9.7% over the nine months ended September 30, 1996. Sales to
national accounts totaled $84.2 million, or 22.1% higher than in the
corresponding period in 1996, principally as a result of sales to the party
goods superstore channel. Sales to international customers increased $1.6
million, contributing 11% to sales growth. Also contributing to the increase in
sales was the Company's marketing strategy of continually offering new products,
as well as new designs and themes for existing products. During the twelve month
period ended September 30, 1997, the Company added approximately 600 SKUs to its
product line.
54
<PAGE> 62
GROSS PROFIT
Gross profit for the nine months ended September 30, 1997 was $57.8
million, an increase of $3.7 million over the same period in 1996. As a percent
of sales, gross profit decreased for the first nine months of 1997 to 35.9% from
36.8% over the corresponding period in 1996 as a result of an increase in
manufacturing capacity and the addition of a new distribution facility, which
created near-term excess capacity.
SELLING EXPENSES
Selling expenses of $9.6 million for the nine months ended September 30,
1997 increased by $0.9 million and as a percentage of net sales to 6.0% as
compared to 5.9% in the corresponding time period in 1996, primarily due to the
expansion of foreign operations.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses of $13.2 million for the nine months
ended September 30, 1997 decreased $0.9 million as compared to the corresponding
period in 1996. As a percentage of net sales, general and administrative
expenses decreased to 8.2% from 9.6%. The decrease is primarily attributable to
non-recurring costs incurred in the second quarter of 1996 associated with the
move to new corporate offices and additional personnel costs, including
relocation and recruitment. General cost reduction efforts in 1997 were offset
by increases in bad debt expense.
ART AND DEVELOPMENT COSTS
Art and development costs of $3.9 million for the nine months ended
September 30, 1997 decreased slightly to 2.4% of net sales during the nine
months ended September 30, 1997 from 2.5% for the corresponding period of 1996.
In 1996, the Company significantly expanded its creative and new product
development staff and internal development capabilities. The continued
investment in art and development expenditures in 1997 reflects the Company's
strategy to remain a leader in product quality and development.
SPECIAL BONUSES
The employment agreements which gave rise to special bonuses during the
first months of 1996 were substantially modified at the time of the IPO in
December 1996 to eliminate future special bonus payments. Such bonuses, which
were based entirely upon the pre-tax income of Amscan Inc. and certain
affiliates, were $3.3 million or 2.2% of net sales for the nine months ended
September 30, 1996.
INTEREST EXPENSE, NET
Interest expense, net, decreased by $1.9 million to $2.7 million for the
nine months ended September 30, 1997 over the corresponding period in 1996, as
the net proceeds received from the issuance of Common Stock in December 1996 and
January 1997 in connection with the IPO were used to reduce indebtedness under
the Company's line of credit and to repay subordinated debt.
INCOME TAXES
Income tax expense was $11.6 million for the nine months ended September
30, 1997 determined based upon an estimated consolidated effective income tax
rate of 40.5% for the year ending December 31, 1997. Prior to the IPO, Amscan
Inc., Am-Source, Inc., and certain other subsidiaries of the Company were taxed
as Subchapter S corporations for federal income tax and, where available, for
state income tax purposes. Accordingly, these entities were not subject to
federal and state income taxes, except in states which do no recognize
Subchapter S corporation status. In connection with the IPO, these subsidiaries
became subject to federal and state income
55
<PAGE> 63
taxes. The amounts shown as income taxes for the nine months ended September 30,
1996 consisted principally of foreign taxes.
MINORITY INTERESTS
Minority interests of $0.1 million and $1.2 million for the nine months
ended September 30, 1997 and 1996, respectively, represent the portion of income
of the Company's subsidiaries attributable to equity ownership not held by the
Company. In addition to the minority interests of certain foreign entities, the
minority interests for the nine months ended September 30, 1996 included a 50%
minority interest in Am-Source, Inc. On December 18, 1996, the Company acquired
the remaining minority interest in Am-Source, Inc.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1996 1995
----- -----
<S> <C> <C>
Net Sales.................................................................. 100.0% 100.0%
Cost of sales.............................................................. 64.3 64.9
------ ------
Gross profit............................................................. 35.7 35.1
Operating expenses:
Selling expenses......................................................... 6.1 7.4
General and administrative expenses...................................... 10.0 9.1
Art and development costs................................................ 2.7 2.5
Non-recurring compensation in connection with the IPO.................... 8.1
Special bonuses.......................................................... 2.2 1.5
------ ------
Total operating expenses................................................... 29.1 20.5
------ ------
Income from operations................................................... 6.6 14.6
Interest expense, net...................................................... 3.4 3.4
Other expense (income), net................................................ 0.2 (0.2)
------ ------
Income before income taxes and minority interests........................ 3.0 11.4
Income taxes............................................................... 1.0 0.4
Minority interests......................................................... 0.9 0.6
------ ------
Net income............................................................... 1.1% 10.4%
====== ======
</TABLE>
NET SALES
Net sales for the year ended December 31, 1996 were $192.7 million, an
increase of 15.1% over the year ended December 31, 1995 in which net sales were
$167.4 million. Increased sales to national accounts, principally party
superstores, accounted for $21.9 million or 87% of this increase. Also
contributing to this sales increase was the impact of the Company's marketing
strategy of continually offering new products as well as new designs and themes
for existing products. In 1996, the Company's product line included
approximately 14,000 SKUs compared with approximately 13,400 SKUs in 1995.
Selling price increases related to core products (paper plates, cups, cutlery,
napkins and tablecovers) in response to higher paper costs accounted for
approximately 6 percentage points of the 15.1% increase in net sales between the
periods. Increased sales to international customers accounted for $3.3 million
of the increase in net sales.
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<PAGE> 64
GROSS PROFIT
Gross profit increased $10.0 million for the year ended December 31, 1996
compared to 1995, and improved as a percentage of sales from 35.1% to 35.7%.
Higher selling prices in response to prior period increases in paper costs as
well as lower product costs resulting from the Company's continued vertical
integration of manufacturing operations, offset in part by the cost of added
distribution facilities, were the primary reasons for this improvement in
margins.
SELLING EXPENSES
Selling expenses were lower by $0.4 million for the year ended December 31,
1996 compared to 1995, and declined as a percentage of net sales from 7.4% to
6.1%. The primary reason for the percentage decline was the Company's ability to
increase sales to its party superstore customers while not significantly
increasing its sales costs associated with those accounts.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $4.3 million for the year
ended December 31, 1996 compared to 1995. As a percentage of net sales, general
and administrative expenses increased from 9.1% to 10.0%. This increase is
principally attributable to an increase in the provision for bad debts of $1.7
million or 0.9% of net sales related to a significant increase in the Company's
accounts receivable and increased occupancy costs of $0.5 million or 0.3% of net
sales related to the Company's new corporate offices. Also contributing to this
increase are non-recurring costs related to the development of a new business
management computer system of $1.2 million or 0.6% of net sales as well as
one-time costs associated with the move to the new corporate offices of $0.3
million or 0.2% of net sales and additional personnel costs including relocation
and recruitment costs of $0.3 million or 0.2% of net sales.
ART AND DEVELOPMENT COSTS
Art and development costs increased $0.9 million for the year ended
December 31, 1996 compared to 1995. As a percentage of net sales, art and
development costs increased from 2.5% to 2.7%. The Company significantly
expanded its creative and new product development staff and internal development
capabilities in the middle of 1995 which resulted in a substantial increase in
art and development costs which were incurred during all of 1996. The increase
in art and development expenditures reflects the Company's strategy to remain a
leader in product quality and development.
NON-RECURRING COMPENSATION
In conjunction with the IPO, the Company recorded non-recurring
compensation of $15.5 million in 1996 related to stock and cash payments of
$12.5 million to certain executives in connection with the termination or
modification of employment agreements and $3.0 million for the establishment of
an ESOP for the benefit of the employees of Amscan Inc. and the payment of stock
bonuses to certain of such employees.
SPECIAL BONUSES
Special bonuses, which were based entirely upon the Company's pre-tax
income, increased by $1.6 million for the year ended December 31, 1996 compared
to 1995. The employment agreements which gave rise to these bonuses were
substantially modified to eliminate these special bonus payments in the future.
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<PAGE> 65
INCOME FROM OPERATIONS
Due to the non-recurring compensation of $15.5 million and the other
factors discussed above, income from operations decreased $11.9 million to $12.8
million in 1996 from $24.7 million in 1995. As a percentage of net sales, income
from operations decreased from 14.6% in 1995 to 6.6% in 1996.
INTEREST EXPENSE, NET
Interest expense, net increased by $0.9 million to $6.7 million in 1996,
reflecting slightly higher borrowings associated with increased working capital
(primarily inventory and accounts receivable) needed to support the increased
volume of sales, offset in part by a lower effective interest cost associated
with the Company's revised revolving credit agreement, which was entered into in
September 1995.
INCOME TAXES
Prior to the IPO, Amscan Inc., Am-Source, Inc. and certain other
subsidiaries of the Company were taxed as S corporations for federal income tax
and, where available, for state income tax purposes. Accordingly, these entities
were not subject to federal and state income taxes except in states which do not
recognize S corporation status. In connection with the IPO, these subsidiaries
became subject to federal and state income taxes. The amounts shown as income
taxes in 1996 consist principally of foreign taxes and a one-time charge of $0.8
million related to the establishment of deferred taxes in connection with the
change in tax status.
MINORITY INTERESTS
Minority interests represent the portion of income of the Company's
Subsidiaries attributable to equity ownership not held by Amscan Holdings, Inc.
In addition to the minority interests of certain foreign entities, these amounts
include the minority interest of Am-Source, Inc. through December 18, 1996, the
date the Company acquired the 50% not owned by Mr. Svenningsen.
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<PAGE> 66
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1995 1994
----- -----
<S> <C> <C>
Net Sales................................................................ 100.0% 100.0%
Cost of sales............................................................ 64.9 65.7
----- -----
Gross profit........................................................... 35.1 34.3
Operating expenses:
Selling expenses....................................................... 7.4 8.5
General and administrative expenses.................................... 9.1 11.0
Art and development costs.............................................. 2.5 2.1
Special bonuses........................................................ 1.5 1.7
----- -----
Total operating expenses................................................. 20.5 23.3
----- -----
Income from operations................................................. 14.6 11.0
Interest expense, net.................................................... 3.4 2.9
Other (income) expense, net.............................................. (0.2) 0.1
----- -----
Income before income taxes and minority interests...................... 11.4 8.0
Income taxes............................................................. 0.4 0.4
Minority interests....................................................... 0.6 0.1
----- -----
Net income............................................................. 10.4% 7.5%
===== =====
</TABLE>
NET SALES
Net sales for the year ended December 31, 1995 were $167.4 million, an
increase of 26.8% over 1994 when net sales were $132.0 million. Increased sales
to party superstores accounted for $23.3 million or 66% of this increase. The
number of retail outlets represented by these accounts increased to 886 in 1995
from 720 in 1994. Also contributing to this net sales increase was the impact of
the Company's marketing strategy of continually offering new products as well as
new designs and themes for existing products. In 1995, the Company's product
line included over 13,400 SKUs compared to approximately 11,000 SKUs in 1994.
Selling price increases related to core products (paper plates, cups, napkins
and tablecovers) in response to higher paper costs, accounted for approximately
5 percentage points of the 26.8% of the year-over-year increase in net sales.
Increased sales to international customers accounted for $4.3 million of the
increase in net sales in 1995 compared to 1994.
GROSS PROFIT
Gross profit increased by $13.5 million from 1994 to 1995, and improved as
a percentage of net sales from 34.3% to 35.1%. The gross profit margin
improvement resulted primarily from the increased vertical integration of the
Company's tableware manufacturing operations. During 1995, the Company added
several new pieces of equipment including two printing presses which enabled it
to expand its manufacturing capacity. In addition, gross profit improved as a
result of increased leveraging of existing distribution facilities and improved
purchasing of nonmanufactured products.
SELLING EXPENSES
Selling expenses increased by $0.9 million from 1994 to 1995, but declined
as a percentage of net sales from 8.5% to 7.4%. The primary reason for the
percentage decline was the Company's
59
<PAGE> 67
ability to increase sales to its party superstore customers, while not
significantly increasing its sales costs associated with these accounts.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $0.5 million from 1994 to
1995, primarily as a result of modest wage increases partially offset by
decreased provisions for bad debts. During 1994, the Company sustained a larger
amount of write-offs due to two large accounts which filed for bankruptcy. As a
percentage of net sales, general and administrative expenses declined from 11.0%
in 1994 to 9.1% in 1995. The Company was able to leverage its administrative
resources while supporting the increased sales.
ART AND DEVELOPMENT COSTS
Art and development costs increased $1.5 million from 1994 to 1995. As a
percentage of net sales, art and development costs increased from 2.1% in 1994
to 2.5% in 1995. The Company significantly expanded its creative and new product
development staff and internal development capabilities in 1995, which resulted
in a substantial increase in art and development costs in the second half of
1995. The increase in such expenses reflects the Company's strategy of remaining
a leader in product quality and development.
SPECIAL BONUSES
Special bonuses, which were based upon the Company's pre-tax income,
increased in 1995 over 1994. The special bonus in 1994 included special one-time
bonuses of approximately $0.8 million associated with the partial acquisition of
Am-Source, Inc. In connection with the IPO, the employment agreements which gave
rise to these bonuses were substantially modified to eliminate the special bonus
payments.
INCOME FROM OPERATIONS
The factors discussed above contributed to the increase in income from
operations of 69.9% to $24.7 million in 1995 from $14.5 million in 1994. As a
percentage of net sales, income from operations increased from 11.0% in 1994 to
14.6% in 1995.
INTEREST EXPENSE, NET
Interest expense, net increased by $1.9 million to $5.8 million from 1994
to 1995, reflecting higher borrowings associated with increased working capital
(primarily from inventory and accounts receivable) needed to support the
increased volume of sales, as well as an increase in the Company's average
effective rate for borrowed money from 7.5% to 8.3%.
INCOME TAXES
Amscan Inc., Am-Source, Inc. and certain other subsidiaries of the Company
elected to be taxed as S corporations for federal income and, where available,
for state income tax purposes. Accordingly, these entities were not subject to
federal income taxes prior to the IPO except in states which do not recognize S
corporation status. In connection with the IPO, these subsidiaries terminated
their S corporation status and, accordingly, are subject to federal and state
income taxes. The amounts shown as income taxes consist principally of foreign
taxes.
MINORITY INTERESTS
Minority interests represent the portion of income attributable to equity
ownership not held by Mr. Svenningsen. In addition to the minority interests of
certain foreign entities, these amounts include the minority interest of
Am-Source, Inc. prior to its acquisition by the Company.
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<PAGE> 68
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth since 1994 principally through cash
flow generated from operations, the use of operating leases, increases in its
revolving line of credit borrowings and increases in long-term debt, including
debt owed to Mr. Svenningsen. The net proceeds from the IPO were used to reduce
indebtedness under the Company's line of credit and to repay subordinated debt.
Upon consummation of the Transaction, the Company's existing loan
arrangements terminated and the Company entered into the Transaction Financings.
As of September 30, 1997, after giving pro forma effect to the Transaction and
the Transaction Financings and the application of the net proceeds therefrom,
the Company would have had (i) $237.8 million of consolidated indebtedness and
(ii) $95.3 million of consolidated stockholders' deficiency. The Company's
significant debt service obligations following the Transaction could, under
certain circumstances, have material consequences to security holders of the
Company. See "Description of Senior Debt" and "Risk Factors -- Substantial
Leverage; Ability to Service Indebtedness".
In order to fund the payment of the cash portion of the Transaction
Consideration, to refinance certain existing outstanding indebtedness of the
Company, to pay transaction costs incurred in connection with the Transaction,
and for general corporate purposes, the Company issued the Notes and entered
into the Bank Credit Agreement providing for borrowings in the aggregate
principal amount of approximately $117 million under the Term Loan and revolving
loan borrowings of up to $50 million under the Revolving Credit Facility. The
Revolving Credit Facility is, subject to a borrowing base, available to fund the
working capital requirements of the Company.
Based upon the current level of operations and anticipated growth, the
Company anticipates that its operating cash flow, together with available
borrowings under the Revolving Credit Facility, will be adequate to meet its
anticipated future requirements for working capital and operating expenses, to
permit potential acquisitions and to service its debt requirements as they
become due. However, the Company's ability to make scheduled payments of
principal of, or to pay interest on, or to refinance its indebtedness (including
the Exchange Notes) and to satisfy its other obligations will depend upon its
future performance, which, to a certain extent, will be subject to general
economic, financial, competitive, business and other factors beyond its control.
Management believes that additions to plant and equipment during the past
three years provide adequate capacity to support its operations for at least the
next 12 months. As of September 30, 1997, the Company did not have material
commitments for capital expenditures. The Transaction Financings entered into in
connection with the Transaction may affect the Company's ability to make capital
expenditures. See "Risk Factors -- Substantial Leverage; Ability to Service
Indebtedness"; "Description of Senior Debt" and "Description of Exchange Notes".
CASH FLOW DATA -- NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1996
Net cash provided by operating activities increased by $6.9 million to $8.5
million for the nine months ended September 30, 1997 as compared to the same
period in 1996, primarily as a result of decreased working capital levels. Net
cash used in investing activities increased by $1.2 million to $6.8 million for
the nine months ended September 30, 1997 over the comparable period in 1996, and
consisted primarily of capital expenditures. Net cash used in financing
activities totaled $2.5 million for the nine months ended September 30, 1997 as
repayments of bank and other indebtedness exceeded net proceeds of $4.5 million
received from the sale of the Company's Common Stock to cover the exercise of
the underwriters' over-allotment option and proceeds under the Company's
existing loan arrangements.
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<PAGE> 69
BALANCE SHEET DATA -- SEPTEMBER 30, 1997 COMPARED TO DECEMBER 31, 1996
Accounts receivable, net, increased $18.9 million to $56.3 million at
September 30, 1997 from $37.4 million at December 31, 1996. This increase is
principally due to the increased sales and customary extended payment terms
offered on seasonal sales during the third quarter. Third quarter sales are
generally the highest of the year primarily due to the shipment of certain
seasonal holiday merchandise. During September 1997, the Company entered into an
agreement to convert $4.0 million of trade accounts receivable from one of its
two largest customers into an equity interest. The Company subsequently
transferred 50% of this interest to the Estate in full satisfaction of $2.0
million of obligations. The remaining equity interest is included in other
assets at September 30, 1997. Subsequently, the Company transferred the
remaining interest to the Estate for $1.0 million in cash and in full
satisfaction of $1.0 million of future obligations to the Estate.
Inventories increased $3.0 million to $48.7 million at September 30, 1997
from $45.7 million at December 31, 1996 due to seasonality of inventory levels.
Deposits and other current assets decreased $1.7 million to $9.7 million at
September 30, 1997 from December 31, 1996, principally due to a reduction in
deposits for the manufacture of equipment to be leased.
Property, plant and equipment, net, increased $2.5 million to $37.2 million
at September 30, 1997 from $34.7 million at December 31, 1996. The increase
represents the acquisition of certain domestic manufacturing and warehouse
equipment, partially offset by depreciation.
Loans and notes payable decreased $19.3 million to $10.0 million at
September 30, 1997 from December 31, 1996, reflecting the repayment of
borrowings under the Company's previous revolving credit line, which was
financed by advances under the Company's then-existing loan facilities and term
loans.
Income taxes payable increased $5.6 million to $6.5 million at September
30, 1997 from December 31, 1996. This increase is primarily due to the change in
tax status. In connection with the IPO on December 18, 1996, Amscan Inc.,
AmSource, Inc., and other subsidiaries of the Company terminated their S
corporation status, and accordingly became subject to federal and state income
taxes.
Third-party long-term financings for the nine months ended September 30,
1997 consisted primarily of borrowings under the previously mentioned term loan
and long-term loans secured by real property, machinery and equipment.
Common Stock and additional paid-in capital increased by $4.5 million as a
result of the exercise of the underwriters' over-allotment option.
CASH FLOW DATA -- YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER
31, 1995
Net cash provided by operating activities increased by $7.6 million to
$12.3 million in the year ended December 31, 1996 from $4.7 million in the year
ended December 31, 1995 as a result of the decreased rate of growth in
inventories and other assets, partially offset by increases in deposits paid on
purchased equipment and a decrease in net income before depreciation and
amortization. Net cash used in investing activities of $7.6 million increased by
$3.1 million from 1995 because of increased capital expenditures. Net cash used
in financing activities increased by $6.1 million to $6.0 million in 1996 due to
increases in stockholder distributions, repayment of bank debt and subordinated
debt partially offset by net proceeds from the IPO.
Third party financings for 1996 consisted primarily of borrowings under
credit and long-term loans secured by machinery and equipment. The Company used
net proceeds from the IPO to repay debt owed to the banks and to Mr. Svenningsen
in 1996. The Company used $8.9 million of the cash in 1996 to fund its working
capital needs, which consisted primarily of increases in accounts receivable and
deposits on machinery and equipment.
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<PAGE> 70
In 1996, the Company distributed $23.4 million, compared to $11.0 million
in 1995, to stockholders, of which $1.4 million in 1996 and $4.0 million in 1995
was reinvested in the Company as debt payable to stockholders. The distributions
in 1996 were funded by net proceeds from the IPO and represented accumulated
earnings and the return of previously provided capital.
In 1996 and 1995, the Company acquired $11.0 million and $4.5 million,
respectively, of machinery and equipment, which was financed by long-term debt
and borrowings under the Company's revolving credit facility, and entered into
operating leases for additional machinery and equipment totaling $10.8 million
in 1996 and $7.4 million in 1995.
BALANCE SHEET DATA -- DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
Accounts receivable, net increased $5.5 million to $37.4 million at
December 31, 1996 from $31.9 million at December 31, 1995. This increase is due
principally to increased sales.
Deposits and other assets increased $8.4 million to $11.4 million at
December 31, 1996 from December 31, 1995. This increase is due principally to
deposits placed, offset by the related advances received, in connection with
various operating leases for manufacturing and warehouse equipment as well as
office equipment and computer software and to the establishment of a deferred
tax asset resulting from the change in tax status.
Property, plant and equipment, net increased $5.5 million to $34.7 million
at December 31, 1996 from $29.2 million at December 31, 1995. This increase is
primarily due to manufacturing and warehouse equipment acquired, partially
offset by depreciation.
Intangible assets, net increased $7.1 million on December 31, 1996 from
December 31, 1995 primarily due to goodwill recorded in connection with the
acquisition of the remaining 50% of Am-Source, Inc.
Loans and notes payable decreased $8.5 million to $29.3 million at December
31, 1996. Subordinated and other debt due to stockholders decreased $17.1
million to $1.4 million at December 31, 1996. The decreases resulted from the
repayment of bank debt and subordinated debt funded by net proceeds from the
IPO.
Long-term debt, including current installments, increased $3.1 million to
$17.6 million at December 31, 1996 primarily because of loans used to acquire
machinery and equipment.
Common stock increased $1.7 million to $2.1 million at December 31, 1996
due to the exchange of shares issued in 1996. These shares include the shares
issued to Mr. Svenningsen and others in connection with the Organization, the
shares issued in the IPO and the shares issued in connection with the
establishment of the ESOP, the payment of stock bonuses and the acquisition of
the remaining 50% of Am-Source, Inc.
Additional paid-in capital increased $52.4 million to $61.5 million as of
December 31, 1996 primarily due to the net proceeds from the IPO, and other
shares issued in connection with the IPO, partially offset by the return of
previously provided capital and a reduction in additional paid-in capital
resulting from the exchange of shares in the Organization.
CASH FLOW DATA -- YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER
31, 1994
Net cash provided by operating activities decreased by $0.4 million to $4.7
million in 1995 from $5.1 million in 1994. This slight decrease was primarily
attributable to increases in accounts receivable and inventories, offset by
increases in accounts payable and accrued expenses and net income before
depreciation and amortization. Net cash used in investing activities decreased
$2.8 million from $7.3 million to $4.5 million due to reduced capital
expenditures. Net cash provided by financing activities decreased $2.6 million
from $2.7 million to $0.1 million due to an increase in stockholder
distributions partially offset by an increase in loans, notes payable and
long-term indebtedness.
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<PAGE> 71
The Company generated $10.0 million and $3.9 million from third-party
financings and $1.2 million and $6.3 million from financings with Mr.
Svenningsen in 1995 and 1994, respectively. Financings in 1995 consisted
primarily of long-term loans secured by machinery and equipment and borrowings
under revolving credit facilities, while financings in 1994 consisted primarily
of bankers acceptances and borrowings under revolving credit facilities. The
Company used $18.6 million of cash in 1995 and $11.2 million of cash in 1994 to
fund its working capital needs, which consisted primarily of increases in
accounts receivable and inventory.
In 1995, the Company distributed $11.0 million, compared to $7.5 million in
1994, to stockholders, of which $4.0 million in 1995 and $6.3 million in 1994
was reinvested in the Company as debt payable to stockholders. The remainder of
these distributions was used principally for the payment of the stockholders'
taxes. The increase from 1994 to 1995 was due to increased earnings of those
corporations, taxable to the stockholders.
In 1994, the Company acquired $8.0 million of machinery and equipment which
was financed primarily by borrowings under the Company's revolving credit
facilities and $4.0 million of which was refinanced through long-term loans
early in 1995.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128--Earnings
per Share, effective for interim and annual periods ending after December 15,
1997. The Company does not believe that the impact of SFAS No. 128 will have a
significant impact on its earnings per share calculation.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 170 establishes requirements for disclosure of comprehensive income.
The new standard becomes effective for the Company's fiscal year 1998 and
requires reclassification of earlier financial statements for comparative
purposes.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 establishes standards for
disclosure about operating segments in annual financial statements and requires
disclosure of selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. This statement supersedes
SFAS No. 14, Financial Reporting for Segments of a Business Enterprise. The new
standard becomes effective for the Company's fiscal year 1998 and requires that
comparative information from earlier years be restated to conform to the
requirements of this standard. The Company does not believe any substantial
changes to its disclosures will be made at the time SFAS No. 131 is adopted.
In November 1997, the Emerging Issues Task Force reached a consensus on
Issue 97-13, Accounting for Costs Incurred in Connection with a Consulting
Contract or an Internal Project That Combines Business Process Reengineering and
Information Technology Transformation. The consensus generally requires third
party consulting costs and internally generated costs associated with business
process reengineering projects to be expensed as incurred. The consensus became
effective for the Company's fiscal year ended December 31, 1997 and will not
have a significant impact on its financial position or results of operations.
Other pronouncements issued by the FASB or other authoritative accounting
standards groups with future effective dates are either not applicable or not
significant to the financial statements of the Company.
QUARTERLY RESULTS
As a result of the seasonal nature of certain of the Company's products,
the quarterly results of operations may not be indicative of those for a full
year. Third quarter sales are generally the highest
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<PAGE> 72
of the year due to a combination of increased sales to consumers of the
Company's products during summer months as well as initial shipments of seasonal
holiday merchandise as retailers build inventory. Conversely, fourth quarter
sales are generally lower as retailers sell through inventories purchased during
the third quarter. The overall growth rate of the Company's sales in recent
years has offset, in part, this sales variability. Promotional activities,
including special dating and pricing terms, particularly with respect to
Halloween and Christmas products, result in generally lower margins and
profitability in the fourth quarter, as well as higher accounts receivables
balances and associated higher interest costs to support these balances. The
following table sets forth the historical net sales and income (loss) from
operations of the Company for 1997, 1996 and 1995 by quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1995
Net sales...................................... $ 39,376 $41,046 $ 47,892 $ 39,089
Income from operations......................... 6,492 6,350 9,120 2,707(a)
1996
Net sales...................................... $ 47,258 $45,714 $ 54,036 $ 45,697
Income (loss) from operations.................. 7,586 7,563 9,223 (11,614)(b)
1997
Net sales...................................... $ 53,176 $49,225 $ 58,885
Income from operations......................... 10,029 9,306 11,777
</TABLE>
- ---------------
(a) In addition to the seasonal variability described above, income from
operations for the fourth quarter of 1995 was adversely affected by the
impact of higher paper costs for which selling price adjustments were
implemented in the first quarter of 1996. Income from operations for this
quarter were also adversely affected by additional bad debt reserves
(approximately $0.5 million, representing approximately one-third of the
provision for doubtful accounts recognized for the full year 1995) and
additional computer system expenses (approximately $0.5 million).
(b) Included in fourth quarter results in 1996 are non-recurring compensation
expenses of $15.5 million, including stock and cash payments of $12.5
million to certain executives in connection with the termination or
modification of prior employment agreements and $3.0 million for the
establishment of an ESOP for the benefit of the employees of Amscan Inc.
and the payment of stock bonuses to certain of such employees.
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
various provisions of the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, included in this
Prospectus that address activities, events or developments that the Company
expects or anticipates will or may occur in the future, including financial
projections, future capital expenditures (including the amount and nature
thereof), business strategy and measures to implement strategy, including any
changes to operations, competitive strengths, goals, expansion and growth of the
Company's and its Subsidiaries' business and operations, plans, references to
future success and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions and expected future developments as well as other factors it believes
are appropriate in the circumstances. However, whether actual results and
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, including, but not limited to,
(1) the significant considerations discussed in this Prospectus, (2) the
concentration of sales by the Company to
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<PAGE> 73
party goods superstores where the reduction of purchases by a small number of
customers could materially reduce the Company's sales and profitability, (3) the
concentration of the Company's credit risk in party goods superstores, many of
which are privately held and have expanded rapidly in recent years, (4) the
failure by the Company to anticipate changes in tastes and preferences of party
goods retailers and consumers, (5) the introduction of new products by the
Company's competitors, (6) the inability of the Company to increase prices to
recover fully future increases in raw material prices, especially increases in
paper prices, (7) the loss of key employees, (8) changes in general business
conditions, (9) other factors which might be described from time to time in the
Company's filings with the Commission, and (10) other factors which are beyond
the control of the Company and its Subsidiaries. Consequently, all of the
forward-looking statements made in this Prospectus are qualified by these
cautionary statements, and there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on the Company and its Subsidiaries or their business or operations. In
addition, although the Company believes that it has the product offerings and
resources needed for continued growth in revenues and margins, future revenue
and margin trends cannot be reliably predicted. Changes in such trends may cause
the Company to adjust its operations in the future. Because of the foregoing and
other factors, recent trends should not be considered reliable indicators of
future financial results.
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<PAGE> 74
BUSINESS
THE COMPANY
Amscan designs, manufactures and distributes decorative party goods,
offering one of the broadest and deepest product lines in the industry. The
Company's products include paper and plastic tableware (such as plates, napkins,
tablecovers, cups and cutlery), accessories (such as invitations, thank-you
cards, table and wall decorations and balloons) and novelties (such as games and
party favors). The Company's products are sold to party goods superstores,
independent card and gift retailers, mass merchandisers and other distributors
which sell Amscan products in more than 20,000 retail outlets throughout the
world, including North America, Australia, the United Kingdom, Germany and
Sweden.
The Company currently offers over 250 product ensembles, generally
containing 30 to 150 coordinated items. These ensembles comprise a wide variety
of products to accessorize a party including matching invitations, tableware,
decorations, party favors and thank-you cards. The Company designs, manufactures
and markets party goods for a wide variety of occasions including seasonal
holidays, special events and theme celebrations. The Company's seasonal
ensembles enliven holiday parties throughout the year including New Year's,
Valentine's Day, St. Patrick's Day, Easter, Passover, Fourth of July, Halloween,
Thanksgiving, Hanukkah and Christmas. The Company's special event ensembles
include birthdays, christenings, first communions, bar mitzvahs, confirmations,
graduations, baby and bridal showers and anniversaries, while its theme-oriented
ensembles include Hawaiian luaus, Mardi Gras and '50s rock-and-roll parties.
In addition to its long-standing relationships with independent card and
gift retailers, the Company is a leading supplier to the party superstore
distribution channel. Party goods superstores are growing rapidly by providing
consumers with a one-stop source for all of their party needs, generally at
discounted prices. The retail party goods business has historically been
fragmented among independent stores and drug, discount or department store
chains. However, according to industry analysts, there has been a significant
shift of sales since 1990 to the party goods superstores channel.
Company sales to superstores represented approximately 44% of total sales
in 1996. While the number of party superstores that Amscan supplies has grown at
a CAGR in excess of 20% from 1993 to 1996, the Company's sales to superstores
have grown by a 47% CAGR during the same period. With Amscan products occupying
an increasing share of superstore shelf space in many product categories, Amscan
believes it is well positioned to take advantage of continued growth in the
party superstore channel.
Amscan's sales and cash flows have grown substantially over the past five
years. From 1991 to 1996, sales and Adjusted EBITDA (adjusted for non-recurring
items, other income or expenses, and minority interests) have grown at compound
annual rates of 20% and 28%, respectively. During the same period, Adjusted
EBITDA margins increased from approximately 14% to 20% due in part to the
Company achieving greater economies of scale in manufacturing and distribution,
and significantly reducing selling expenses as a percentage of sales. Sales and
Adjusted EBITDA for the twelve months ended September 30, 1997 were
approximately $207 million and $42 million, respectively, representing an
Adjusted EBITDA margin of approximately 20%.
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<PAGE> 75
REVENUE AND ADJUSTED EBITDA GROWTH
[STRONG REVENUE AND EBITDA GROWTH BAR GRAPHS]
PARTY GOODS INDUSTRY OVERVIEW
According to industry analyst reports, the U.S. decorative party goods
industry (including tableware, accessories and novelties) generated
approximately $3.5 billion in retail sales in 1996 and has grown approximately
10% annually over the past several years. The Company believes this growth is
driven by several factors including favorable demographics and consumer spending
patterns, the emergence of the party superstore channel and growth in the number
of party events celebrated and party products available to consumers.
The Company believes that demographic trends favor continued growth in
decorative party goods sales. According to the United States Bureau of the
Census ("The Census Bureau"), between 1997 and 2005, population in the 10-19
year old age bracket is expected to increase by approximately 10%, and
population in the 20-24 year old age bracket is expected to increase by
approximately 15%. This suggests an increase in celebrations revolving around
teenagers and young adults including confirmations, bar mitzvahs, graduations
and bridal and baby showers. In addition, the 45-54 year old age bracket is
expected to increase by over 20% by 2005. According to The Census Bureau and the
United States Bureau of Labor Statistics, this population segment enjoyed the
highest median household income and spent the most money on entertainment in
1995. The Company believes that this population segment is a key buying group of
party goods for children and grandchildren, as well as products for adult
milestone events including birthdays, anniversaries and retirements.
Another factor contributing to growth in the decorative party goods
industry has been the emergence of party goods superstores which, according to
industry analysts, are poised for expansion as national penetration continues.
The Company believes that superstores are popular among consumers because of the
large variety of merchandise and substantial discounts they offer. Industry
analysts report that, over the past several years, the marketplace has begun to
accept a move toward the party goods superstore merchandising concept, similar
to earlier merchandising shifts in such product categories as toys, office
supplies, home furnishings and home improvements.
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<PAGE> 76
The Company believes that party goods sales volumes have also increased, in
part, as a result of:
- the creation of new product ensembles both in response to consumer
demand and as a means of stimulating customer purchases;
- the broadening of product lines through the addition of new items and
new accessories within ensembles;
- larger retail environments allowing retailers to employ marketing
techniques which result in increased average sales per customer; and
- the celebration of an increased number of party themes and events, such
as Hawaiian luaus, Mardi Gras and '50s rock-and-roll parties.
The Company believes that by introducing products for new types of
celebrations, offering multiple product ensembles for individual celebrations
(such as multiple Halloween or birthday ensembles) and increasing the number of
"add-on" accessories, party goods suppliers have increased the frequency and
volume of consumer purchases of decorative party goods.
COMPETITIVE STRENGTHS
- Leading Supplier to the High Growth and High Volume Party Goods
Superstore Channel. In addition to its long-standing base of business
with independent card and party retailers, the Company believes that its
products account for an increasing portion of the retail sales by major
superstore chains, including Party City, Party Stores Holdings, Big Party
Corporation, The Paper Factory, The Half-Off Card Shop, Paper Warehouse
Inc. and Factory Card Outlet Corp. Approximately 44% of the Company's
sales were generated from superstores last year, and based on indications
from these chains that they intend to continue to expand nationwide, the
Company expects that sales to this segment will continue to grow
significantly.
- Single Source Supplier of Decorative Party Goods. The Company provides
one of the most extensive product lines of decorative party goods in the
industry, serving a wide variety of occasions. Amscan produces over 250
different ensembles, generally containing 30 to 150 coordinated SKUs
within each ensemble. With 14,000 SKUs, the Company is a one-stop
shopping, single-source supplier to retailers of decorative party goods.
The Company believes this breadth of product line provides enough variety
that competing retailers can each purchase Amscan products and still
differentiate themselves by the product they market to the end consumer.
- Strong Customer Relationships. The Company has built strong
relationships with its customer base which operates more than 20,000
retail outlets. The Company strives to provide superior service and, by
involving retailers in product development and marketing, seeks to become
a strategic partner to its customers.
- Product Design Leadership. The Company believes one of its strengths is
its leadership in creating innovative designs and party items. The
Company believes its product designs have a level of color, complexity
and style that are attractive to consumers and difficult to replicate.
The Company offers coordinated accessories and novelties which, the
Company believes, complement its tableware designs, enhancing the appeal
of its tableware products and encouraging "add on" impulse purchases.
- Strong and Committed Management Team. The Company's management team has
built the business into an industry leader with integrated design,
manufacturing, and distribution capabilities. Current management has been
instrumental in building the Company's strong industry position and in
the Company's achieving a 28% CAGR in Adjusted EBITDA since
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<PAGE> 77
1991. The management team and other key employees have committed $6.4
million (including restricted stock grants) to the Transaction.
COMPANY STRATEGY
The Company seeks to become the primary source for consumers' party goods
requirements. The key elements of the Company's strategy are as follows:
- Strengthen Position as a Leading Provider to Party Superstores. The
Company offers convenient "one-stop shopping" for large superstore buyers
and seeks to increase its proportionate share of sales volume and shelf
space in the superstores.
- Offer the Broadest and Deepest Product Line in the Industry. The
Company strives to offer the broadest and deepest product line in the
industry. The Company helps retailers boost average purchase volume per
consumer through coordinated ensembles that promote "add on" purchases.
- Diversify Distribution Channels, Product Offering and Geographic
Presence. The Company will seek, through internal growth and
acquisitions, to expand its distribution capabilities internationally,
increase its presence in additional retail channels and further broaden
and deepen its product line.
- Provide Superior Customer Service. The Company strives to achieve high
average fill rates in excess of 95% and ensure short turnaround times.
- Maintain Product Design Leadership. The Company will continue investing
in art and design to support a steady supply of fresh ideas and create
complex, unique ensembles that appeal to consumers and are difficult to
replicate.
- Maintain State-of-the-Art Manufacturing and Distribution
Technology. The Company intends to maintain technologically advanced
production and distribution systems in order to enhance product quality,
manufacturing efficiency, cost control and customer satisfaction.
- Pursue Attractive Acquisitions. The Company believes that opportunities
exist to make acquisitions of complementary businesses to leverage the
Company's existing marketing, distribution and production capabilities,
expand its presence in the various retail channels, further broaden and
deepen its product line and penetrate international markets. The Company
receives inquiries from time to time with respect to the possible
acquisition by the Company of other entities and the Company intends to
pursue acquisition opportunities aggressively.
BUSINESS OPERATIONS
PRODUCT DESIGN
The Company's 70-person in-house design staff produces and manages the
Company's party goods. From the designs and concepts developed by the Company's
artists, the Company selects those it believes best to replace approximately
one-third of its designed product ensembles each year. For 1997, the Company
introduced approximately 50 new ensembles.
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<PAGE> 78
PRODUCT LINE
The categories of products which the Company offers are tableware,
accessories and novelties. The percentages of sales for each product category
for 1994, 1995 and 1996 are set forth in the following table:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Tableware........................................................... 58% 60% 59%
Accessories......................................................... 26 24 25
Novelties........................................................... 16 16 16
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
Products. The following table sets forth the principal products in each of
the three categories:
<TABLE>
<CAPTION>
TABLEWARE ACCESSORIES NOVELTIES
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Decorated Balloons Buttons
Paper Plates Cascades Cocktail Picks
Paper Napkins Confetti Games
Paper Tablecovers Banners Candles
Paper Cups Crepe Mugs
Solid Color Cutouts Noise Makers
Paper and Plastic Plates Decorative Tissues Party Favors
Paper Napkins Flags Party Hats
Paper and Plastic
Tablecovers Gift Bags Pom Poms
Paper and Plastic Cups Gift Wrap T-shirts
Plastic Cutlery Guest Towels
Honeycomb Centerpieces
Invitations and Notes
Ribbons and Bows
Signs
</TABLE>
Occasions. The Company supplies party goods for the following types of
occasions:
<TABLE>
<CAPTION>
SEASONAL EVERYDAY THEMES
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
New Year's Anniversaries Fall
Valentine's Day Birthdays Fiesta
St. Patrick's Day Graduations Fifties Rock-and-Roll
Easter Retirements Hawaiian Luau
Passover Showers Mardi Gras
Fourth of July Weddings Patriotic
Halloween Bar Mitzvahs Religious
Thanksgiving Christenings Sports
Hanukkah First Communions Summer Fun
Christmas Confirmations
</TABLE>
Tableware. The Company believes that tableware products are the initial
focus of consumers in planning a party, since these items are necessary in
connection with the consumption of food and beverages. To distinguish its
tableware from that of its competitors, the Company seeks to create a broad
range of unique designs for its products. In addition, the Company's tableware
products are priced competitively and affordably, having suggested retail prices
(based upon quantity and product) ranging between $1.70 and $10.00.
Accessories and Novelty Items. The Company believes that consumers are
attracted to Amscan tableware due to the breadth and array of accessory and
novelty items. Unified displays of complete ensembles in retail stores are
designed to enhance the appeal of the Company's
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<PAGE> 79
tableware and encourage the impulse buying of accessories and novelties. The
Company believes that by offering a broad product line, it increases the number
of products sold per customer transaction.
MANUFACTURED PRODUCTS
Items manufactured by the Company accounted for approximately 50% of the
Company's sales in 1996. State-of-the-art printing, forming, folding and
packaging equipment support the Company's manufacturing operations. Company
facilities in Kentucky, New York, Rhode Island and California produce paper and
plastic plates, napkins, cups and other party and novelty items. This vertically
integrated manufacturing capability for many of its key products allows the
Company the opportunity to better control costs and monitor product quality,
manage inventory investment and provide efficiency in order fulfillment.
Given its size and sales volume, the Company is generally able to operate
its manufacturing equipment on the basis of at least two shifts per day thus
lowering its production costs. In addition, the Company manufactures products
for third parties allowing the Company to maintain a satisfactory level of
equipment utilization.
PURCHASED PRODUCTS
The Company sources the remainder of its products from independently-owned
manufacturers, many of whom are located in the Far East and with whom the
Company has long-standing relationships. The two largest such suppliers operate
as exclusive suppliers to the Company and represent relationships which have
been in place for more than ten years. The Company believes that the quality and
price of the products manufactured by these suppliers provide a significant
competitive advantage. The Company's business, however, is not dependent upon
any single source of supply for products manufactured for the Company by third
parties.
RAW MATERIALS
The principal raw material used by the Company in its products is paper.
The Company has historically been able to change its product prices in response
to changes in raw material costs. While the Company currently purchases such raw
material from a relatively small number of sources, paper is available from a
number of sources. The Company believes its current suppliers could be replaced
by the Company without adversely affecting its operations in any material
respect.
SALES AND MARKETING
The Company's principal sales and marketing efforts are conducted through a
domestic direct employee sales force of approximately 60 professionals servicing
over 5,000 retail accounts. These professionals have, on average, been
affiliated with the Company for approximately five years. In addition to this
seasoned sales team, the Company utilizes a select group of manufacturers'
representatives to handle specific account situations. International customers
are generally serviced by employees of the Company's foreign subsidiaries. To
support its marketing effort, the Company produces three separate product
catalogues annually, two for seasonal products and one for everyday products.
From 1991 to 1996, the Company significantly reduced selling, general and
administrative expenses as a percentage of sales, largely because of a
proportionate decrease in selling expenses.
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<PAGE> 80
SG&A AND ADJUSTED EBITDA AS % OF REVENUES
The Company's practice of including party goods retailers in all facets of
the Company's product development is a key element of the Company's sales and
marketing efforts. The Company targets important consumer preferences by
integrating its own market research with the input of party goods retailers in
the creation of its designs and products. In addition, the sales organization
assists customers in the actual set-up and layout of displays of the Company's
products, and, from time to time, the Company also provides customers with
promotional displays.
DISTRIBUTION AND SYSTEMS
The Company ships its products from distribution warehouses which employ
computer assisted systems. Nonseasonal products are shipped either from
California or New York to provide fast delivery of goods to party goods
retailers at economical freight costs. In order to better control inventory
investment, seasonal products are shipped out of a central warehouse located in
New York. Products for foreign markets are shipped from the Company's
distribution warehouses in Canada, Mexico, England and Australia.
Many of the Company's sales orders are generated electronically through
hand-held units with which the sales force and many customers are equipped.
Specifically, orders are entered into the hand-held units and then transmitted
over telephone lines to the Company's mainframe computer, where they are
processed for shipment. This electronic order entry expedites the order
processing which in turn improves the Company's ability to fill customer
merchandise needs accurately and quickly.
CUSTOMERS
The Company's customers are principally party goods superstores,
independent card and party retailers, mass merchandisers and other distributors.
In the aggregate, Amscan supplies more than 20,000 retail outlets both
domestically and internationally. The Company is a leading supplier to the party
superstore channel, which has been experiencing significant growth.
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<PAGE> 81
REVENUE BREAKDOWN BY RETAIL CHANNEL
1996 REVENUE OF $192.7 MILLION
[REVENUE BREAKDOWN PIE CHARTS]
The Company has a diverse customer base. Only one customer, Party City,
accounted for more than 10% of the Company's sales in 1996. Sales to Party City
accounted for 11% and 15% of the Company's sales in 1995 and 1996, respectively.
Although the Company believes its relationship with Party City is good, if it
were to significantly reduce its volume of purchases from the Company, the
Company's financial condition and results of operations could be adversely
affected.
FUTURE ACQUISITIONS
The Company believes that opportunities exist to make acquisitions of
complementary businesses to leverage the Company's existing marketing,
distribution and production capabilities, expand its presence in various retail
channels, further broaden and deepen its product line and penetrate
international markets. The Company receives inquiries from time to time with
respect to the possible acquisition by the Company of other entities. As of the
date of this Prospectus, the Company has not entered into any agreements to
acquire other companies or businesses; however, the Company intends to pursue
acquisition opportunities aggressively.
COMPETITION
The Company competes on the basis of diversity and quality of its product
designs, breadth of product line, product availability, price, reputation and
customer service. The Company has many competitors with respect to one or more
of its products but believes that there are few competitors which manufacture
and distribute products with the complexity of design and breadth of product
offerings that the Company does. Furthermore, the Company believes that its
design and manufacturing processes create an efficiency in manufacturing that
few of its competitors achieve in the production of numerous coordinated
products in multiple design types.
Competitors include smaller independent specialty manufacturers, as well as
divisions or subsidiaries of large companies with greater financial and other
resources than those of the Company. Certain of these competitors control
licenses for widely recognized images, such as cartoon or motion picture
characters, which could provide them with a competitive advantage. The Company
has pursued a strategy of developing its own designs and generally has not
pursued licensing opportunities.
EMPLOYEES
As of September 30, 1997, the Company had approximately 1,100 employees,
none of whom is represented by a labor union. The Company considers its
relationship with its employees to be good.
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<PAGE> 82
FACILITIES
The Company maintains its corporate headquarters in Elmsford, New York and
conducts its principal design, manufacturing and distribution operations at the
following facilities:
<TABLE>
<CAPTION>
OWNED OR LEASED
LOCATION PRINCIPAL ACTIVITY SQUARE FEET (WITH EXPIRATION DATE)
- ------------------------- ----------------------------- --------------------- -----------------------------
<S> <C> <C> <C>
Elmsford, New York(1) Executive Offices; design and 50,000 square feet Leased (expiration date:
art production of paper party December 16, 2007)
products and decorations
Harriman, New York Manufacture of paper napkins 75,000 square feet Leased (expiration date:
and cups March 31, 1999)
Providence, Rhode Island Manufacture and distribution 51,000 square feet Leased (expiration date: June
of plastic plates, cups and 30, 2008)
bowls
Louisville, Kentucky Manufacture and distribution 183,000 square feet Leased (expiration date:
of paper plates March 31, 1999)
Anaheim, California Manufacture of novelty items 25,000 square feet Leased (expiration date:
February 28, 1999)
Newburgh, New York Manufacture and distribution 167,000 square feet Leased (expiration date:
of party products November 30, 1999)
Temecula, California(2) Distribution of party 212,000 square feet Leased (expiration date:
products and decorations February 28, 2000)
Goshen, New York Distribution of party 130,000 square feet Leased (expiration date:
products and decorations December 31, 1998)
Chester, New York(3) Distribution of party 287,000 square feet Owned
products and decorations
Montreal, Canada(4) Distribution of party 124,000 square feet Owned
products and decorations
Milton Keynes, England Distribution of party 110,000 square feet Leased (expiration date: June
products and decorations 30, 2017)
throughout United Kingdom and
Europe
Melbourne, Australia Distribution of party 10,000 square feet Owned
products and decorations in
Australia and Asia
</TABLE>
- ------------------
(1) Prior to December 16, 1997, this property was leased by the Company from a
limited liability company which is 79%-owned by a trust established for
benefit of Mr. Svenningsen's children, 20%-owned by a trust established for
the benefit of Mr. Svenningsen's sister's children and 1%-owned by a
corporation owned by the Estate. In July 1997, such limited liability
company entered into a purchase and sale agreement pursuant to which the
Elmsford property was sold on December 16, 1997. See "Management -- Certain
Relationships and Related Transactions".
(2) Property leased by the Company from the Estate. See "Management -- Certain
Relationships and Related Transactions".
(3) Property subject to a ten-year mortgage securing a loan in the original
principal amount of $5,925,000 bearing interest at a rate of 8.51%. Such
loan matures in September 2004. The principal amount outstanding as of
September 30, 1997 was approximately $4,147,500.
(4) Property subject to a mortgage securing a loan in the original principal
amount of $2,088,000 bearing interest at a rate of the lower of Hong Kong
Bank of Canada's Cost of Funds plus 1.6% or Canadian Prime plus 0.5%. The
principal amount outstanding as of September 30, 1997 was approximately
$1,924,000.
The Company believes that its properties have been adequately maintained,
are in generally good condition and are suitable for the Company's business as
presently conducted. The Company believes its existing facilities provide
sufficient production capacity for its present needs and for its anticipated
needs in the foreseeable future. To the extent such capacity is not needed for
the manufacture of the Company's products, the Company generally uses such
capacity for the manufacture of products for others pursuant to terminable
contracts. All properties generally are used on a basis of two shifts per day.
The Company also believes that upon the expiration of its
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<PAGE> 83
current leases, it either will be able to secure renewal terms or enter into
leases for alternative locations at market terms.
COMPANY ORGANIZATION
The business of Amscan Inc. was founded by John Svenningsen and his family
in 1947, and in December 1996, the Company completed its initial public
offering. Amscan Holdings, Inc. was organized on October 3, 1996 to become the
holding company for the businesses previously conducted by the Company's
principal subsidiary, Amscan Inc. and certain affiliated companies. These
affiliated companies include Trisar, Inc., which manufactures and distributes
certain of the Company's products, Amscan Distributors (Canada) Ltd. and Amscan
Svenska AB, each of which distributes the Company's products, JCS Realty Corp.
and SSY Realty Corp., each of which owns certain real estate leased to the
Company, Am-Source, Inc., the Company's supplier of plastic plates, cups and
bowls, and certain companies located in Great Britain, Australia, Germany and
Mexico which distribute the Company's products. The Company operates in a single
industry segment.
The principal executive offices of the Company are located at 80 Grasslands
Road, Elmsford, New York 10523 and the telephone number at such address is (914)
345-2020.
INTELLECTUAL PROPERTY AND LICENSES
The Company owns copyrights on the designs created by the Company and used
on its products. The Company owns trademarks in the words and designs used on or
in connection with its products. It is the practice of the Company to register
its copyrights with the United States Copyright Office to the extent it deems
reasonable. The Company does not believe that the loss of copyrights or
trademarks with respect to any particular product or products would have a
material adverse effect on the business of the Company.
The Company does not depend on licenses to any material degree in its
business and, therefore, does not incur any material licensing expenses.
LEGAL PROCEEDINGS
Neither the Company nor any of its Subsidiaries is a party to any material
pending legal proceedings. A lawsuit relating to the Transaction filed against
the Company, MergerCo, GSCP II and certain of the Company's then-directors was
voluntarily withdrawn on December 15, 1997.
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<PAGE> 84
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages and positions with the Company of the
persons who are currently serving as directors and executive officers of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- ---- -----------------------------------------------------
<S> <C> <C>
Terence M. O'Toole 39 Director, Chairman of the Board
Sanjeev K. Mehra 38 Director
Joseph P. DiSabato 31 Director
Gerald C. Rittenberg 45 Chief Executive Officer
James M. Harrison 46 President, Chief Financial Officer and Treasurer
William S. Wilkey 41 Senior Vice President -- Sales and Marketing
</TABLE>
Terence M. O'Toole is a Managing Director of Goldman, Sachs & Co. in the
Principal Investment Area. He joined Goldman Sachs in 1983. He is a member of
Goldman Sachs' Investment Committee. Mr. O'Toole serves on the Board of
Directors of AMF Bowling, Inc., Insilco Corporation, 21st Century Newspapers,
Inc., Western Wireless Corporation and several other privately held companies on
behalf of Goldman Sachs. He holds a B.S. degree from Villanova University and an
M.B.A. from the Stanford Graduate School of Business.
Sanjeev K. Mehra is a Managing Director of Goldman, Sachs & Co. in the
Principal Investment Area. He joined Goldman Sachs in 1986. He is a Director of
the Stone Street and Bridge Street Funds, private equity funds affiliated with
Goldman Sachs for the benefit of its employees. Mr. Mehra serves on the Board of
Directors of Great Plains Software, Inc. and several other privately held
companies on behalf of Goldman Sachs. He holds an A.B. from Harvard University
and an M.B.A. from the Harvard Graduate School of Business Administration.
Joseph P. DiSabato is an Associate of Goldman, Sachs & Co. in the Principal
Investment Area. He joined Goldman Sachs in 1988, worked as a Financial Analyst
until 1991, and returned in 1994 as an Associate. He holds a B.S. from the
Massachusetts Institute of Technology and an M.B.A. from the Anderson Graduate
School of Management.
Gerald C. Rittenberg became Chief Executive Officer upon consummation of
the Transaction. Prior to that time, Mr. Rittenberg served as the President of
the predecessor to the Company, Amscan Inc., since April 1996, and served as
President of the Company from the time of its formation in October 1996. From
May 1997 until December 1997, Mr. Rittenberg served as Acting Chairman of the
Board. From 1991 to April 1996, he was Executive Vice President -- Product
Development of Amscan Inc. and from 1990 to 1991 he was Vice President --
Product Development of Amscan Inc. Prior to joining Amscan Inc., Mr. Rittenberg
was Senior Vice President of Different Looks, a division of Berwick Industries,
Incorporated which manufactures and distributes gift wrap and related products.
Previously, Mr. Rittenberg was Director of Operations for the packaging division
of Philip Morris Companies Inc.
James M. Harrison became President, Chief Financial Officer and Treasurer
upon consummation of the Transaction. Prior to that time, Mr. Harrison served as
the Chief Financial Officer of the predecessor to the Company, Amscan Inc.,
since August 1996 and served as Chief Financial Officer and Secretary of the
Company since February 1997. From 1993 to 1995, Mr. Harrison was the Executive
Vice President, Chief Operating Officer, Secretary, Treasurer and a member of
the Board of Directors of The C.R. Gibson Company, a manufacturer and
distributor of paper gift products. From 1988 to 1993, Mr. Harrison was the
Chief Financial Officer of The C.R. Gibson Company.
William S. Wilkey has served as the Senior Vice President -- Sales and
Marketing of Amscan Inc. since 1992 and as Vice President -- Marketing and Field
Sales from 1990 to 1992. From 1988 to
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<PAGE> 85
1990, Mr. Wilkey was employed by Paper Art, a manufacturer and distributor of
party goods (currently called Creative Expressions Group, Inc.), where he served
as National Sales Manager.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation
earned for the past two years for the Company's former and current Chief
Executive Officer and each other executive officer of the Company as of December
31, 1996 whose aggregate salary and bonus for 1996 exceeded $100,000. The
amounts shown include compensation for services in all capacities that were
provided to the Company or its Subsidiaries. Unless otherwise indicated, amounts
shown were paid by the Company's principal Subsidiary, Amscan Inc. Information
with respect to Company Common Stock relates to the Company Common Stock prior
to the consummation of the Transaction.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(A) OPTIONS(B) COMPENSATION(C)
- ----------------------------- ---- -------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John A. Svenningsen 1996 $315,609 $ 0(d) $ 5,939
Former CEO and Chairman 1995 289,399 0(d) 10,614
Gerald C. Rittenberg 1996 211,000 2,800,000(e) 1,895
Chief Executive Officer 1995 200,269 1,682,000(e) 4,317
William S. Wilkey 1996 181,000 1,036,000(f) 100,000 21,679
Senior Vice President -- 1995 172,500 757,000(f) 4,317
Sales and Marketing
James M. Harrison 1996(g) 62,500 50,000 50,000 0
President, Chief Financial
Officer and Treasurer
</TABLE>
- ---------------
(a) Represents amounts earned with respect to the years indicated, whether paid
or accrued.
(b) Reflects stock options on shares of Company Common Stock ("Company Stock
Options") granted pursuant to the 1996 Stock Option Plan for Key Employees
(the "Prior Stock Plan") at an exercise price equal to the fair market
value on the date of grant.
(c) Represents contributions by the Company under the Profit Sharing & Savings
Plan maintained by the Company's principal Subsidiary, Amscan Inc., and
under the ESOP, as well as insurance premiums paid by the Company with
respect to term life insurance for the benefit of the named executive
officer.
(d) Prior to the IPO, which was consummated in December 1996, certain entities
which are now Subsidiaries of the Company elected to be taxed as S
corporations under the Code. Mr. Svenningsen received $11,009,000 and
$15,841,000 from such entities in 1995 and 1996, respectively. Such amounts
represented distributions to him as an S corporation shareholder and, with
respect to 1996, additional distributions of accumulated capital and
previously-taxed earnings in conjunction with the IPO.
(e) Represents bonuses earned by Mr. Rittenberg pursuant to his prior employment
agreement with Amscan Inc. which terminated in December 1996 in connection
with the IPO.
(f) Represents bonuses earned by Mr. Wilkey pursuant to an employment agreement
with Amscan Inc. which expired on December 31, 1996.
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<PAGE> 86
(g) Mr. Harrison became an employee and Chief Financial Officer of Amscan Inc.
on August 1, 1996.
OPTION GRANTS TABLE
The following table sets forth information concerning stock options which
were granted during 1996 to the executive officers named in the Summary
Compensation Table. The options were granted pursuant to the Prior Stock Plan.
Information with respect to options relates to options on the Company Common
Stock prior to the consummation of the Transaction.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
% OF VALUE AT ASSUMED
TOTAL OPTIONS ANNUAL RATES OF
GRANTED TO STOCK PRICE
EMPLOYEES APPRECIATION
IN EXPIRATION FOR OPTION TERM
OPTIONS FISCAL EXERCISE DATE ----------------------
NAME GRANTED(1) YEAR PRICE OF OPTIONS 5% 10%
- ---------------- ---------- ------------- -------- ----------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
William S.
Wilkey........ 100,000 23.5% $ 12 December 19, 2006 $754,673 $1,912,491
James W.
Harrison...... 50,000 11.8 12 December 19, 2006 377,337 956,245
</TABLE>
(1) All Company Stock Options listed in this column were exercisable ratably
over four years beginning one year from the date of grant, and were
scheduled to expire ten years after the date of grant. To the extent
permitted under the Code, such options were incentive stock options.
FISCAL 1996 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED
OPTIONS AT
FISCAL 1996
YEAR END
(EXERCISABLE/
NON-EXERCISABLE)
----------------
<S> <C>
William S. Wilkey........................................................ 100,000
James M. Harrison........................................................ 50,000
</TABLE>
At December 31, 1996, the market price of the Company Common Stock was $12
per share, an amount equal to the exercise price of each of the Company Stock
Options granted to Mr. Wilkey and Mr. Harrison. As a result, none of such
Company Stock Options was "in the money" at December 31, 1996. No Company Stock
Options were exercised in the most recent fiscal year.
At the Effective Time, the Company Stock Options listed in the foregoing
table were converted pursuant to the New Employment Arrangements into options on
the common stock of the Company following the Transaction and a cash bonus
payment. For a description of such conversion and a description of additional
options granted to certain employees of the Company in connection with the
Transaction, see "-- New Employment Arrangements".
NEW EMPLOYMENT ARRANGEMENTS
Concurrent with the execution of the Transaction Agreement, MergerCo
entered into the New Employment Arrangements with certain employees of the
Company relating, for certain of such employees, to their employment with the
Company following the Effective Time and relating to their ownership of Company
Common Stock and options to purchase shares of Company Common Stock following
the Transaction, as more fully described below. At the Effective Time, certain
of the
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<PAGE> 87
New Employment Arrangements replaced and superseded former employment agreements
for such employees and became obligations of the Company, as the surviving
company in the Transaction.
Employment Agreement with Gerald C. Rittenberg. Under the Employment
Agreement between the Company and Gerald C. Rittenberg, dated as of August 10,
1997 (the "Rittenberg Employment Agreement"), Mr. Rittenberg serves as Chief
Executive Officer of the Company for a three-year period commencing at the
Effective Time (an "Initial Term"), which term will be extended automatically
for successive additional one-year periods (each an "Additional Term"), unless
either the Company gives Mr. Rittenberg, or Mr. Rittenberg gives the Company,
written notice of the intention not to extend the term no less than twelve
months prior to the end of the Initial Term or Additional Term, whichever is
then in effect. Mr. Rittenberg will receive during the Initial Term an annual
base salary of $295,000 which will be increased by 5% at the beginning of each
Additional Term. During Mr. Rittenberg's Initial Term and any Additional Term,
Mr. Rittenberg will be eligible for an annual bonus for each calendar year
comprised of (i) a non-discretionary bonus equal to 50% of his annual base
salary if certain operational and financial targets determined by the Board of
Directors in consultation with Mr. Rittenberg are attained, and (ii) a
discretionary bonus awarded in the sole discretion of the Board of Directors.
The Rittenberg Employment Agreement also provides for other customary benefits
including incentive, savings and retirement plans, paid vacation, health care
and life insurance plans, and expense reimbursement.
Under the Rittenberg Employment Agreement, if Mr. Rittenberg's employment
were to be terminated by the Company other than for Cause (as defined below),
death or Disability (as defined below), the Company would be obligated to pay
Mr. Rittenberg a lump sum cash payment in an amount equal to the sum of (1)
accrued unpaid salary, earned but unpaid bonus for any prior year, any deferred
compensation and accrued but unpaid vacation pay (collectively, "Accrued
Obligations") plus (2) severance pay equal to his annual base salary, provided,
however, that in connection with a termination by the Company other than for
Cause following a Sale Event (as defined below), such severance pay will be
equal to Mr. Rittenberg's annual base salary multiplied by the number of years
the Company elects as the Restriction Period (as defined below) in connection
with the non-competition provisions. Upon termination of Mr. Rittenberg's
employment by the Company for Cause, death, Disability or if he terminates his
employment, Mr. Rittenberg will be entitled to his unpaid Accrued Obligations.
Additionally, upon termination of Mr. Rittenberg's employment during his Initial
Term or any Additional Term (1) by the Company other than for Cause or (2) by
reason of his death or Disability, or if the Initial Term or any Additional Term
is not renewed at its expiration (other than for Cause), the Rittenberg
Employment Agreement provides for payment of a prorated portion of the bonus to
which Mr. Rittenberg would otherwise have been entitled.
As used in the Rittenberg Employment Agreement: (a) "Cause" means (1)
conviction of a felony (excluding felonies under the Motor Vehicle Code referred
to therein); (2) any act of intentional fraud against the Company; (3) any act
of gross negligence or willful misconduct with respect to Mr. Rittenberg's
duties under the Rittenberg Employment Agreement; and (4) any act of willful
disobedience in violation of specific reasonable directions of the Board of
Directors consistent with Mr. Rittenberg's duties, and (b) "Disability" means
that Mr. Rittenberg has been unable, for a period of (i) 180 consecutive days or
(ii) an aggregate of 210 days in a period of 365 consecutive days, to perform
his duties under the Rittenberg Employment Agreement, as a result of physical or
mental illness or injury.
The Rittenberg Employment Agreement also provides that during his Initial
Term, any Additional Term and during the three-year period following any
termination of his employment (the "Restriction Period"), Mr. Rittenberg shall
not participate in or permit his name to be used or become associated with any
person or entity that is or intends to be engaged in any business which is in
competition with the business of the Company, or any of its Subsidiaries or
controlled affiliates, in any country in which the Company or any of its
Subsidiaries or controlled affiliates operate, compete or are engaged in such
business or at such time intend to so operate, compete or become engaged
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<PAGE> 88
in such business (a "Competitor"), provided, however, that if Mr. Rittenberg's
employment is terminated by the Company other than for Cause following a Sale
Event, the Restriction Period will be instead a one, two or three-year period at
the election of the Company. For purposes of the Rittenberg Employment
Agreement, "Sale Event" means either (1) the acquisition by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) that is a Competitor (as defined in the Rittenberg Employment
Agreement), other than GSCP and its affiliates, of a majority of the outstanding
voting stock of the Company or (2) the sale or other disposition (other than by
way of merger or consolidation) of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole to any person or group of persons
that is a Competitor, provided, however, that an underwritten initial public
offering of shares of Company Common Stock pursuant to a registration statement
under the Securities Act will not constitute a Sale Event. The Rittenberg
Employment Agreement also provides for certain other restrictions during the
Restriction Period in connection with (a) the solicitation of persons or
entities with business relationships with the Company and (b) inducing any
employee of the Company to terminate their employment or offering employment to
such persons, in each case subject to certain conditions.
Pursuant to the Rittenberg Employment Agreement, Mr. Rittenberg contributed
to MergerCo immediately prior to the Effective Time, 272,728 shares of Company
Common Stock in exchange for 60.0 shares of MergerCo Common Stock, having an
aggregate value equal to 272,728 times the Cash Consideration of $16.50 per
share, or approximately $4.5 million, which shares of MergerCo Common Stock were
valued at the purchase price for which GSCP purchased common shares of MergerCo
immediately prior to the Effective Time (the "New Purchase Price"). At the
Effective Time, such shares of MergerCo Common Stock were converted into 60.0
shares of Company Common Stock as the surviving company in the Transaction (as
converted, the "Rollover Stock").
Also pursuant to the Rittenberg Employment Agreement, following the
Effective Time, Mr. Rittenberg was granted options ("New Options") to purchase
16.648 shares of Company Common Stock. The New Options were granted pursuant to
a new stock incentive plan and related option agreement (together, the "Option
Documents"), which were adopted by the Company following the Effective Time and
are more fully described below. Such New Options vest in equal annual
installments over a five-year period and are subject to forfeiture upon
termination of Mr. Rittenberg's employment if not vested and exercised within
certain time periods specified in the Option Documents. Unless sooner exercised
or forfeited as provided in the Option Documents, the New Options will expire on
the tenth anniversary of the Effective Time.
Mr. Rittenberg is not permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, shares of Rollover Stock or shares of
Company Common Stock acquired upon exercise of the New Options, except as
provided in the Stockholders' Agreement and the Option Documents, and the shares
of Rollover Stock and shares of Company Common Stock acquired upon exercise of
the New Options are subject to the terms of the Stockholders' Agreement.
At the Effective Time, the Rittenberg Employment Agreement replaced and
superseded Mr. Rittenberg's former employment agreement with the Company.
Employment Agreement with James M. Harrison. Under the Employment
Agreement, dated August 10, 1997, by and between the Company and James M.
Harrison (the "Harrison Employment Agreement"), Mr. Harrison serves as President
of the Company for a three-year Initial Term at an annual base salary of
$275,000. The Harrison Employment Agreement contains provisions for Additional
Terms, salary increases during any Additional Term, non-discretionary and
discretionary bonus payments, severance, other benefits, definitions of Cause
and Disability, and provisions for non-competition and non-solicitation similar
to those in the Rittenberg Employment Agreement, with the exception of the
provision for an election by the Company of a one, two or three-year Restriction
Period following a Sale Event; under the Harrison Employment Agreement, the
Restriction Period is fixed at three years and severance pay is fixed at one
year's annual base salary. In addition, the
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<PAGE> 89
Harrison Employment Agreement provides that Mr. Harrison's bonus for the 1997
calendar year will be equal to the bonus that would have been payable to him in
accordance with the relevant terms of his current employment agreement with the
Company, without taking into account any incremental financing or transaction
costs attributable to the Transaction as determined in good faith by the Board.
The Harrison Employment Agreement also provides that Mr. Harrison will receive a
bonus payment of $105,000 on March 15, 1998, in addition to any other bonus
payable.
Pursuant to the Harrison Employment Agreement, following the Effective
Time, Mr. Harrison was granted New Options to purchase 13.874 shares of Company
Common Stock. Such New Options were granted on terms similar to those granted
pursuant to the Rittenberg Employment Agreement.
Additionally, under the Harrison Employment Agreement, Mr. Harrison
converted, as of the Effective Time, his Company Stock Options to purchase
50,000 shares of Company Common Stock into options ("Rollover Options") to
purchase 2.394 shares of Company Common Stock. The Rollover Options have an
exercise price per share (the "Rollover Exercise Price") equal to $54,545. Mr.
Harrison also received at the Effective Time a cash bonus equal to $176,041 in
connection therewith. The Rollover Options were granted pursuant to the Option
Documents and on the same terms as the New Options.
Pursuant to the Harrison Employment Agreement, Mr. Harrison was granted
immediately prior to the Effective Time, 15.0 shares of MergerCo Common Stock
(the "Restricted Stock"), having an aggregate value of $1,125,000, based on the
New Purchase Price, which shares were converted in the Transaction into 15.0
shares of Company Common Stock. During the Stock Restricted Period (as defined
below), the Restricted Stock will be forfeitable and may not be sold, assigned,
transferred, pledged or otherwise encumbered by Mr. Harrison. For purposes of
the Harrison Employment Agreement, the "Stock Restricted Period" means the
period beginning on the date of grant of the Restricted Stock and ending on the
earliest of (i) the occurrence of an IPO (as such term is defined in the
Stockholders' Agreement); (ii) immediately prior to the consummation of a
transaction or series of transactions, approved by the Board of Directors,
pursuant to which a person, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, other than Goldman Sachs or any of its
affiliates, acquires a majority of the outstanding voting stock of the Company;
and (iii) the termination of Mr. Harrison's employment with the Company, (1)
because of his death, (2) by the Company without Cause, (3) by Mr. Harrison
because of the Company's material breach of its obligations under the Harrison
Employment Agreement, (4) by Mr. Harrison if the Company imposes on him duties
or work conditions materially burdensome to him which are inconsistent with his
prior duties and work conditions or (5) because of Mr. Harrison's Disability;
provided, however, that the Stock Restricted Period ended with respect to 25% of
the shares of Restricted Stock on January 1, 1998 and with respect to the
remaining 75%, in equal installments on January 1 of each of the years 1999
through 2007. Pursuant to the Harrison Employment Agreement, upon the voluntary
or involuntary termination of Mr. Harrison's employment during the Stock
Restricted Period for any reason other than a reason listed in clause (iii) of
the preceding sentence, all shares of Restricted Stock (with respect to which
the Stock Restricted Period has not then ended) will be forfeited and returned
to the Company without payment.
Mr. Harrison is not permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, Rollover Options, shares of Restricted Stock
or shares of Company Common Stock acquired upon exercise of the New Options or
Rollover Options (in either case, "Option Shares"), except as provided in the
Stockholders' Agreement and the Option Documents, and the shares of Restricted
Stock and Option Shares will be subject to the terms of the Stockholders'
Agreement.
At the Effective Time, the Harrison Employment Agreement replaced and
superseded Mr. Harrison's former employment agreement with the Company, dated as
of February 1, 1997 (the "Prior Harrison Employment Agreement"). At that time,
in consideration and in full satisfaction, and in lieu of the payment of any
Bonus (other than as set forth above) or Sale Bonus (as such terms
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<PAGE> 90
are defined in the Prior Harrison Employment Agreement), the Company paid to Mr.
Harrison, immediately after the Effective Time, $270,000 in cash. The Harrison
Employment Agreement also provides that none of the Transaction or other
transactions and arrangements contemplated by the Transaction Agreement, the
Stockholders' Agreement, the Voting Agreement and the Harrison Employment
Agreement would be or result in or give rise to any change of control or
potential change of control under or constitute good reason for Mr. Harrison
terminating the Prior Harrison Employment Agreement.
Stock and Option Agreement with William S. Wilkey. Pursuant to a Stock and
Option Agreement, dated as of August 10, 1997, by and between the Company and
William S. Wilkey (the "Wilkey Agreement"), Mr. Wilkey contributed to the
Company immediately after the Effective Time $500,000 in cash in exchange for
6.6666667 shares of Company Common Stock ("New Stock") valued at the New Cost
Per Share. Mr. Wilkey made payment to the Company for the New Stock immediately
after the Effective Time and borrowed the funds for such payment from the
Company. Such borrowing is evidenced by a personal full recourse note maturing
on March 15, 2001, accruing interest at 6.65%, compounded annually, and payable
in annual payments of principal and interest equal to one-quarter of any bonus
Mr. Wilkey receives from the Company (provided, that the first such payment will
be made from any bonus corresponding to the 1998 calendar year), with any
portion of the note remaining at maturity payable at maturity. Mr. Wilkey also
entered into a related stock pledge agreement with the Company.
Also pursuant to the Wilkey Agreement, following the Effective Time, Mr.
Wilkey was granted New Options to purchase 11.654 shares of Company Common
Stock. Such New Options were granted on terms similar to those granted pursuant
to the Rittenberg Employment Agreement.
Additionally, Mr. Wilkey converted, as of the Effective Time, his Company
Stock Options to purchase 100,000 shares of Company Common Stock into Rollover
Options to purchase 4.787 shares of Company Common Stock. The Rollover Options
have a Rollover Exercise Price equal to $54,545. Mr. Wilkey also received at the
Effective Time a cash bonus equal to $352,082 in connection therewith. The
Rollover Options were granted pursuant to the Option Documents and on the same
terms as the New Options.
Mr. Wilkey is not be permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, Rollover Options, shares of New Stock or
Option Shares, except as provided in the Stockholders' Agreement and the Option
Documents, and the shares of New Stock and Option Shares are subject to the
terms of the Stockholders' Agreement.
The Wilkey Agreement is not intended to, and does not, supersede, amend,
modify or replace Mr. Wilkey's employment agreement with the Company, dated as
of October 4, 1996 (the "Wilkey Employment Agreement"), which, except for
certain provisions thereof relating to option grants under the Prior Stock Plan,
which plan was terminated at the Effective Time (and which provisions therefore
are no longer operative), will remain in full force and effect.
Under the terms of the Wilkey Employment Agreement, which commenced on
January 1, 1997, Mr. Wilkey is employed as Senior Vice President -- Sales and
Marketing of the Company for a period of five years. Mr. Wilkey received an
initial base salary of $200,000 for 1997, which will be increased by 5% each
successive year during the term of the agreement. In addition, Mr. Wilkey is
entitled to receive an annual bonus which will be determined by a formula which
takes into account the amount by which sales and profits are increased on a year
to year basis. Mr. Wilkey's agreement also provides that upon termination of
employment he may not for a period of three years be employed by, or associated
in any manner with, any business which is competitive with the Company. The
Wilkey Employment Agreement may be terminated by the Company upon the death or
permanent disability of Mr. Wilkey or for "cause".
Employment Agreement with Diane D. Spaar. Under the Employment Agreement,
dated August 10, 1997, by and between the Company and Diane D. Spaar (the "Spaar
Employment
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<PAGE> 91
Agreement"), Ms. Spaar serves as Senior Vice President of Creative Development
of the Company for a three-year Initial Term at an annual base salary of
$200,000. The Spaar Employment Agreement contains provisions for Additional
Terms, salary increases during any Additional Term, non-discretionary and
discretionary bonus payments, severance, other benefits, definitions of Cause
and Disability, and provisions for non-competition and non-solicitation similar
to those in the Harrison Employment Agreement. In addition, the Spaar Employment
Agreement provides that Ms. Spaar's bonus for the 1997 calendar year will be
equal to the bonus that would have been payable to her in accordance with the
relevant terms of her current employment agreement with the Company, without
taking into account any incremental financing or transaction costs attributable
to the Transaction as determined in good faith by the Board.
Pursuant to the Spaar Employment Agreement, Ms. Spaar contributed to the
Company immediately after the Effective Time $100,000 in cash in exchange for
1.3333333 shares of New Stock valued at the New Cost Per Share. Ms. Spaar made
payment to the Company for the New Stock immediately after the Effective Time
and borrowed the funds for such payment from the Company. Such borrowing is
evidenced by a personal full recourse note maturing in three years, accruing
interest at 6.07%, compounded annually, and payable in 36 equal monthly
installments of principal and interest. Ms. Spaar also entered into a related
stock pledge agreement with the Company.
Pursuant to the Spaar Employment Agreement, following the Effective Time,
Ms. Spaar was granted New Options to purchase 9.434 shares of Company Common
Stock. Such New Options were granted on terms similar to those granted pursuant
to the Rittenberg Employment Agreement.
Additionally, Ms. Spaar converted, as of the Effective Time, her Company
Stock Options to purchase 50,000 shares of Company Common Stock into Rollover
Options to purchase 2.393 shares of Company Common Stock. The Rollover Options
have a Rollover Exercise Price equal to $59,659. Ms. Spaar also received at the
Effective Time a cash bonus equal to $137,664 in connection therewith. The
Rollover Options were granted pursuant to the Option Documents and on the same
terms as the New Options.
Ms. Spaar is not permitted to sell, assign, transfer, pledge or otherwise
encumber any New Options, Rollover Options, shares of New Stock or Option
Shares, except as provided in the Stockholders' Agreement and the Option
Documents, and the shares of New Stock and Option Shares are subject to the
terms of the Stockholders' Agreement.
At the Effective Time, the Spaar Employment Agreement replaced and
superseded Ms. Spaar's former employment agreement with the Company. The Spaar
Employment Agreement also provides that none of the Transaction or other
transactions and arrangements contemplated by the Transaction Agreement, the
Stockholders' Agreement, the Voting Agreement or the Spaar Employment Agreement
would be or result in or give rise to any change of control under or good reason
for Ms. Spaar terminating her current employment agreement.
Employment Agreement with Katherine A. Kusnierz. Under the Employment
Agreement, dated August 10, 1997, by and between the Company and Katherine A.
Kusnierz (the "Kusnierz Employment Agreement"), Ms. Kusnierz serves as Vice
President of Product Design of the Company for a three-year Initial Term at an
annual base salary of $200,000. The Kusnierz Employment Agreement contains
provisions for Additional Terms, salary increases during any Additional Term,
non-discretionary and discretionary bonus payments, severance, other benefits,
definitions of Cause and Disability, and provisions for non-competition and
non-solicitation similar to those in the Harrison Employment Agreement.
Pursuant to the Kusnierz Employment Agreement, Ms. Kusnierz contributed to
the Company immediately after the Effective Time $150,000 in cash in exchange
for 2.0 shares of New Stock valued at the New Cost Per Share. Ms. Kusnierz made
payment to the Company for the New Stock immediately after the Effective Time
and borrowed the funds for such payment from the Company.
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<PAGE> 92
Such borrowing is evidenced by a personal full recourse note maturing in three
years, accruing interest at 6.07%, compounded annually, and payable in 36 equal
monthly installments of principal and interest. Ms. Kusnierz also entered into a
related stock pledge agreement with the Company.
Pursuant to the Kusnierz Employment Agreement, following the Effective
Time, Ms. Kusnierz was granted New Options to purchase 11.099 shares of Company
Common Stock. Such New Options were granted on terms similar to those granted
pursuant to the Rittenberg Employment Agreement.
Additionally, Ms. Kusnierz converted, as of the Effective Time, her Company
Stock Options to purchase 10,000 shares of Company Common Stock into Rollover
Options to purchase 0.478 shares of Company Common Stock. The Rollover Options
have a Rollover Exercise Price equal to $59,659. Ms. Kusnierz also received at
the Effective Time a cash bonus equal to $32,042 in connection therewith. The
Rollover Options were granted pursuant to the Option Documents and on the same
terms as the New Options.
Ms. Kusnierz is not permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, Rollover Options, shares of New Stock or
Option Shares, except as provided in the Stockholders' Agreement and the Option
Documents, and the shares of New Stock and Option Shares are subject to the
terms of the Stockholders' Agreement.
Other Employment Matters. The Company has agreed in the Transaction
Agreement that, for a period of at least two years from the Effective Time,
subject to applicable law, the Company and its Subsidiaries will provide
benefits to their employees as a group (and not necessarily on an
individual-by-individual or group-by-group basis) that will, in the aggregate,
be similar to those currently provided by the Company and its Subsidiaries to
their employees.
AMSCAN HOLDINGS, INC. 1997 STOCK INCENTIVE PLAN
Following consummation of the Transaction, the Company adopted the Amscan
Holdings, Inc. 1997 Stock Incentive Plan (the "Stock Incentive Plan") under
which the Company may grant incentive awards in the form of shares of Company
Common Stock ("Restricted Stock Awards"), options to purchase shares of Company
Common Stock ("Company Stock Options") and stock appreciation rights ("Stock
Appreciation Rights") to certain directors, officers, employees and consultants
("Participants") of the Company and its affiliates. The total number of shares
of Company Common Stock initially reserved and available for grant under the
Stock Incentive Plan is 120 shares. A committee of the Company's board of
directors (the "Committee"), or the board itself in the absence of a Committee,
is authorized to make grants and various other decisions under the Stock
Incentive Plan. Unless otherwise determined by the Committee, any Participant
granted an award under the Stock Incentive Plan must become a party to, and
agree to be bound by, the Stockholders' Agreement.
Company Stock Option awards under the Stock Incentive Plan may include
incentive stock options, nonqualified stock options, or both types of Company
Stock Options, in each case with or without Stock Appreciation Rights. Company
Stock Options are nontransferable (except under certain limited circumstances)
and, unless otherwise determined by the Committee, have a term of ten years.
Upon a Participant's death or when the Participant's employment with the Company
or the applicable affiliate of the Company, is terminated for any reason, such
Participant's previously unvested Company Stock Options are forfeited and the
Participant or his or her legal representative may, within three months (if
termination of employment is for any reason other than death) or one year (in
the case of the Participant's death), exercise any previously vested Company
Stock Options. Stock Appreciation Rights may be granted in conjunction with all
or part of any Company Stock Option award, and are exercisable, subject to
certain limitations, only in connection with the exercise of the related Company
Stock Option. Upon termination or exercise of the related Company Stock Option,
Stock Appreciation Rights terminate and are no longer exercisable. Stock
Appreciation Rights are transferable only with the related Company Stock
Options.
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<PAGE> 93
Unless otherwise provided in the related award agreement or, if applicable,
the Stockholders' Agreement, immediately prior to certain change of control
transactions described in the Stock Incentive Plan, all outstanding Company
Stock Options and Stock Appreciation Rights will, subject to certain
limitations, become fully exercisable and vested and any restrictions and
deferral limitations applicable to any Restricted Stock Awards will lapse.
The Stock Incentive Plan will terminate ten years after its effective date;
however, awards outstanding as of such date will not be affected or impaired by
such termination. The Company's board of directors and the Committee have
authority to amend the Stock Incentive Plan and awards granted thereunder,
subject to the terms of the Stock Incentive Plan.
COMPENSATION OF DIRECTORS
The Company currently does not compensate its directors other than for
expense reimbursement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Company had no compensation committee. During 1996, Mr.
Svenningsen, then Chairman of the Board and Chief Executive Officer of the
Company, participated in deliberations concerning executive compensation. During
1997, prior to consummation of the Transaction, the members of the Compensation
Committee were Messrs. Rosenberry and Tugwell. See "-- Certain Relationships and
Related Transactions". Following the consummation of the Transaction, the
Company has no compensation committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the Organization and the IPO, Amscan was privately held and its
business was conducted through corporations owned principally by Mr.
Svenningsen. These corporations entered into a variety of transactions and other
arrangements with Mr. Svenningsen and entities under his control, a number of
which have already been terminated. The remaining transactions and arrangements
are described below.
During 1996, the Company leased certain of its facilities from Mr.
Svenningsen or from entities that Mr. Svenningsen either owned directly or in
which he had a direct or indirect beneficial interest. The Company has paid rent
and expenses for those facilities on terms which it believes are at least as
favorable to the Company as the terms which would have been available for leases
negotiated with unaffiliated persons at the inception of each lease.
In March 1996, the Company began leasing approximately 45,000 square feet
for the Company's administrative headquarters in an office building of
approximately 90,000 square feet in Elmsford, New York. Prior to December 16,
1997, the building was owned by a limited liability company which is 79%-owned
by a trust established for the benefit of Mr. Svenningsen's children, 20%-owned
by a trust established for the benefit of Mr. Svenningsen's sister's children
and 1%-owned by a corporation owned by the Estate. Rent expense relating to this
lease was $752,000 for the year ended December 31, 1996. This lease, as amended,
provided for annual rent of $1,003,000 and a term which was scheduled to expire
on February 28, 2001. In July 1997, the limited liability company that owns the
building entered into a purchase and sale agreement pursuant to which the
Elmsford property was sold on December 16, 1997. Prior to March 1996, the
Company's headquarters had been in a facility owned by Mr. Svenningsen. Rent
expense related to that facility was $196,000 for the year ended December 31,
1996.
During 1996, the Company leased a 212,000 square foot warehouse in
Temecula, California from Mr. Svenningsen. Rent expense related to this
warehouse was $1,186,000 for the year ended December 31, 1996. The expiration
date of this lease, as amended, is February 28, 2000; however, the Company has
options to renew at market rental for two additional five-year periods.
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<PAGE> 94
During 1996, the aggregate rent paid to Mr. Svenningsen or the entities
owned directly or indirectly by him was $2,134,000. Future minimum lease
payments for 1997, 1998, 1999, 2000 and 2001 are $2,246,000, $2,309,000,
$2,374,000, $1,239,000 and $167,000, respectively.
The Company and Mr. Svenningsen entered into an agreement pursuant to which
the Company agreed to provide Mr. Svenningsen with the right to seek
reimbursement from the Company for any income tax obligation attributable to any
period prior to the organization of the Company in December 1996 (including any
gross-up for additional taxes), but only to the extent that such tax is
attributable to income that was not distributed to Mr. Svenningsen.
Alternatively, in the event that the status of Amscan Inc. and certain other
Subsidiaries of the Company, including Am-Source, Inc., JCS Realty Corp. or SSY
Realty Corp. as a S corporation is not respected, the Company was provided the
right to seek reimbursement from Mr. Svenningsen, but only to the extent that
Mr. Svenningsen is entitled to a tax refund attributable to amounts he
previously included in income in his capacity as a stockholder of such
corporations. In connection with the Transaction, the Company and the
Svenningsen Stockholders have entered into the Tax Indemnification Agreement,
pursuant to which the parties have agreed to indemnify one another with respect
to certain tax liabilities that may arise in connection with the election by
certain Subsidiaries of the Company to have been treated and operated as S
corporations under the Code. See "The Transaction -- Tax Indemnification
Agreement".
During September 1997, the Company entered into an agreement to convert
$4.0 million of trade accounts receivable from a customer into an equity
interest. The Company subsequently transferred this interest to the Estate for
(i) a cash payment of $1.0 million, (ii) satisfaction of approximately $2.0
million of certain debts and future lease obligations owed to the Estate, and
(iii) substantially all of the assets of Ya Otta Pinata ("Ya Otta"), a
California corporation 100% owned by the Estate, at a valuation of approximately
$1.0 million. Ya Otta manufactures pinatas which historically had been sold by
the Company's sales force with no commissions charged to Ya Otta. After the
Organization, the Company's sales force continued to sell pinatas manufactured
by Ya Otta and on any sales after the Organization, the Company receives a 5%
sales commission. For the year ended December 31, 1996, sales by Ya Otta were
approximately $3,650,000.
Nupaq-Group, Inc., a California corporation which is 100% owned by the
Estate ("Nupaq"), provides packaging services for the Company's novelty item
manufacturing operations. For the year ended December 31, 1996, the Company paid
Nupaq approximately $260,000 for such services.
During 1996, the Company amended its revolving credit agreement with
several banks, including Fleet Bank N.A. ("Fleet"). At the time such credit
agreement was entered into, Mr. Tugwell was President and Chief Executive
Officer of Fleet. Such revolving credit agreement has since been replaced by a
new credit facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources".
Under the Transaction Agreement, the Company has agreed to indemnify for
six years after the Effective Time all former directors, officers, employees and
agents of the Company, to the fullest extent currently provided in the Company's
Certificate of Incorporation and By-laws consistent with applicable law, for
acts or omissions occurring prior to the Effective Time to the extent such acts
or omissions are uninsured and will, subject to certain limitations, maintain
for six years its prior directors' and officers' liability insurance.
Goldman Sachs and its affiliates have certain interests in the Transaction
and in the Company in addition to being the Initial Purchaser of the Notes.
Messrs. O'Toole and Mehra are Managing Directors of Goldman Sachs, Mr. DiSabato
is an Associate of Goldman Sachs and each of them is a director of the Company.
GSCP currently owns approximately 81.7% of the outstanding shares of Company
Common Stock. Accordingly, the general and managing partners of each of the GSCP
Fund Partners (as defined herein), which are affiliates of Goldman Sachs and The
Goldman Sachs Group, will each be deemed to be an "affiliate" of GSCP and the
Company. See "Ownership of
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<PAGE> 95
Capital Stock". Goldman Sachs received an underwriting discount of approximately
$3.3 million in connection with its purchase and resale of the Notes.
Goldman Sachs also served as financial advisor to MergerCo in connection
with the Transaction and received a fee equal to 1% of the aggregate
consideration paid in the Transaction plus reimbursement of certain expenses
from MergerCo upon consummation of the Transaction. Goldman Sachs may from time
to time receive customary fees for services rendered to the Company.
In connection with the Bank Credit Facilities, GS Credit Partners acted as
Syndication Agent, Documentation Agent and Arranger, and Fleet is acting as
Administrative Agent. Goldman Sachs received a fee of approximately $2.7 million
plus reimbursement of certain expenses in connection with such services.
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<PAGE> 96
OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information concerning ownership of
shares of Company Common Stock by: (i) persons who are known by the Company to
own beneficially more than 5% of the outstanding shares of Company Common Stock;
(ii) each director of the Company; (iii) each executive officer of the Company;
and (iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF COMPANY
COMMON STOCK PERCENTAGE
BENEFICIALLY OF CLASS
NAME OF BENEFICIAL OWNER OWNED OUTSTANDING(A)
- -------------------------------------------------------- ----------------- --------------
<S> <C> <C>
Gerald C. Rittenberg.................................... 60.0 5.9%
James M. Harrison....................................... 15.0 1.5
William S. Wilkey....................................... 6.7 *
Katherine A. Kusnierz................................... 2.0 *
Diane D. Spaar.......................................... 1.3 *
Terence M. O'Toole(b)................................... -- --
Sanjeev K. Mehra(c)..................................... -- --
Joseph P. DiSabato(d)................................... -- --
Estate of John A. Svenningsen........................... 100.0 9.9
c/o Kurzman & Eisenberg LLP
One North Broadway, Suite 1004
White Plains, New York 10601
GS Capital Partners II, L.P(e).......................... 825.0 81.7
and other GSCP funds
85 Broad Street
New York, New York 10004
All directors and executive officers as group (8 85.0 8.4
persons)..............................................
</TABLE>
- ---------------
(a) The amounts and percentage of Company Common Stock beneficially owned are
reported on the basis of regulations of the Commission governing the
determination of beneficial ownership of securities. Under the rules of the
Commission, a person is deemed to be a "beneficial owner" of a security if
that person has or shares "voting power", which includes the power to vote
or to direct the voting of such security, or "investment power", which
includes the power to dispose of or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of any
securities of which that person has a right to acquire beneficial ownership
within 60 days. Under these rules, more than one person may be deemed a
beneficial owner of the same securities and a person may be deemed to be a
beneficial owner of securities as to which he has no economic interest. The
percentage of Company Common Stock outstanding is based on the 1,010 shares
of Company Common Stock outstanding as of the date of this Prospectus.
(b) Mr. O'Toole, who is a Managing Director of Goldman Sachs, disclaims
beneficial ownership of the shares of Company Common Stock that will be
owned by GSCP and its affiliates after the Effective Time.
(c) Mr. Mehra, who is a Managing Director of Goldman Sachs, disclaims beneficial
ownership of the shares of Company Common Stock that will be owned by GSCP
and its affiliates after the Effective Time.
(d) Mr. DiSabato, who is an Associate of Goldman Sachs, disclaims beneficial
ownership of the shares of Company Common Stock that will be owned by GSCP
and its affiliates after the Effective Time.
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<PAGE> 97
(e) Of the 825.0 shares of Company Common Stock beneficially owned by GSCP and
its affiliates, approximately 517.6 shares are owned by GSCP II,
approximately 205.8 shares will be owned by GS Capital Partners II
Offshore, L.P., approximately 19.1 shares are owned by Goldman, Sachs & Co.
Verwaltungs GmbH as nominee for GS Capital Partners II (Germany) C.L.P.,
approximately 55.5 shares are owned by Stone Street Fund 1997, L.P. and
approximately 27.0 shares are owned by Bridge Street Fund 1997, L.P. Each
of the GSCP funds are investment partnerships that are managed by Goldman
Sachs or its affiliates, which has full dispositive power with respect to
the holdings of such partnerships.
* Less than 1%
STOCKHOLDERS' AGREEMENT
As of the Effective Time, the Company entered into the Stockholders'
Agreement with GSCP and the Estate and certain employees of the Company listed
as parties thereto (including the Estate, the "Non-GSCP Investors"). The
following discussion summarizes the terms of the Stockholders' Agreement which
the Company believes are material to an investor in the Notes or the Exchange
Notes. This summary is qualified in its entirety by reference to the full text
of the Stockholders' Agreement, a copy of which is filed as an exhibit to the
Registration Statement of which this Propsectus is a part, and is incorporated
by reference herein. The Stockholders' Agreement provides, among other things,
for (i) the right of the Non-GSCP Investors to participate in, and the right of
GSCP to require the Non-GSCP Investors to participate in, certain sales of
Company Common Stock by GSCP, (ii) prior to an initial public offering of the
stock of the Company (as defined in the Stockholders' Agreement), certain rights
of the Company to purchase, and certain rights of the Non-GSCP Investors (other
than the Estate) to require the Company to purchase (except in the case of
termination of employment by such Non-GSCP Investors) all, but not less than
all, of the shares of Company Common Stock owned by a Non-GSCP Investor (other
than the Estate) upon the termination of employment or death of such Non-GSCP
Investor, at prices determined in accordance with the Stockholders' Agreement
and (iii) certain additional restrictions on the rights of the Non-GSCP
Investors to transfer shares of Company Common Stock. The Stockholders'
Agreement also contains certain provisions granting GSCP and the Non-GSCP
Investors certain rights in connection with registrations of Company Common
Stock in certain offerings and provides for indemnification and certain other
rights, restrictions and obligations in connection with such registrations. The
Stockholders' Agreement will terminate (i) with respect to the rights and
obligations of and restrictions on GSCP and the Non-GSCP Investors in connection
with certain restrictions on the transfer of shares of Company Common Stock,
when GSCP and its affiliates no longer hold at least 40% of the outstanding
shares of Company Common Stock, on a fully diluted basis; provided that the
Stockholders' Agreement will terminate in such respect in any event if the
Company enters into certain transactions resulting in GSCP, its affiliates, the
Non-GSCP Investors, and each of their respective permitted transferees, owning
less than a majority of the outstanding voting power of the entity surviving
such transaction; and (ii) with respect to the registration of Company Common
Stock in certain offerings, with certain exceptions, on the earlier of (1) the
date on which there are no longer any registrable securities outstanding (as
determined under the Stockholders' Agreement) and (2) the twentieth anniversary
of the Stockholders' Agreement.
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<PAGE> 98
DESCRIPTION OF SENIOR DEBT
In order to fund a portion of the payment of the cash portion of the
Transaction Consideration, to refinance certain existing outstanding
indebtedness of the Company, to pay transaction costs incurred in connection
with the Transaction, and for general corporate purposes the Company issued the
Notes and entered into the Revolving Credit Agreement and the AXEL Credit
Agreement providing for the Revolving Credit Facility and the Term Loan,
respectively, (together, the "Bank Credit Facilities"). The execution of the
Bank Credit Facilities, the borrowings necessary to complete the Transaction and
the delivery of required documentation thereunder, occurred at the time of
closing of the Transaction.
The following summary of the material provisions of the Revolving Credit
Agreement and the AXEL Credit Agreement does not purport to be complete, and is
qualified by reference to the full text of such agreements, which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
The Term Loan will mature seven years after funding and will provide for
amortization (in quarterly installments) of one percent of the principal amount
thereof per year for the first five years and 32.3% and 62.7% of the principal
amount thereof in the sixth and seventh years, respectively. The Term Loan will
bear interest, at the option of the Company, at the lenders' customary base rate
plus 1.375% per annum or at the lenders' customary reserve adjusted Eurodollar
rate plus 2.375% per annum. The Company will be required to make scheduled
amortization payments on the Term Loan as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING: AMORTIZATION % AMORTIZED
--------------------------------------------------------- ------------ -----------
<S> <C> <C>
December 31, 1998........................................ $ 1,170,000 1.0%
December 31, 1999........................................ 1,170,000 1.0
December 31, 2000........................................ 1,170,000 1.0
December 31, 2001........................................ 1,170,000 1.0
December 31, 2002........................................ 1,170,000 1.0
December 31, 2003........................................ 37,787,500 32.3
December 31, 2004........................................ 73,362,500 62.7
------------ ------
Total............................................. $117,000,000 100.0%
============ ======
</TABLE>
The Company is obligated to obtain interest rate protection, pursuant to
interest rate swaps, caps or other similar arrangements satisfactory to GS
Credit Partners, with respect to a notional amount of not less than half of the
aggregate amount outstanding under the Term Loan as of the Effective Time, which
protection must remain in effect for not less than three years after the
Effective Time.
In addition, the Company will be required to make prepayments on the Bank
Credit Facilities under certain circumstances, including upon certain asset
sales and issuance of debt or equity securities, subject to certain exceptions.
The Company will also be required to make prepayments on the Bank Credit
Facilities in an amount equal to 75% (to be reduced to 50% for any fiscal year
in which the Company's Consolidated Leverage Ratio (as defined in the Bank
Credit Agreements) is less than 3.75 to 1.0) of the Company's Excess Cash Flow
(as defined in the Bank Credit Agreements) for each fiscal year, commencing with
the fiscal year ending December 31, 1998. Such mandatory prepayments will be
applied to prepay the Term Loan first (on a pro rata basis) and thereafter to
prepay the Revolving Credit Facility and to reduce the commitments thereunder.
Subject to certain call protection provisions applicable for 18 months from the
Effective Time, the Company may prepay, in whole or in part, borrowings under
the Term Loan. Call protection provisions also apply to mandatory prepayments of
borrowings under the Term Loan except for
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<PAGE> 99
\mandatory prepayments from Excess Cash Flow. The Company may prepay borrowings
under or reduce commitments for the Revolving Credit Facility, in whole or in
part, without penalty.
The Revolving Credit Facility has a term of five years and will bear
interest, at the option of the Company, at the lenders' customary base rate plus
1.25% per annum or at the lenders' customary reserve adjusted Eurodollar rate
plus 2.25% per annum. Interest on balances out standing under the Revolving
Credit Facility are subject to adjustment in the future based on the Company's
performance. Amounts drawn on the Revolving Credit Facility for working capital
purposes are also subject to an agreed upon borrowing base and periodic
reduction of outstanding balances. All borrowings under the Revolving Credit
Facility are subject to mandatory prepayments upon the occurrence of certain
events as described above.
The Bank Credit Facilities are guaranteed by the Guarantors. Subject to
certain exceptions, all extensions of credit to the Company and all guarantees
are secured by all existing and after-acquired personal property of the Company
and the Guarantors, including, subject to certain exceptions, a pledge of all of
the stock of all Subsidiaries owned by the Company or any of the Guarantors and
first priority liens on after-acquired real property fee and leasehold interests
of the Company and the Guarantors.
The Bank Credit Facilities contain certain financial covenants, as well as
additional affirmative and negative covenants, constraining the Company. The
Company must maintain a minimum Consolidated Adjusted EBITDA (as defined in the
Bank Credit Agreements) of not less than an amount ranging from $35 million for
the four Fiscal Quarter (as defined in the Bank Credit Agreements) period ending
March 31, 1998 to $48.5 million for the four Fiscal Quarter period ending
December 31, 2002. The Company is required to maintain a Fixed Charge Coverage
Ratio (defined in the Bank Credit Agreements as the ratio of (a) Consolidated
Adjusted EBITDA to (b) Consolidated Fixed Charges (as defined in the Bank Credit
Agreements)) of not less than a ratio of 1.00 to 1.00 for the four-Fiscal
Quarter period ending March 31, 1998 to a ratio of 1.20 to 1.00 for the
four-Fiscal Quarter period ending December 31, 2002. The Company must not permit
the ratio of Consolidated Total Debt (as defined in the Bank Credit Agreements)
to Consolidated Adjusted EBITDA on the last day of any four Fiscal Quarter
period to exceed a ratio ranging from 6.60 to 1.00 for such period ending March
31, 1998 to 3.70 to 1.00 for such period ending December 31, 2002.
Borrowings under the Revolving Credit Facilities are subject to customary
affirmative and negative covenants, including but not limited to limitations on
other indebtedness, liens, investments, guarantees, restricted junior payments
(dividends, redemptions and payments on subordinated debt), mergers and
acquisitions, sales of assets, capital expenditures, leases, transactions with
affiliates, conduct of business and other provisions customary for financings of
this type, including exceptions and baskets.
The Revolving Credit Agreement permits business acquisitions in the same
line of business as the Company and its Subsidiaries subject to certain
restrictions, and permits borrowings thereunder to finance such acquisitions of
up to $25 million in the aggregate. As a condition to any such acquisitions in
excess of $10 million in the aggregate, the pro forma ratio of total
indebtedness to EBITDA at the time of any such acquisition must not exceed a
ratio of 5.5:1.0 through the last fiscal quarter of 1999 and lower ratios
thereafter decreasing to 3.7:1.0 for the four Fiscal Quarter period ending
December 31, 2002. Any such acquisitions in excess of $25 million in the
aggregate must be funded from either equity or a combination of equity and
subordinated debt or equity and additional term loans in accordance with certain
specified ratios.
Borrowings under the Revolving Credit Facility are subject to customary
events of default (with customary grace periods), including without limitation
failure to make payments when due, defaults under other indebtedness,
noncompliance with covenants, breach of representations and warranties,
bankruptcy, judgments in excess of specified amounts, invalidity of guarantees,
impairment of security interests in collateral and "changes of control".
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<PAGE> 100
Borrowings under the Term Loan are subject to affirmative covenants
identical to those set forth above with respect to borrowings under the
Revolving Credit Facility and negative covenants substantially as set forth in
the Notes, including limitations on the incurrence of indebtedness, investments,
guarantees, restricted payments (dividends, redemptions and payments on
subordinated debt), mergers, sales of assets, transactions with affiliates and
other provisions customary for financings of this type. The Term Loan also
contains a negative covenant restricting liens similar to the lien covenant in
the Revolving Credit Facility.
Borrowings under the Term Loan are subject to events of default
substantially as set forth in the Notes and the Exchange Notes; provided that
there is (i) an immediate default for principal payment defaults, (ii) a
three-day grace period for interest payment defaults, (iii) a cross default to
the Revolving Credit Facility and other debt with an aggregate principal amount
of $5 million or more in the event such default is not cured within twenty
business days and (iv) an immediate default if (1) prior to a Qualified Public
Offering (as defined in the Bank Credit Agreements), GSCP II and its affiliates
cease to own and control 51% or more of the voting power of the Company's
securities, (2) after a Qualified Public Offering, a person or group acquires
beneficial ownership of the Company's securities representing greater voting
power than GSCP II and its affiliates or (3) a Change of Control as defined in
the Indenture occurs.
The Indenture permits the Bank Credit Agreement to be amended, modified,
renewed, refunded, refinanced or replaced (in whole or in part) from time to
time.
OTHER SENIOR DEBT
As of the Effective Time, the Company had approximately $10.8 million in
outstanding indebtedness and capital leases outstanding, relating primarily to
mortgages of real property. The Company's distribution center in Chester, New
York, is subject to a ten-year mortgage securing a loan in the original
principal amount of $5,925,000 bearing interest at a rate of 8.51%. Such
mortgage loan matures in September 2004. The principal amount outstanding as of
September 30, 1997 was approximately $4,147,500. The Company's distribution
center in Montreal, Canada is subject to a mortgage securing a loan in the
original principal amount of $2,088,000. Such mortgage loan bears interest at a
rate of the lower of Hong Kong Bank of Canada's Cost of Funds plus 1.6% or
Canadian Prime plus 0.5%. The principal amount outstanding as of September 30,
1997 was approximately $1,924,000. The remaining amounts of indebtedness
outstanding relate to capital leases for the Company's machinery and equipment
and will be due and payable at scheduled maturities through 2003. The mortgages
and capital leases described above are Senior Debt.
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<PAGE> 101
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued by the Company pursuant to the same
Indenture (the "Indenture") among the Company, the Guarantors and IBJ Schroder
Bank & Trust Company, as trustee (the "Trustee"), under which the Notes were
issued. The terms of the Exchange Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "Trust Indenture Act"). The Exchange Notes are subject to all such
terms, and Holders of Exchange Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The discussion below summarizes the terms
of the Exchange Notes that the Company believes are material to an investor in
the Exchange Notes. This summary does not purport to be complete and is
qualified in its entirety by reference to the full text of the agreements
underlying this discussion, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and are incorporated
by reference herein. The definitions of certain terms used in the following
summary are set forth below under the caption " -- Certain Definitions".
On December 19, 1997, the Company issued $110.0 million aggregate principal
amount of Notes under the Indenture. The terms of the Exchange Notes are
identical in all material respects to the Notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
Notes for Exchange Notes. The Trustee will authenticate and deliver Exchange
Notes for original issue only in exchange for a like principal amount of Notes.
Any Notes that remain outstanding after the consummation of the Exchange Offer,
together with the Exchange Notes, will be treated as a single class of
securities under the Indenture. Accordingly, all references herein to specified
percentages in aggregate principal amount of the outstanding Exchange Notes
shall be deemed to mean, at any time after the Exchange Offer is consummated,
such percentage in aggregate principal amount of the Notes and Exchange Notes
then outstanding.
As of December 19, 1997, all of the Company's Subsidiaries were Restricted
Subsidiaries. However, under certain circumstances, the Company will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes are general unsecured obligations of the Company,
limited in aggregate principal amount, together with any outstanding Notes, to
$200 million, of which $110 million was issued in the Note Offering and,
assuming all Holders of Notes exchange their Notes, will be issued in the
Exchange Offer. Notes or Exchange Notes issued thereafter ("Additional Notes")
may be issued in one or more series from time to time, subject to compliance
with the covenants contained in the Indenture, provided, that no Additional Note
may be issued at a price that would cause such Additional Note to have "original
issue discount" within the meaning of Section 1273 of the Code. Any Additional
Notes will have the same terms, including interest rate, maturity and redemption
provisions, as the Exchange Notes initially being issued hereunder.
The Exchange Notes will mature on December 15, 2007. Interest on the
Exchange Notes will accrue at the rate of 9 7/8% per annum and will be payable
in cash semi-annually in arrears on June 15 and December 15, commencing on June
15, 1998, to Holders of record on the immediately preceding June 1 and December
1. Interest on the Exchange Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from December 19, 1997,
the date of original issuance of the Notes. Interest will be computed on the
basis of a 360-day year consisting of twelve 30-day months.
Principal, premium, if any, and interest on the Exchange Notes will be
payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the
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<PAGE> 102
option of the Company, payment of interest may be made by check mailed to the
Holders of the Exchange Notes at their respective addresses set forth in the
register of Holders of Exchange Notes; provided, however, that all payments with
respect to Global Exchange Notes and definitive Exchange Notes the Holders of
which have given wire transfer instructions to the Company at least 10 Business
Days prior to the applicable payment date will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Until otherwise designated by the Company, the Company's office or
agency in New York will be the office of the Trustee maintained for such
purpose. The Exchange Notes will be issued in minimum denominations of $1,000
and integral multiples thereof.
SETTLEMENT AND PAYMENT
Payments by the Company in respect of the Exchange Notes (including
principal, premium, if any, and interest) will be made in immediately available
funds as provided above. The Exchange Notes are expected to trade in the
Depository's settlement system, and any secondary market trading activity will,
therefore, be required by the Depository to be settled in immediately available
funds. No assurance can be given as to the effect, if any, of such settlement
arrangements on trading activity in the Exchange Notes.
Because of time-zone differences, the securities account of Euroclear or
Cedel Bank participants (each, a "Member Organization") purchasing an interest
in a Global Exchange Note from a Participant (as defined herein) that is not a
Member Organization will be credited during the securities settlement processing
day (which must be a business day for Euroclear or Cedel Bank, as the case may
be) immediately following the Depository Trust Company ("DTC") settlement date.
Transactions in interests in a Global Exchange Note settled during any
securities settlement processing day will be reported to the relevant Member
Organization on the same day. Cash received in Euroclear or Cedel Bank as a
result of sales of interests in a Global Exchange Note by or through a Member
Organization to a Participant that is not a Member Organization will be received
with value on the DTC settlement date, but will not be available in the relevant
Euroclear or Cedel Bank cash account until the business day following settlement
in DTC.
SUBORDINATION
The Exchange Notes will be unsecured senior subordinated indebtedness of
the Company ranking pari passu with all other existing and future senior
subordinated indebtedness of the Company. The payment of all Obligations in
respect of the Exchange Notes will be subordinated, as set forth in the
Indenture, in right of payment to the prior payment in full in cash or Cash
Equivalents of all Senior Debt, whether outstanding on the date of the Indenture
or thereafter incurred.
The Indenture provides that, upon any distribution to creditors of the
Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, an assignment for the benefit of creditors or any
marshaling of the Company's assets and liabilities, the holders of Senior Debt
will be entitled to receive payment in full of all Obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the documents relating to the applicable
Senior Debt, whether or not the claim for such interest is allowed as a claim in
such proceeding), or provision will be made for payment in cash or Cash
Equivalents or otherwise in a manner satisfactory to the holders of such Senior
Debt, before the Holders of Exchange Notes will be entitled to receive any
Securities Payment (other than payments in Permitted Junior Securities) and
until all Obligations with respect to Senior Debt are paid in full, or provision
is made for payment in cash or Cash Equivalents or otherwise in a manner
satisfactory to the holders of such Senior Debt, any Securities Payment (other
than any payments in Permitted Junior Securities) to which the Holders of
Exchange Notes would be entitled will be made to the holders of Senior Debt
(except that Holders of Exchange Notes may receive payments made from the trust
described under " -- Legal Defeasance and Covenant Defeasance").
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<PAGE> 103
The Indenture also provides that the Company may not make any Securities
Payment (other than payments in Permitted Junior Securities) upon or in respect
of the Exchange Notes (except from the trust described under " -- Legal
Defeasance and Covenant Defeasance") if (i) a default in the payment of the
principal of, premium, if any, or interest on Designated Senior Debt occurs and
is continuing, or any judicial proceeding is pending to determine whether any
such default has occurred, or (ii) any other default occurs and is continuing
with respect to Designated Senior Debt that permits, or would permit, with the
passage of time or the giving of notice or both, holders of the Designated
Senior Debt to which such default relates to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment Blockage Notice") from the
Company or the holders of any Designated Senior Debt. Securities Payments on the
Exchange Notes may and shall be resumed (a) in the case of a payment default on
Designated Senior Debt, upon the date on which such default is cured or waived
or shall have ceased to exist, unless another default, event of default or other
event that would prohibit such payment shall have occurred and be continuing, or
all Obligations in respect of such Designated Senior Debt shall have been
discharged or paid in full and (b) in case of a nonpayment default, the earlier
of the date on which such nonpayment default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received by
the Trustee. No new period of payment blockage may be commenced unless and until
360 days have elapsed since the first day of effectiveness of the immediately
prior Payment Blockage Notice. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice unless
such default shall have been subsequently cured or waived for a period of not
less than 180 days. In the event that, notwithstanding the foregoing, the
Company makes any Securities Payment (other than payments in Permitted Junior
Securities) to the Trustee or any Holder of an Exchange Note prohibited by the
subordination provisions, then and in such event such Securities Payment will be
required to be paid over and delivered forthwith to the holders of Senior Debt.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Exchange Notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency of the Company, Holders of Exchange Notes may
recover less ratably than creditors of the Company who are holders of Senior
Debt. See "Risk Factors". On a pro forma basis, after giving effect to the
Transaction and the Transaction Financings and the application of the proceeds
therefrom, the principal amount of Senior Debt outstanding at September 30, 1997
would have been approximately $128 million. The Indenture limits, subject to
certain financial tests, the amount of additional Indebtedness, including Senior
Debt, that the Company and its Restricted Subsidiaries can incur. See "--
Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified
Stock".
"Bank Debt" means all Obligations in respect of the Indebtedness
outstanding under the Bank Credit Agreement together with any amendment,
modification, renewal, refunding, refinancing or replacement (in whole or part)
from time to time of such Indebtedness.
"Bank Hedging Obligations" means all present and future Hedging
Obligations of the Company, whether existing now or in the future, that are
secured by the Bank Credit Agreement (or other agreement evidencing Bank Debt or
other Senior Debt) or any of the collateral documents executed from time to time
in connection therewith.
"Designated Senior Debt" means (i) so long as the Bank Debt is
outstanding, the Bank Debt, (ii) the Bank Hedging Obligations and (iii) any
Senior Debt permitted under the Indenture the principal amount of which is $15
million or more and that has been designated by the Company as "Designated
Senior Debt" and as to which the Trustee has been given written notice of such
designation.
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"Permitted Junior Securities" means, with respect to any payment or
distribution of any kind, equity securities or subordinated securities of the
Company or any successor obligor provided for by a plan of reorganization or
readjustment that, in the case of any such subordinated securities, are
subordinated in right of payment to all Senior Debt that may at the time be
outstanding to at least the same extent as the Exchange Notes are so
subordinated as provided in the Indenture.
"Securities Payment" means any payment or distribution of any kind,
whether in cash, property or securities (including any payment or distribution
deliverable by reason of the payment of any other Indebtedness subordinated to
the Exchange Notes) on account of the principal of (and premium, if any) or
interest on the Exchange Notes or on account of the purchase or redemption or
other acquisition of or satisfaction of obligations with respect to Exchange
Notes by the Company or any Subsidiary of the Company.
"Senior Debt" means (i) the Bank Debt, (ii) the Bank Hedging Obligations
and (iii) any other Indebtedness permitted to be incurred by the Company under
the terms of the Indenture, unless the instrument under which such Indebtedness
is incurred expressly provides that it is on a parity with or subordinated in
right of payment to the Exchange Notes. Notwithstanding anything to the contrary
in the foregoing, Senior Debt does not include (1) any liability for federal,
state, local or other taxes owed or owing by the Company, (2) any Indebtedness
of the Company to any of its Restricted Subsidiaries or other Affiliates (other
than Goldman, Sachs & Co. and its Affiliates, including Goldman Sachs Credit
Partners L.P.), (3) any trade payables, (4) that portion of any Indebtedness
that is incurred in violation of the Indenture, (5) Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to the Company, (6) any Indebtedness,
Guarantee or obligation of the Company which is contractually subordinate in
right of payment to any other Indebtedness, Guarantee or obligation of the
Company; provided, however, that this clause (6) does not apply to the
subordination of liens or security interests covering particular properties or
types of assets securing Senior Debt, (7) Indebtedness evidenced by the Notes or
the Exchange Notes and (8) Capital Stock.
SENIOR SUBORDINATED GUARANTEES
The Company's payment obligations under the Exchange Notes will be jointly
and severally guaranteed on a senior subordinated basis (the "Senior
Subordinated Guarantees") by each Restricted Subsidiary of the Company (other
than a Restricted Subsidiary organized under the laws of a country other than
the United States) and each other Subsidiary of the Company that becomes a
guarantor under the Bank Credit Agreement. The obligations of each Guarantor
under its Senior Subordinated Guarantee will be subordinated to its Guarantee of
all Obligations under the Bank Credit Agreement (the "Senior Guarantees") and
will be limited so as not to constitute a fraudulent conveyance under applicable
law. See, however, "Risk Factors -- Fraudulent Conveyance".
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person) another Person
whether or not affiliated with such Guarantor unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor, pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the Exchange Notes and
the Indenture; (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists; and (iii) the Company would be permitted by
virtue of the Company's pro forma Fixed Charge Coverage Ratio to incur,
immediately after giving effect to such transaction, at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock". The Indenture provides that
the foregoing will not prevent the merger, consolidation or sale of assets
between Guarantors or between the Company and any Guarantor.
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The Indenture provides that in the event of a sale or other disposition of
all or substantially all of the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition (including, without
limitation, by foreclosure) of all of the Capital Stock of any Guarantor, then
such Guarantor (in the event of a sale or other disposition, by way of such a
merger, consolidation or otherwise (including, without limitation, by
foreclosure), of all of the capital stock of such Guarantor) or the Person
acquiring the property (in the event of a sale or other disposition of all or
substantially all of the assets of such Guarantor) will be automatically
released and relieved of any obligations under its Senior Subordinated
Guarantee; provided that the Net Proceeds of such sale or other disposition are
applied, as and if required, in accordance with the applicable provisions of the
Indenture. In addition, if any Guarantor is released and relieved of all
obligations it may have as a guarantor under the Bank Credit Agreement, then
such Guarantor will also be automatically released and relieved of any
obligations under its Senior Subordinated Guarantee. See "-- Repurchase at the
Option of Holders -- Asset Sales".
Certain of the operations of the Company, including a substantial portion
of its operations outside the United States, are conducted through Subsidiaries
that are not Guarantors. The Company is dependent upon the cash flow of those
Subsidiaries to meet its obligations, including its obligations under the
Exchange Notes. The Exchange Notes will be effectively subordinated to all
indebtedness and other liabilities (including trade payables and capital lease
obligations) of the Company's Subsidiaries that are not Guarantors, which were
approximately $3 million (excluding inter-company payables to the Company) at
September 30, 1997. Any right of the Company to receive assets of any of such
Subsidiaries upon the latter's liquidation or reorganization (and the consequent
right of the Holders of the Exchange Notes to participate in those assets) will
be effectively subordinated to the claims of such Subsidiary's creditors, except
to the extent that the Company or a Guarantor is itself recognized as a creditor
of such Subsidiary, in which case the claims of the Company would still be
subordinate to any security in the assets of such Subsidiary and any
indebtedness of such Subsidiary senior to that held by the Company or a
Guarantor. See "Risk Factors -- Holding Company Structure".
OPTIONAL REDEMPTION
Except as described below, the Exchange Notes are not redeemable at the
Company's option prior to December 15, 2002. From and after December 15, 2002,
the Exchange Notes will be subject to redemption at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days' written
notice, at the Redemption Prices (expressed as percentages of principal amount)
set forth below, plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
December 15 of each of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL
YEAR AMOUNT
------------------------------------------------------ -------------
<S> <C>
2002.................................................. 104.937%
2003.................................................. 103.292
2004.................................................. 101.646
2005 and thereafter................................... 100.000
</TABLE>
Prior to December 15, 2000, the Company may, at its option, on any one or
more occasions, redeem up to 35% of the principal amount of Exchange Notes at a
redemption price equal to 109.875% of the principal amount thereof, plus accrued
and unpaid interest thereon to the redemption date, with the net proceeds of
public or private sales of common stock of, or contributions to the common
equity capital of, the Company; provided that at least $65 million in aggregate
principal amount of Notes and Exchange Notes (or if Additional Notes have been
issued, a correspondingly higher amount) remains outstanding immediately after
the occurrence of each
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such redemption; and provided, further, that such redemption shall occur within
120 days of the date of the closing of the related sale of common stock of, or
capital contribution to, the Company.
In addition, at any time on or prior to December 15, 2002, upon the
occurrence of a Change of Control, the Company may redeem the Exchange Notes, in
whole but not in part, at a redemption price equal to the principal amount
thereof plus the Applicable Premium plus accrued and unpaid interest, if any, to
the date of redemption. Notice of redemption of the Exchange Notes pursuant to
this paragraph shall be mailed to holders of the Exchange Notes not more than 30
days following the occurrence of a Change of Control.
"Applicable Premium" means, with respect to an Exchange Note, the greater
of (i) 1.0% of the then outstanding principal amount of such Exchange Note and
(ii)(a) the present value of all remaining required interest and principal
payments due on such Exchange Note and all premium payments relating thereto
assuming a redemption date of December 15, 2002, computed using a discount rate
equal to the Treasury Rate plus 50 basis points minus (b) the then outstanding
principal amount of such Exchange Note minus (c) accrued interest thereon paid
on the redemption date.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two business days prior to the date fixed
for redemption (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to the then
remaining term to December 15, 2002; provided, however, that if the then
remaining term to December 15, 2002 is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the then
remaining term to December 15, 2002 is less than one year, the weekly average
yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
SELECTION AND NOTICE
If less than all of the Exchange Notes are to be redeemed at any time,
selection of such Exchange Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Exchange Notes are listed, or, if the Exchange Notes are
not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided that the unredeemed portion of any
Exchange Note redeemed in part shall equal $1,000 or an integral multiple
thereof.
Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each Holder of Exchange
Notes to be redeemed at such Holder's registered address. If any Exchange Note
is to be redeemed in part only, the notice of redemption that relates to such
Exchange Note shall state the portion of the principal amount thereof to be
redeemed. A new Exchange Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Exchange Note. On and after the redemption date,
unless the Company defaults in payment of the redemption price, interest ceases
to accrue on Exchange Notes or portions of them called for redemption.
MANDATORY REDEMPTION; SINKING FUND PAYMENTS
Except as set below under "-- Repurchase at the Option of Holders", the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Exchange Notes.
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REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Exchange Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Exchange Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash (the "Change of Control Payment") equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, including
Liquidated Damages, if any, thereon to the date of repurchase. Within 30 days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase Exchange Notes pursuant to the procedures required by
the Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Exchange Notes as a result
of a Change of Control.
On a date that is no earlier than 30 days nor later than 60 days from the
date that the Company mails notice of the Change of Control to the Holders (the
"Change of Control Payment Date"), the Company will, to the extent lawful, (1)
accept for payment all Exchange Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Exchange Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee for cancellation the Exchange Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Exchange Notes
or portions there of being purchased by the Company. The Paying Agent will
promptly mail to each Holder of Exchange Notes so tendered the Change of Control
Payment for such Exchange Notes, and the Trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each Holder a new Exchange
Note equal in principal amount to any unpurchased portion of the Exchange Notes
surrendered, if any. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Exchange Notes to require that the
Company repurchase or redeem the Exchange Notes in the event of a takeover,
recapitalization or similar transaction. Such a transaction could occur, and
could have an effect on the Exchange Notes, without constituting a Change of
Control.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Exchange Notes validly tendered and not withdrawn under such
Change of Control Offer.
The existence of a Holder's right to require the Company to repurchase such
Holder's Exchange Notes upon the occurrence of a Change of Control may deter a
third party from seeking to acquire the Company in a transaction that would
constitute a Change of Control.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, cause, make or suffer to exist an Asset Sale
unless (i) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or
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otherwise disposed of and (ii) at least 80% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided that the amount of (x) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet) of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Exchange Notes or any
guarantee thereof) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability, (y) any Excludable Current
Liabilities, and (z) any notes or other obligations received by the Company or
any such Restricted Subsidiary from such transferee that are immediately
converted by the Company or such Restricted Subsidiary into cash (to the extent
of the cash received), shall be deemed to be cash for purposes of this
provision.
Within 365 days after the Company's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale (or in the case of an Asset Sale involving
the Specified Real Estate, by the later of (i) June 30, 1999 and (ii) the date
365 days after receipt of such Net Proceeds) the Company or such Restricted
Subsidiary may apply the Net Proceeds from such Asset Sale, at its option, (i)
to permanently repay or reduce Obligations under the Bank Credit Agreement (and
to correspondingly reduce commitments with respect thereto) or other Senior
Debt, (ii) to secure Letter of Credit Obligations to the extent related letters
of credit have not been drawn or been returned undrawn, and/or (iii) to an
investment in any one or more businesses, capital expenditures or acquisitions
of other assets, in each case, used or useful in a Principal Business; provided,
that such Net Proceeds may, at the Company's option, be deemed to have been
applied pursuant to this clause (iii) to the extent of any expenditures by the
Company made to invest in, acquire or construct businesses, properties or assets
used in a Principal Business within one year preceding the date of such Asset
Sale. Pending the final application of any such Net Proceeds, the Company or
such Restricted Subsidiary may temporarily reduce Indebtedness under a revolving
credit facility, if any, or otherwise invest such Net Proceeds in Cash
Equivalents. The Indenture provides that any Net Proceeds from the Asset Sale
that are not used as provided and within the time period set forth in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds".
When the aggregate amount of Excess Proceeds exceeds $15 million, the
Company will be required to make offers to all Holders of Exchange Notes and to
the holders of any other Senior Subordinated Indebtedness the terms of which so
require (each an "Asset Sale Offer") to purchase the maximum principal amount of
Exchange Notes and such other Senior Subordinated Indebtedness, that is an
integral multiple of $1,000, that may be purchased out of the Excess Proceeds at
an offer price in cash in an amount equal to 100% of the aggregate principal
amount thereof (or 100% of the accreted value thereof, in case of Senior
Subordinated Indebtedness issued at a discount), plus accrued and unpaid
interest thereon to the date fixed for the closing of such offer, in accordance
with the procedures set forth in the Indenture. The Excess Proceeds shall be
allocated to the respective Asset Sale Offers for the Exchange Notes and such
other Senior Subordinated Indebtedness in proportion to their relative principal
amounts (or accreted value, as applicable). The Indenture provides that the
Company may, in lieu of making an Asset Sale Offer for other Senior Subordinated
Indebtedness, satisfy its obligation under the governing agreement with respect
thereto by applying the Excess Proceeds allocated thereto to the prepayment,
redemption or public or private repurchase of such Senior Subordinated
Indebtedness.
The Company will commence any required Asset Sale Offer with respect to
Excess Proceeds within ten Business Days after the date that the aggregate
amount of Excess Proceeds exceeds $15 million by mailing the notice required
pursuant to the terms of the Indenture, with a copy to the Trustee. To the
extent that the aggregate amount of Exchange Notes (and such other Senior
Subordinated Indebtedness) tendered pursuant to any required Asset Sale Offer is
less than the Excess Proceeds allocated thereto, the Company may use any
remaining Excess Proceeds (x) to offer to redeem or purchase other Senior
Subordinated Indebtedness or Subordinated Indebtedness (a "Subordinated Asset
Sale Offer") in accordance with the provisions of the indenture or other
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agreement governing such other Senior Subordinated Indebtedness or Subordinated
Indebtedness or (y) for any other purpose not prohibited by the Indenture. If
the aggregate principal amount of Exchange Notes tendered pursuant to any Asset
Sale Offer exceeds the amount of Excess Proceeds allocated thereto, the Exchange
Notes so tendered shall be purchased on a pro rata basis, based upon the
principal amount tendered. Upon completion of any such Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes and Exchange Notes as a result of an Asset Sale.
The Bank Credit Agreement prohibits the Company from purchasing any
Exchange Notes, and also provides that certain change of control events with
respect to the Company will constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. In the event a
Change of Control occurs or an Asset Sale Offer is required to be made at a time
when the Company is prohibited from purchasing Exchange Notes, the Company could
seek the consent of its lenders to the purchase of Exchange Notes or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Exchange Notes. In such case, while the
Company's failure to purchase tendered Exchange Notes would constitute an Event
of Default under the Indenture, the subordination provisions of the Indenture
would likely have the practical effect of restricting payments to the Holders of
the Exchange Notes.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of the Company or dividends or distributions payable to the Company or
any Restricted Subsidiary of the Company); (ii) purchase, redeem, defease or
otherwise acquire or retire for value any Equity Interests of the Company; (iii)
make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Subordinated Indebtedness, except for
a payment of principal or interest at Stated Maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
immediately after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable four-quarter
period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph of the covenant described below under the caption "--
Incurrence of Indebtedness and Issuance of Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (including Restricted Payments permitted by
clause (i) of the next succeeding paragraph, but excluding all other
Restricted Payments permitted by the next succeeding paragraph), is less
than the
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sum of (i) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds and the
fair market value, as determined in good faith by the Board of Directors,
of marketable securities received by the Company from the issue or sale
since the date of the Indenture of Equity Interests (including Retired
Capital Stock (as defined below)) of the Company or of debt securities of
the Company that have been converted into such Equity Interests (other than
Refunding Capital Stock (as defined below) or Equity Interests or
convertible debt securities of the Company sold to a Restricted Subsidiary
of the Company and other than Disqualified Stock or debt securities that
have been converted into Disqualified Stock), plus (iii) 100% of the
aggregate amounts contributed to the common equity capital of the Company
since the date of the Indenture, plus (iv) 100% of the aggregate amounts
received in cash and the fair market value of marketable securities (other
than Restricted Investments) received from (x) the sale or other
disposition of Restricted Investments made by the Company and its
Restricted Subsidiaries since the date of the Indenture or (y) the sale of
the stock of an Unrestricted Subsidiary or the sale of all or substantially
all of the assets of an Unrestricted Subsidiary to the extent that a
liquidating dividend is paid to the Company or any Subsidiary from the
proceeds of such sale, plus (v) 100% of any dividends received by the
Company or a Wholly Owned Restricted Subsidiary of the Company after the
date of the Indenture from an Unrestricted Subsidiary of the Company, plus
(vi) $10 million.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Restricted Subsidiary (the
"Retired Capital Stock") or any Subordinated Indebtedness, in each case, in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Restricted Subsidiary of the Company) of Equity Interests
of the Company (other than any Disqualified Stock) (the "Refunding Capital
Stock");
(iii) the defeasance, redemption or repurchase of Subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness;
(iv) the redemption, repurchase or other acquisition or retirement for
value of any Equity Interests of the Company or any Restricted Subsidiary
of the Company held by any member of the Company's (or any of its
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option or similar agreement; provided that the aggregate
price paid for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed the sum of $5 million in any twelve-month period
plus the aggregate cash proceeds received by the Company during such
twelve-month period from any issuance of Equity Interests by the Company to
members of management of the Company and its Subsidiaries; provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the immediately preceding paragraph;
(v) Investments in Unrestricted Subsidiaries or in Joint Ventures
having an aggregate fair market value, taken together with all other
Investments made pursuant to this clause (v) that are at that time
outstanding, not to exceed $15 million plus 5% of the increase in Total
Assets since the Closing Date (as defined herein) at the time of such
Investment (with the fair market value of each Investment being measured at
the time made and without giving effect to subsequent changes in value);
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(vi) repurchases of Equity Interests deemed to occur upon exercise or
conversion of stock options, warrants, convertible securities or other
similar Equity Interests if such Equity Interests represent a portion of
the exercise or conversion price of such options, warrants, convertible
securities or other similar Equity Interests;
(vii) the making and consummation of a Subordinated Asset Sale Offer
in accordance with the provisions described under the caption entitled "--
Repurchase at the Option of Holders -- Asset Sales"; and
(viii) any dividend or distribution payable on or in respect of any
class of Equity Interests issued by a Restricted Subsidiary of the Company;
provided that such dividend or distribution is paid on a pro rata basis to
all of the holders of such Equity Interests in accordance with their
respective holdings of such Equity Interests;
provided, further, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (iv), (v) or (vii) above, no Default
or Event of Default shall have occurred and be continuing or would occur as a
consequence thereof.
As of December 19, 1997, all of the Company's Subsidiaries were Restricted
Subsidiaries. The Company will not permit any Unrestricted Subsidiary to become
a Restricted Subsidiary except pursuant to the last sentence of the definition
of "Unrestricted Subsidiary". For purposes of designating any Restricted
Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid) in the
Subsidiary so designated will be deemed to be Restricted Payments in an amount
equal to the book value of such Investment at the time of such designation. Such
designation will only be permitted if a Restricted Payment in such amount would
be permitted at such time and if such Subsidiary otherwise meets the definition
of an Unrestricted Subsidiary. Unrestricted Subsidiaries will not be subject to
any of the restrictive covenants set forth in the Indenture.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which calculations
may be based upon the Company's latest available financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur" and correlatively, an
"incurrence" of) any Indebtedness (including Acquired Debt) and that the Company
will not issue any Disqualified Stock; provided, however, that the Company may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock if the Fixed Charge Coverage Ratio for the Company for the most recent
four full fiscal quarters for which internal financial statements are available
at the time of such incurrence would have been at least 2.00 to 1.0, determined
on a pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred or the
Disqualified Stock had been issued, as the case may be, and the application of
the proceeds therefrom had occurred at the beginning of such four-quarter
period.
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The foregoing provisions will not apply to:
(a) the incurrence by the Company (and the Guarantee thereof by the
Guarantors) of Indebtedness under the Bank Credit Agreement and the
issuance of letters of credit thereunder (with letters of credit being
deemed to have a principal amount equal to the aggregate maximum amount
then available to be drawn thereunder, assuming compliance with all
conditions for drawing) up to an aggregate principal amount of $167 million
outstanding at any one time, less principal repayments of term loans and
permanent commitment reductions with respect to revolving loans and letters
of credit under the Bank Credit Agreement (in each case, other than in
connection with an amendment, refinancing, refunding, replacement, renewal
or modification) made after the date of the Indenture;
(b) the incurrence by the Company or any of its Restricted
Subsidiaries of any Existing Indebtedness;
(c) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by the Notes and the Exchange
Notes (other than any Additional Notes);
(d) Indebtedness (including Acquired Debt) incurred by the Company or
any of its Restricted Subsidiaries to finance the purchase, lease or
improvement of property (real or personal), assets or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets), in an aggregate principal amount not to exceed $15
million plus 5% of the increase in Total Assets since the Closing Date;
(e) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(f) intercompany Indebtedness between or among the Company and any of
its Restricted Subsidiaries and Guarantees by the Company of Indebtedness
of any Restricted Subsidiary of the Company or by a Restricted Subsidiary
of the Company of Indebtedness of any other Restricted Subsidiary of the
Company or the Company;
(g) Hedging Obligations that are incurred (1) for the purpose of
fixing or hedging interest rate or currency exchange rate risk with respect
to any Indebtedness that is permitted by the terms of the Indenture to be
outstanding or (2) for the purpose of fixing or hedging currency exchange
rate risk with respect to any purchases or sales of goods or other
transactions or expenditures made or to be made in the ordinary course of
business and consistent with past practices as to which the payment
therefor or proceeds therefrom, as the case may be, are denominated in a
currency other than U.S. dollars;
(h) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(i) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted by the Indenture to be
incurred;
(j) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company; and
(k) the incurrence by the Company of additional Indebtedness
(including pursuant to the Bank Credit Agreement) not otherwise permitted
hereunder in an amount under this clause (k)
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not to exceed $25 million in aggregate principal amount (or accreted value,
as applicable) outstanding at any one time.
For purposes of calculating the Fixed Charge Coverage Ratio, the Indenture
permits, among other things, the Company to give pro forma effect to
acquisitions, and the cost savings expected to be realized in connection with
such acquisitions, that have occurred or are occurring since the beginning of
the applicable four-quarter reference period (or during the immediately
preceding four quarters). These adjustments and the other adjustments permitted
under the definition of Fixed Charge Coverage Ratio will be in addition to the
pro forma adjustments permitted to be included in pro forma financial statements
prepared in accordance with GAAP or Article 11 of Regulation S-X under the
Exchange Act.
ANTI-LAYERING PROVISION
The Indenture provides that (i) the Company will not directly or indirectly
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Debt and senior in any respect in right of payment to the Exchange Notes and
(ii) no Guarantor will directly or indirectly incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate or
junior in right of payment to the Senior Guarantees and senior in any respect in
right of payment to the Senior Subordinated Guarantees.
Except for the limitations on the incurrence of debt described above under
the caption "-- Incurrence of Indebtedness and Issuance of Disqualified Stock,"
the Indenture does not limit the amount of debt that is pari passu with the
Exchange Notes.
LIENS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien that secures obligations under any Senior
Subordinated Indebtedness or Subordinated Indebtedness on any asset or property
now owned or hereafter acquired by the Company or any of its Restricted
Subsidiaries, or on any income or profits therefrom, or assign or convey any
right to receive income therefrom to secure any Senior Subordinated Indebtedness
or Subordinated Indebtedness, unless the Exchange Notes are equally and ratably
secured with the obligations so secured or until such time as such obligations
are no longer secured by a Lien; provided, that in any case involving a Lien
securing Subordinated Indebtedness, such Lien is subordinated to the Lien
securing the Exchange Notes to the same extent that such Subordinated
Indebtedness is subordinated to the Exchange Notes.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i) (a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) sell, lease or transfer any of
its properties or assets to the Company or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness as in effect on the date of the Indenture, (b) the Bank
Credit Agreement and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that the Bank Credit Agreement and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof are no more
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restrictive taken as a whole with respect to such dividend and other payment
restrictions than those terms included in the Bank Credit Agreement on the date
of the Indenture, (c) the Indenture and the Exchange Notes, (d) applicable law,
(e) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (f) customary
non-assignment or net worth provisions in leases and other agreements entered
into in the ordinary course of business and consistent with past practices, (g)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired, (h) Permitted Refinancing Indebtedness, provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced, (i) any Mortgage
Financing or Mortgage Refinancing that imposes restrictions on the real property
securing such Indebtedness, (j) any Permitted Investment, (k) contracts for the
sale of assets, including, without limitation customary restrictions with
respect to a Restricted Subsidiary of the Company pursuant to an agreement that
has been entered into for the sale or disposition of all or substantially all of
the Capital Stock or assets of such Restricted Subsidiary or (l) customary
provisions in joint venture agreements and other similar agreements.
MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions to, another
Person unless (i) the Company is the surviving corporation or the Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the obligations
of the Company under the Exchange Notes and the Indenture pursuant to a
supplemental Indenture in form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) except in the case of a merger of the Company with or into a Wholly Owned
Restricted Subsidiary of the Company, the Company or the Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Disqualified Stock".
Notwithstanding the foregoing clauses (iii) and (iv), (a) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company and (b) the Company may merge with an
Affiliate incorporated solely for the purpose of reincorporating the Company in
another jurisdiction.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend
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any contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and (if there are any disinterested members of the Board of Directors)
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10 million, or with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5 million as to which there are no
disinterested members of the Board of Directors, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing.
The foregoing provisions will not apply to the following: (i) transactions
between or among the Company and/or any of its Restricted Subsidiaries; (ii)
Restricted Payments or Permitted Investments permitted by the provisions of the
Indenture described above under "-- Restricted Payments"; (iii) the payment of
all fees, expenses and other amounts relating to the Transaction; (iv) the
payment of reasonable and customary regular fees to, and indemnity provided on
behalf of, officers, directors, employees or consultants of the Company or any
Restricted Subsidiary of the Company; (v) the transfer or provision of
inventory, goods or services by the Company or any Restricted Subsidiary of the
Company in the ordinary course of business to any Affiliate of the Company on
terms that are customary in the industry or consistent with past practices,
including with respect to price and volume discounts; (vi) the execution of, or
the performance by the Company or any of its Restricted Subsidiaries of its
obligations under the terms of, any financial advisory, financing, underwriting
or placement agreement or any other agreement relating to investment banking or
financing activities with Goldman, Sachs & Co. or any of its Affiliates
including, without limitation, in connection with acquisitions or divestitures,
in each case to the extent that such agreement was approved by a majority of the
disinterested members of the Board of Directors in good faith; (vii) payments,
advances or loans to employees that are approved by a majority of the
disinterested members of the Board of Directors of the Company in good faith;
(viii) the performance of any agreement as in effect as of the date of the
Indenture or any transaction contemplated thereby (including pursuant to any
amendment thereto so long as any such amendment is not disadvantageous to the
Holders of the Exchange Notes in any material respect); (ix) the existence of,
or the performance by the Company or any of its Restricted Subsidiaries of its
obligations under the terms of, any stockholders agreement (including any
registration rights agreement or purchase agreement related thereto) to which it
is a party as of the date of the Indenture and any similar agreements which it
may enter into thereafter, provided, however, that the existence of, or the
performance by the Company or any of its Restricted Subsidiaries of obligations
under, any future amendment to any such existing agreement or under any similar
agreement entered into after the date of the Indenture shall only be permitted
by this clause (ix) to the extent that the terms of any such amendment or new
agreement are not otherwise disadvantageous to the Holders of the Exchange Notes
in any material respect; (x) transactions permitted by, and complying with, the
provisions of the covenant described under "-- Merger, Consolidation, or Sale of
All or Substantially All Assets"; and (xi) transactions with suppliers or other
purchases or sales of goods or services, in each case in the ordinary course of
business (including, without limitation, pursuant to joint venture agreements)
and otherwise in compliance with the terms of the Indenture which are fair to
the Company or its Restricted Subsidiaries, in the reasonable determination of a
majority of the disinterested members of the Board of Directors of the
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Company or an executive officer thereof, or are on terms at least as favorable
as might reasonably have been obtained at such time from an unaffiliated party.
ISSUANCES OF GUARANTEES OF INDEBTEDNESS
The Indenture provides that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee or pledge any assets to secure
the payment of any other Indebtedness unless such Restricted Subsidiary either
(i) is a Guarantor, or (ii) simultaneously executes and delivers a supplemental
indenture to the Indenture providing for the Guarantee of the payment of all
Obligations with respect to the Exchange Notes by such Restricted Subsidiary,
which Guarantee shall be senior to such Restricted Subsidiary's Guarantee of or
pledge to secure any other Indebtedness that constitutes Subordinated
Indebtedness and subordinated to such Restricted Subsidiary's Guarantee of or
pledge to secure any other Indebtedness that constitutes Senior Debt to the same
extent as the Exchange Notes are subordinated to Senior Debt. In addition, the
Indenture provides that (x) if the Company shall, after the date of the
Indenture, create or acquire any new Restricted Subsidiary (other than a
Restricted Subsidiary organized under the laws of a country other than the
United States), then such newly created or acquired Restricted Subsidiary shall
execute a Senior Subordinated Guarantee and deliver an opinion of counsel in
accordance with the terms of the Indenture, and (y) if the Company shall
(whether before or after the date of the Indenture) create or acquire any other
new Subsidiary that becomes a guarantor under the Bank Credit Agreement, then
such newly created or acquired Subsidiary shall execute a Senior Subordinated
Guarantee and deliver an opinion of counsel in accordance with the terms of the
Indenture. Notwithstanding the foregoing, any such Senior Subordinated Guarantee
shall provide by its terms that it shall be automatically and unconditionally
released and discharged upon certain mergers, consolidations, sales and other
dispositions (including, without limitation, by foreclosure) pursuant to the
terms of the Indenture. In addition, if any Guarantor is released and relieved
of all obligations it may have as a guarantor under the Bank Credit Agreement,
then such Guarantor will also be automatically released and relieved of any
obligations under its Senior Subordinated Guarantee. See "-- Senior Subordinated
Guarantees". The form of such Senior Subordinated Guarantee is attached as an
exhibit to the Indenture.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Exchange Notes are outstanding,
the Company will, commencing after consummation of the Transaction, furnish to
the Holders of Exchange Notes (i) all quarterly and annual financial information
that would be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. In addition, whether or not required
by the rules and regulations of the Commission, following the consummation of
the Transaction, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, the Company and
the Guarantors have agreed that, for so long as any Notes or Exchange Notes
remain outstanding, they will furnish to the Holders of the Notes and/or
Exchange Notes 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.
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EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default with respect to the Exchange Notes: (i) default for 30 days in the
payment when due of interest, including Liquidated Damages, if any, on the
Exchange Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due of the principal of or premium, if
any, on the Exchange Notes (whether or not prohibited by the subordination
provisions of the Indenture); (iii) failure by the Company for 30 days after
notice from the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Exchange Notes to comply with the provisions described
under "-- Change of Control", "-- Restricted Payments", "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock" or "-- Merger, Consolidation,
or Sale of All or Substantially All Assets"; (iv) failure by the Company for 60
days after notice from the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Exchange Notes to comply with any of its other
agreements in the Indenture or the Exchange Notes; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
the maturity of which has been so accelerated, aggregates $15 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $15 million, which judgments are not paid,
discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its Restricted Subsidiaries;
(viii) except as permitted by the Indenture, any Senior Subordinated Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect (except by its terms) or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Senior Subordinated Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Exchange
Notes may declare all the Exchange Notes to be due and payable immediately. Upon
such declaration the principal, interest, premium, if any, and Liquidated
Damages, if any, shall be due and payable immediately; provided, however, that
so long as Senior Debt or any commitment therefor is outstanding under the Bank
Credit Agreement, any such notice or declaration shall not be effective until
the earlier of (a) five Business Days after such notice is delivered to the
Representative for the Bank Debt or (b) the acceleration of any Indebtedness
under the Bank Credit Agreement. Notwithstanding the foregoing, in the case of
an Event of Default arising from certain events of bankruptcy or insolvency,
with respect to the Company, any Significant Restricted Subsidiary or any group
of Restricted Subsidiaries that, taken together, would constitute a Significant
Restricted Subsidiary, all outstanding Exchange Notes will become due and
payable without further action or notice. Holders of the Exchange Notes may not
enforce the Indenture or the Exchange Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Exchange Notes may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Holders of the Exchange Notes
notice of any continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal, premium, if any, or interest)
if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Exchange Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon
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the acceleration of the Exchange Notes. If an Event of Default occurs prior to
December 15, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Exchange Notes prior to December 15, 2002, then
the premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Exchange
Notes.
The Holders of a majority in aggregate principal amount of the Exchange
Notes then outstanding by notice to the Trustee may on behalf of the Holders of
all of the Exchange Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of and premium, if any, on, the
Exchange Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of the Company or any Guarantor, as such, shall have any liability
for any obligations of the Company or the Guarantors under the Exchange Notes,
the Senior Subordinated Guarantees or the Indenture or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each Holder
of Exchange Notes by accepting an Exchange Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Exchange Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all
obligations of the Company and the Guarantors discharged with respect to the
outstanding Exchange Notes and the Senior Subordinated Guarantees ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Exchange Notes
to receive payments in respect of the principal of and premium, if any, and
interest on such Exchange Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Exchange
Notes concerning issuing temporary Exchange Notes, registration of Exchange
Notes, mutilated, destroyed, lost or stolen Exchange Notes and the maintenance
of an office or agency for payment and money for security payments held in
trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's obligations in connection therewith and (iv) the Legal
Defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company and the
Guarantors released with respect to certain covenants that are described in the
Indenture and the Senior Subordinated Guarantees ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Exchange Notes and the Senior
Subordinated Guarantees. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "-- Events of Default and Remedies" will no
longer constitute an Event of Default with respect to the Exchange Notes and the
Senior Subordinated Guarantees.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company or the Guarantors must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Exchange Notes, cash in U.S.
dollars, non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of and premium, if any, and
interest on the outstanding Exchange Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company or the
Guarantors must specify whether the Exchange Notes are being defeased to
maturity or to a particular redemption date; (ii) in the case of Legal
Defeasance, the Company or the Guarantors shall have delivered to the Trustee an
opinion of counsel in the
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United States reasonably acceptable to the Trustee confirming that (A) the
Company or the Guarantors have received from, or there has been published by,
the Internal Revenue Service a ruling or (B) since the date of the Indenture,
there has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall confirm
that, the Holders of the outstanding Exchange 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, the
Company or the Guarantors shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Exchange Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under, any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound; (vi) the Company or the Guarantors must have
delivered to the Trustee an opinion of counsel to the effect that after the 91st
day following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Company or the Guarantors must deliver to
the appropriate Trustee an Officers' Certificate stating that the deposit was
not made by the Company or the Guarantors, as applicable, with the intent of
preferring the Holders of Exchange Notes over the other creditors of the Company
or the Guarantors, as applicable, with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or the Guarantors, as
applicable, or others; and (viii) the Company or the Guarantors must deliver 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.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Exchange Note selected for redemption. Also, the Company is not required to
transfer or exchange any Exchange Note for a period of 15 days before a
selection of Exchange Notes to be redeemed.
The registered Holder of an Exchange Note will be treated as the owner of
it for all purposes.
BOOK-ENTRY, DELIVERY AND FORM
The Exchange Notes initially issued in exchange for the Notes generally
will be represented by one or more fully-registered global notes (collectively,
the "Global Exchange Note"). Notwithstanding the foregoing, Notes held in
certificated form will be exchanged solely for Exchange Notes in certificated
form, as discussed below. The Global Exchange Note will be deposited upon
issuance with the Depository and registered in the name of the Depository or a
nominee of the Depository (the "Global Exchange Note Registered Owner"). Except
as set forth below, the Global Exchange Note may be transferred, in whole and
not in part, only to another nominee of the Depository or to a successor of the
Depository or its nominee.
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The Depository is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depository's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depository's
Participants include securities brokers and dealers (including the initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depository's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depository only through the Depository's
Participants or the Depository's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository, (i) upon deposit of the Global Exchange Note, the Depository will
credit the accounts of Participants designated by the Exchange Agent with
portions of the principal amount of the Global Exchange Note and (ii) ownership
of such interests in the Global Exchange Note will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by the
Depository (with respect to the interests of the Depository's Participants), the
Depository's Participants and the Depository's Indirect Participants. The laws
of some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer Exchange
Notes is limited to that extent. For certain other restrictions on the
transferability of the Exchange Notes, see "Risk Factors -- Restrictions on
Transfer".
Except as described below, owners of interests in the Global Exchange Note
will not have Exchange Notes registered in their names, will not receive
physical delivery of Exchange Notes in definitive form and will not be
considered the registered owners or holders thereof under the Indenture for any
purpose.
Payments in respect of the principal of and premium, if any, and interest
on any Exchange Notes registered in the name of the Global Exchange Note
Registered Owner will be payable by the Trustee to the Global Exchange Note
Registered Owner in its capacity as the registered Holder under the Indenture.
Under the terms of the Indenture, the Company and the Trustee will treat the
persons in whose names the Exchange Notes, including the Global Exchange Note,
are registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for (i) any aspect of the Depository's
records or any Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Exchange Note, or for maintaining,
supervising or reviewing any of the Depository's records or any Participant's
records relating to the beneficial ownership interests in the Global Exchange
Note or (ii) any other matter relating to the actions and practices of the
Depository or any of its Participants. The Company believes, however, that it is
the current practice of the Depository, upon receipt of any payment in respect
of securities such as the Exchange Notes (including principal and interest), to
credit the accounts of the relevant Participants with the payment on the payment
date, in the amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security as shown on the records
of the Depository unless the Depository has reason to believe it will not
receive payment on such payment date. Payments by the Participants and the
Indirect Participants to the beneficial owners of the Exchange Notes will be
governed by standing instructions and customary practices and will be the
responsibility of the Participants or the Indirect Participants and will not be
the responsibility of the Depository, the Trustee or the Company. Neither the
Company nor the Trustee will be liable for any delay by the Depository or any of
its Participants in identifying the beneficial owners of the Exchange Notes, and
the Company and the Trustee may conclusively rely on and will be protected in
relying on instruction from the Global Exchange Note Registered Owner for all
purposes.
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The Global Exchange Note is exchangeable for definitive Exchange Notes if
(i) the Depository notifies the Company that it is unwilling or unable to
continue as Depository of the Global Exchange Note and the Company thereupon
fails to appoint a successor Depository, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
Exchange Notes in definitive registered form, (iii) there shall have occurred
and be continuing an Event of Default or any event which after notice or lapse
of time or both would be an Event of Default with respect to the Exchange Notes
or (iv) as provided in the following paragraph. Such definitive Exchange Notes
shall be registered in the names of the owners of the beneficial interests in
the Global Exchange Note as provided by the Participants. Exchange Notes issued
in definitive form will be in fully registered form, without coupons, in minimum
denominations of $1,000 and integral multiples thereof. Upon issuance of
Exchange Notes in definitive form, the Trustee is required to register the
Exchange Notes in the name of, and cause the Exchange Notes to be delivered to,
the person or persons (or the nominee thereof) identified as the beneficial
owners as the Depository shall direct.
Subject to the restrictions on the transferability of the Exchange Notes
described in "Risk Factors -- Restrictions on Transfer," an Exchange Note in
definitive form will be issued (i) in the Exchange Offer solely in exchange for
certificated Notes or (ii) following the Exchange Offer, upon the resale, pledge
or other transfer of any Exchange Note or interest therein to any person or
entity that does not participate in the Depository. The exchange of certificated
notes in the Exchange Offer may be made only by presentation of the Notes, duly
endorsed, together with a duly completed Letter of Transmittal and other
required documentation as described under "The Exchange Offer -- Procedures for
Tendering" and "-- Guaranteed Delivery Procedures". Transfers of certificated
Exchange Notes may be made only by presentation of Exchange Notes, duly
endorsed, to the Trustee for registration of transfer on the Note Register
maintained by the Trustee for such purposes.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is
no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Exchange
Notes evidenced by registered, definitive certificates ("Certificated
Securities") under the Indenture, then, upon surrender by the Global Exchange
Note Holder of its Global Exchange Notes, Exchange Notes in such form will be
issued to each person that the Global Exchange Note Holder and the Depository
identify as being the beneficial owner of the related Exchange Note.
Neither the Company nor the Trustee will be liable for any delay by the
Global Exchange Note Holder or the Depository in identifying the beneficial
owners of Exchange Notes and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the Global Exchange
Note Holder or the Depository for all purposes.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company, the Guarantors and the Initial Purchaser entered into the
Registration Rights Agreement on December 19, 1997 (the "Closing Date").
Pursuant to the Registration Rights Agreement, the Company and the Guarantors
agreed to file with the Commission on or prior to 45 days after the Closing Date
the Exchange Offer Registration Statement on the appropriate form under the
Securities Act with respect to the Exchange Notes. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company will offer to the Holders of
Transfer Restricted Securities pursuant to the Exchange Offer who are able to
make certain representations the opportunity to exchange their Transfer
Restricted Securities for Exchange Notes. If (i) the
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Company and the Guarantors are not required to file the Exchange Offer
Registration Statement or permitted to consummate the Exchange Offer because the
Exchange Offer is not permitted by applicable law or Commission policy or (ii)
any Holder of Transfer Restricted Securities notifies the Company on or prior to
the 20th Business Day following consummation of the Exchange Offer that it alone
or together with Holders who hold in the aggregate at least $1.0 million in
principal amount of Notes (A) is prohibited by law or Commission policy from
participating in the Exchange Offer or (B) may not resell the Exchange Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (C) is a
broker-dealer and owns Notes acquired directly from the Company or an affiliate
of the Company, the Company and the Guarantors will use their best efforts to
file with the Commission a Shelf Registration Statement to cover resales of the
Notes by the Holders thereof who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
The Company and the Guarantors will use their best efforts to cause the
applicable registration statement to be declared effective by the Commission as
described below. For purposes of the foregoing, "Transfer Restricted Securities"
means each Note until the earliest to occur of (i) the date on which such Note
has been exchanged by a person other than a broker-dealer for an Exchange Note
in the Exchange Offer and entitled to be resold to the public by the Holder
thereof without complying with the prospectus delivery requirements of the
Securities Act, (ii) following the exchange by a broker-dealer in the Exchange
Offer of a Note for an Exchange Note, the date on which such Exchange Note is
sold to a purchaser who receives from such broker-dealer on or prior to the date
of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Note has been effectively
registered under the Securities Act and disposed of in accordance with a Shelf
Registration Statement and (iv) the date on which such Note is distributed to
the public pursuant to Rule 144 under the Securities Act. Notwithstanding the
foregoing, at any time after Consummation (as defined in the Registration Rights
Agreement) of the Exchange Offer, the Company and the Guarantors may allow the
Shelf Registration Statement to cease to be effective and usable if (i) the
Board of Directors of the Company determines in good faith that such action is
in the best interests of the Company, and the Company notifies the Holders
within a certain period of time after the Board of Directors makes such
determination or (ii) the prospectus contained in the Shelf Registration
Statement or the Shelf Registration Statement contains an untrue statement of a
material fact required to be stated therein or omits 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; provided that the period referred to
in the Registration Rights Agreement during which the Shelf Registration
Statement is required to be effective and usable will be extended by the number
of days during which such registration statement was not effective or usable
pursuant to the foregoing provisions.
The Registration Rights Agreement provides that (i) the Company and the
Guarantors will file an Exchange Offer Registration Statement with the
Commission on or prior to 45 days after the Closing Date, (ii) the Company and
the Guarantors will use their best efforts to have the Exchange Offer
Registration Statement declared effective by the Commission on or prior to 105
days after the date on which such Exchange Offer Registration Statement is filed
with the Commission, (iii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, the Company and the Guarantors will
commence the Exchange Offer and use their best efforts to issue on or prior to
45 days after the date on which the Exchange Offer Registration Statement was
declared effective by the Commission, Exchange Notes in exchange for all Notes
tendered prior thereto in the Exchange Offer and (iv) if obligated to file the
Shelf Registration Statement, the Company and the Guarantors will use their best
efforts to file the Shelf Registration Statement with the Commission on or prior
to 45 days after such filing obligation arises and to cause the Shelf
Registration Statement to be declared effective by the Commission on or prior to
105 days after the date such filing is required. If (a) the Company and the
Guarantors fail to file either of the Registration Statements required by the
Registration Rights Agreement on or before the date specified for such filing,
(b) either of such
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Registration Statements is not declared effective by the Commission on or prior
to the date specified for such effectiveness (the "Effectiveness Target Date"),
(c) the Company and the Guarantors fail to consummate the Exchange Offer within
45 days of the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement, or (d) the Shelf Registration Statement or the Exchange
Offer Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
then, subject to the last sentence of the preceding paragraph, the Company will
pay Liquidated Damages to each Holder of Transfer Restricted Securities, with
respect to the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $0.05 per week per $1,000 in
principal amount of Notes constituting Transfer Restricted Securities held by
such Holder. The amount of the Liquidated Damages will increase by an additional
$0.05 per week per $1,000 in principal amount of Notes constituting Transfer
Restricted Securities with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $0.50 per week per $1,000 in principal amount of Notes constituting
Transfer Restricted Securities. All accrued Liquidated Damages will be paid by
the Company in cash on each Damages Payment Date (as defined in the Registration
Rights Agreement) to the Global Note Holder (and any Holder of Certificated
Securities who has given wire transfer instructions to the Company at least 10
Business Days prior to the Damages Payment Date) by wire transfer of immediately
available funds and to all other Holders of Certificated Securities by mailing
checks to their registered addresses. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and will be provided
an opportunity to provide comments on the Shelf Registration Statement within
the time periods set forth in the Registration Rights Agreement in order to have
their Notes included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the full text of the Registration Rights
Agreement, which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part and is incorporated by reference herein.
CONSENT OF HOLDERS; SINGLE CLASS
Except as described below under "-- Amendment, Supplement and Waiver", and
as otherwise described herein or in the Indenture, the Notes and the Exchange
Notes will be considered collectively to be a single class for all purposes
under the Indenture, including, without limitation, waivers, amendments,
redemptions and Repurchase Offers, and for purposes of this "Description of
Exchange Notes" (except under the caption, "-- Registration Rights; Liquidated
Damages") all reference herein to "Exchange Notes" shall be deemed to refer
collectively to the Notes and any Exchange Notes, unless the context otherwise
requires.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture and
the Exchange Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Exchange Notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, such Exchange Notes), and
any existing default or compliance with any provision of the Indenture or the
Exchange Notes may be waived with the consent of the Holders of a majority in
principal amount of the then
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outstanding Exchange Notes (including consents obtained in connection with a
purchase of, or tender offer or exchange offer for, such Exchange Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Exchange Notes held by a nonconsenting Holder): (i) reduce
the principal amount of Exchange Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Exchange Note or alter the provisions with respect to the
redemption of the Exchange Notes (other than provisions relating to the
covenants described above under "-- Repurchase at the Option of Holders"), (iii)
reduce the rate of or change the time for payment of interest, including
Liquidated Damages, if any, on any Exchange Note, (iv) waive a Default or Event
of Default in the payment of principal of or premium, if any, or interest,
including Liquidated Damages, if any, on the Exchange Notes (except a rescission
of acceleration of the Exchange Notes by the Holders of at least a majority in
aggregate principal amount thereof and a waiver of the payment default that
resulted from such acceleration), (v) make any Exchange Note payable in money
other than that stated in the Exchange Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Exchange Notes to receive payments of principal of or premium, if
any, or interest, including Liquidated Damages, if any, on the Exchange Notes,
(vii) waive a redemption payment with respect to any Exchange Note (other than a
payment required by one of the covenants described above under "-- Repurchase at
the Option of Holders") or (viii) make any change in the foregoing amendment and
waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of
Exchange Notes, the Company and the Trustee may amend or supplement the
Indenture or the Exchange Notes to cure any ambiguity, defect or inconsistency,
to provide for uncertificated Exchange Notes in addition to or in place of
certificated Exchange Notes, to provide for the assumption of the Company's
obligations to Holders of Exchange Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of Exchange Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if the Trustee acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Exchange Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
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"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means:
(i) the sale, conveyance, transfer or other disposition (whether in a
single transaction or a series of related transactions) of property or
assets (including by way of a sale and leaseback) of the Company or any
Restricted Subsidiary (each referred to in this definition as a
"disposition") or
(ii) the issuance or sale of Equity Interests of any Restricted
Subsidiary (whether in a single transaction or a series of related
transactions),
in each case, other than:
(a) a disposition of Cash Equivalents or goods held for sale in the
ordinary course of business or obsolete equipment or other obsolete
assets in the ordinary course of business consistent with past practices
of the Company;
(b) the disposition of all or substantially all of the assets of
the Company in a manner permitted pursuant to the provisions described
above under the covenant entitled "-- Merger, Consolidation, or Sale of
All or Substantially All Assets" or any disposition that constitutes a
Change of Control pursuant to the Indenture;
(c) any disposition that is a Restricted Payment or Permitted
Investment that is permitted under the covenant described above under
"-- Restricted Payments";
(d) any individual disposition, or series of related dispositions,
of assets with an aggregate fair market value of less than $2.5 million;
(e) any sale of an Equity Interest in, or Indebtedness or other
securities of, an Unrestricted Subsidiary; and
(f) foreclosures on assets.
"Asset Sale Offer" has the meaning set forth under the caption "--
Repurchase at the Option of Holders -- Asset Sales".
"Bank Credit Agreement" means one or more credit agreements to be entered
into by and among the Company and the financial institutions party thereto
providing a portion of the financing for the Transaction, as well as financing
for the Company's ongoing requirements, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, refinanced
or replaced (in whole or in part) from time to time.
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"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person (but excluding customary
employee incentive or bonus arrangements, and customary earn-out provisions
granted in connection with acquisition transactions and providing for aggregate
payouts not in excess of $5 million per year).
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any domestic bank having capital and
surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" (or the
equivalent rating under a substantially similar ratings system if Keefe Bank
Watch Ratings are no longer published) or better, (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above and (v)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Corporation (or in their absence, an
equivalent rating from another nationally recognized securities rating agency)
and in each case maturing within one year after the date of acquisition.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of
transactions, of all or substantially all of the assets of the Company and
its Restricted Subsidiaries, taken as a whole, to any "person" (as such
term is used in Section 13(d)(3) of the Exchange Act) other than the
Permitted Holders and their Related Parties;
(ii) the Company becomes aware (by way of a report or any other filing
pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice
or otherwise) of the acquisition by any Person or group (within the meaning
of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than the Permitted Holders or
any of their Related Parties, in a single transaction or in a related
series of transactions, by way of merger, consolidation or other business
combination or purchase of beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act, or any successor provision) of 50% or more of
the aggregate voting power of the Voting Stock of the Company, and such
Person or group beneficially owns Voting Stock having greater aggregate
voting power than the Permitted Holders and their Related Parties; or
(iii) a majority of the members of the Board of Directors of the
Company cease to be Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for
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taxes was deducted in computing such Consolidated Net Income, plus (iii)
consolidated interest expense of such Person and its Restricted Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash operating expenses that were paid in a prior
period) and other non-cash charges of such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation, amortization
and other non-cash charges were deducted in computing such Consolidated Net
Income, minus (v) cash outlays that were made by such Person or any of its
Restricted Subsidiaries during such period in respect of any item that was
reflected as a non-cash charge in a prior period, provided that such non-cash
charge was added to Consolidated Net Income in determining Consolidated Cash
Flow for such prior period.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) for such period of any Person
that is not a Restricted Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a Wholly Owned
Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded and (v) the Net Income of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Restricted Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors who (i) was a member of such Board of Directors on the
date of the Indenture or (ii) was nominated for election or elected to such
Board of Directors with, or whose election to such Board of Directors was
approved by, the affirmative vote of a majority of the Continuing Directors who
were members of such Board of Directors at the time of such nomination or
election or (iii) is any designee of the Permitted Holders or their Affiliates
or was nominated by the Permitted Holders or their Affiliates or any designees
of the Permitted Holders or their Affiliates on the Board of Directors.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the Exchange Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
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"Excludable Current Liabilities" means, with respect to the consideration
received by the Company in connection with any Asset Sale, (i) each trade
payable incurred in the ordinary course of business of the Company or any
Restricted Subsidiary, (ii) each current liability that is in an amount less
than $50,000 on an individual basis, and (iii) each liability due within 90 days
of the date of consummation of such Asset Sale, in the case of each of clauses
(i) through (iii), that is assumed by the transferee of the assets that are
subject to such Asset Sale pursuant to customary assumption provisions.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the Bank Credit
Agreement) in existence on the date of the Indenture, until such amounts are
repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues Preferred Stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but on or prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or redemption
of Indebtedness, or such issuance or redemption of Preferred Stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period.
In calculating the Fixed Charge Coverage Ratio, acquisitions will be given
pro forma effect as follows:
(i) (A) acquisitions that have been made or are being made by the Company
or any of its Restricted Subsidiaries during the four-quarter reference
period or subsequent to such reference period and on or prior to the
Calculation Date (including through mergers or consolidations and
including any related financing transactions) shall be deemed to have
occurred on the first day of the four-quarter reference period, and
(B) for purposes of determining the pro forma effects of any such
acquisition, Consolidated Cash Flow shall be increased to reflect the
annualized amount of any cost savings expected by the Company to be
realized in connection with such acquisition (from steps to be taken not
later than the first anniversary of such acquisition, and without
reduction for any non-recurring charges expected in connection with such
acquisition), as set forth in an Officers' Certificate signed by the
Company's chief executive and chief financial officers (which shall be
determinative of such matters) which states (x) the amount of such
increase, (y) that such increase is based on the reasonable beliefs of
the officers executing such Officers' Certificate at the time of such
execution (and that estimates of cost savings from prior acquisitions
have been reevaluated and updated) and (z) that any related incurrence
of Indebtedness is permitted pursuant to the Indenture.
(ii) Consolidated Cash Flow shall be further increased to reflect the
annualized amount of any cost savings expected by the Company but not
yet realized in respect of any acquisition made by the Company during
the four fiscal quarters immediately preceding the four-quarter
reference period prior to the Calculation Date, to the extent such cost
savings are (x) expected to result from steps taken not later than the
first anniversary of the relevant acquisition and (y) determined and
certified as set forth in clause (i) above.
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In addition, in calculating the Fixed Charge Coverage Ratio, discontinued
operations will be given pro forma effect as follows:
(1) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of on or prior to the Calculation Date, shall be excluded, and
(2) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of on or prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the Company or any of its Restricted
Subsidiaries following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations) and (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period,
and (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments (and non-cash dividend payments in the case of a Person that
is a Restricted Subsidiary) paid to any Person other than the Company or a
Restricted Subsidiary on any series of Preferred Stock of such Person, times (b)
a fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person paying the dividend, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Government Securities" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt; provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Security or the specific payment of principal of or interest on the
Government Security evidenced by such depository receipt.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
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"Guarantors" means each Subsidiary of the Company that executes a Senior
Subordinated Guarantee in accordance with the provisions of the Indenture, and,
in each case, their respective successors and assigns, while such Senior
Subordinated Guarantee is outstanding.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"Holder" means a holder of any of the Notes or the Exchange Notes.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any Indebtedness of any other Person.
"Independent Financial Advisor" means an accounting, appraisal, investment
banking firm or consultant of nationally recognized standing that is not an
Affiliate of the Company and that is, in the judgment of the Company's Board of
Directors, qualified to perform the task for which it has been engaged.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances (other than cash advances made to suppliers with respect to current or
anticipated purchases of inventory in the ordinary course of business) or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions of Indebtedness, Equity Interests or other securities
(directly from the issuer thereof or from third parties) together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that an acquisition of Equity Interests or other
securities by the Company for consideration consisting of common equity
securities of the Company shall not be deemed to be an Investment. If the
Company or any Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Subsidiary of the Company such that,
after giving effect to any such sale or disposition, the Company no longer owns,
directly or indirectly, greater than 50% of the outstanding Equity Interests of
such Subsidiary, the Company shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Subsidiary not sold or disposed of.
"Joint Ventures" means all corporations, partnerships, associations or
other business entities (i) that are engaged in a Principal Business and (ii) of
which 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by the Company or one or more Restricted Subsidiaries of
the Company (or a combination thereof).
"Letter of Credit Obligations" means all Obligations in respect of
Indebtedness of the Company or any of its Restricted Subsidiaries with respect
to letters of credit issued pursuant to the Bank Credit Agreement, which
Indebtedness shall be deemed to consist of (a) the aggregate maximum
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amount then available to be drawn under all such letters of credit (the
determination of such maximum amount to assume compliance with all conditions
for drawing), and (b) the aggregate amount that has then been paid by, and not
reimbursed to, the issuers under such letters of credit.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Mortgage Financing" means the incurrence by the Company or a Restricted
Subsidiary of the Company of any Indebtedness secured by a mortgage or other
Lien on real property acquired or improved by the Company or any Restricted
Subsidiary of the Company after the date of the Indenture.
"Mortgage Refinancing" means the incurrence by the Company or a Restricted
Subsidiary of the Company of any Indebtedness secured by a mortgage or other
Lien on real property subject to a mortgage or other Lien existing on the date
of the Indenture or created or incurred subsequent to the date of the Indenture
as permitted by the terms of the Indenture and owned by the Company or any
Restricted Subsidiary of the Company.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and brokerage and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Bank Debt) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Guarantor Subsidiary" means each Subsidiary of the Company that is not
a Guarantor.
"Non-Recourse Debt" means Indebtedness of an Unrestricted Subsidiary (i) as
to which neither the Company nor any of its Restricted Subsidiaries (a) provides
credit support of any kind (including any undertaking, agreement or instrument
that would constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness of the Company or any of its Restricted Subsidiaries or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
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"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed on behalf of the
Company, by two officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements set
forth in the Indenture.
"Permitted Holders" means Goldman, Sachs & Co. and any of its Affiliates.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company (including the acquisition of any Equity
Interest in a Restricted Subsidiary) (b) any investment in cash and Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (A) such Person
becomes a Restricted Subsidiary of the Company or (B) such Person, in one
transaction or a series of related transactions, is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary of the
Company; (d) any Investment made as a result of the receipt of consideration not
constituting cash or Cash Equivalents from an Asset Sale that was made pursuant
to and in compliance with the covenant described above under "-- Repurchase at
the Option of Holders -- Asset Sales"; (e) any Investment existing on the date
of the Indenture; (f) any Investment by Restricted Subsidiaries in other
Restricted Subsidiaries and Investments by Subsidiaries that are not Restricted
Subsidiaries in other Subsidiaries that are not Restricted Subsidiaries; (g)
advances to employees not in excess of $2.5 million outstanding at any one time;
(h) any Investment acquired by the Company or any of its Restricted Subsidiaries
(A) in exchange for any other Investment or accounts receivable held by the
Company or any such Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of such
other Investment or accounts receivable or (B) as a result of a foreclosure by
the Company or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured Investment in
default; (i) Hedging Obligations; (j) loans and advances to officers, directors
and employees for business-related travel expenses, moving expenses and other
similar expenses, in each case incurred in the ordinary course of business; (k)
Investments the payment for which consists exclusively of Equity Interests
(exclusive of Disqualified Stock) of the Company; and (l) additional Investments
having an aggregate fair market value, taken together with all other Investments
made pursuant to this clause (l) that are at that time outstanding, not to
exceed $15 million plus 5% of the increase in Total Assets since the Closing
Date at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value).
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
in whole or in part; provided that: (i) the principal amount (or accreted value,
if applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date on or later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Exchange Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of the Exchange Notes, and is subordinated in right of payment to the
Exchange Notes, on terms at least as favorable to the Holders of Exchange Notes
as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
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(iv) such Indebtedness is incurred either by the Company or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.
"Principal Business" means (i) the design, manufacture and distribution of
party goods and related products, including, but not limited to, tableware (such
as plates, cups, cutlery, napkins and table covers), decorations, banners,
balloons, novelties, horns, party hats, party favors, stationery, invitations,
greeting cards, gift wrap, ribbons, gift boxes, gift bags, giftware, costumes,
masks and makeup, and (ii) any activity or business incidental, directly related
or similar to those set forth in clause (i) of this definition, or any business
or activity that is a reasonable extension, development or expansion thereof or
ancillary thereto.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Related Parties" means any Person controlled by the Permitted Holders,
including any partnership of which any of the Permitted Holders or their
Affiliates is a general partner.
"Repurchase Offer" means an offer made by the Company to purchase all or
any portion of the Exchange Notes pursuant to the provisions described under the
covenants entitled " -- Repurchase at the Option of Holders -- Change of
Control" or " -- Repurchase at the Option of Holders -- Asset Sales".
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not (i) an Unrestricted Subsidiary or (ii) a direct or indirect
Subsidiary of an Unrestricted Subsidiary; provided, however, that upon the
occurrence of any Unrestricted Subsidiary ceasing to be an Unrestricted
Subsidiary, such Subsidiary shall be included in the definition of Restricted
Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Senior Guarantees" means the Guarantees by the Guarantors of Obligations
under the Bank Credit Agreement.
"Senior Subordinated Guarantees" means the Guarantees by the Guarantors of
the Obligations under the Indenture and the Exchange Notes.
"Senior Subordinated Indebtedness" means the Exchange Notes and any other
indebtedness which ranks pari passu in right of payment to the Exchange Notes.
"Significant Restricted Subsidiary" means any Restricted Subsidiary that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect
on the date of the Indenture.
"Specified Real Estate" means the real properties owned by the Company or
its Subsidiaries as of the date of the Indenture, comprising the distribution
facilities in Chester, New York, Montreal, Quebec, Canada, and Melbourne,
Australia.
"Stated Maturity"means, with respect to any installment of interest or
principal on, or any other payments with respect to, any series of Indebtedness,
the date on which such payment of interest or principal or other payment
(including any sinking fund payment) was scheduled, or required to be paid, but
shall not include any acceleration of such payment or any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
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"Subordinated Asset Sale Offer" has the meaning set forth under the caption
" -- Repurchase at the Option of Holders -- Asset Sales".
"Subordinated Indebtedness" means any Indebtedness of the Company or any of
its Restricted Subsidiaries which is expressly by its terms subordinated in
right of payment to any other Senior Subordinated Indebtedness.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"Total Assets" means, with respect to any Person, the total consolidated
assets of such Person and its Restricted Subsidiaries, as shown on the most
recent balance sheet of such Person.
"Unrestricted Subsidiary" means any Subsidiary (other than the Guarantors
or any successor to any of them) that is designated by the Board of Directors as
an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the
extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse
Debt; (b) is not party to any agreement, contract, arrangement or understanding
with the Company or any Restricted Subsidiary of the Company unless the terms of
any such agreement, contract, arrangement or understanding are no less favorable
to the Company or such Restricted Subsidiary than those that might be obtained
at the time from Persons who are not Affiliates of the Company; (c) is a Person
with respect to which neither the Company nor any of its Restricted Subsidiaries
has any direct or indirect obligation (x) to subscribe for additional Equity
Interests or (y) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results; (d) has
not guaranteed and does not otherwise directly or indirectly provide credit
support for any Indebtedness of the Company or any of its Restricted
Subsidiaries; and (e) has at least one director on its board of directors that
is not a director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under "Certain Covenants -- Restricted Payments". If,
at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and, so long as such
Unrestricted Subsidiary remains a Subsidiary, any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under " -- Incurrence of
Indebtedness and Issuance of Disqualified Stock', the Company shall be in
default of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under the covenant described under "Certain Covenants
- -- Incurrence of Indebtedness and Issuance of Disqualified Stock", and (ii) no
Default or Event of Default would be in existence following such designation.
"Voting Stock" means, with respect to any Person, any class or series of
capital stock of such Person that is ordinarily entitled to vote in the election
of directors thereof at a meeting of
127
<PAGE> 135
stockholders called for such purpose, without the occurrence of any additional
event or contingency.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
128
<PAGE> 136
DESCRIPTION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE EXCHANGE NOTES
The following is a summary of certain federal income tax consequences
associated with the acquisition, ownership, and disposition of the Exchange
Notes by holders who acquire the Exchange Notes in the Exchange Offer. The
following summary does not discuss all of the aspects of federal income taxation
that may be relevant to such a prospective holder of the Exchange Notes in light
of his or her particular circumstances, or to certain types of holders
(including dealers in securities, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, S corporations, and except as discussed
below, foreign corporations, persons who are not citizens or residents of the
United States and persons who hold the Exchange Notes as part of a hedge,
straddle, "synthetic security" or other integrated investment) which are subject
to special treatment under the federal income tax laws. This discussion also
does not address the tax consequences to nonresident aliens or foreign
corporations that are subject to United States federal income tax on a net basis
on income with respect to an Exchange Note because such income is effectively
connected with the conduct of a U.S. trade or business. Such holders generally
are taxed in a similar manner to U.S. Holders (as defined below); however,
certain special rules apply. In addition, this discussion is limited to holders
who hold the Exchange Notes as capital assets within the meaning of Section 1221
of the Code. This summary also does not describe any tax consequences under
state, local, or foreign tax laws.
The discussion is based upon the Code, Treasury Regulations, IRS rulings
and pronouncements and judicial decisions all in effect as of the date hereof,
all of which are subject to change at any time by legislative, judicial or
administrative action. Any such changes may be applied retroactively in a manner
that could adversely affect a holder of the Exchange Notes. The Company has not
sought and will not seek any rulings or opinions from the IRS or counsel with
respect to the matters discussed below. There can be no assurance that the IRS
will not take positions concerning the tax consequences of the purchase,
ownership or disposition of the Exchange Notes which are different from those
discussed herein.
PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF EXCHANGE
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL
INCOME TAX CONSEQUENCES THAT MAY APPLY TO THEM, AS WELL AS THE APPLICATION OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
A U.S. Holder is any holder who or which is (i) a citizen or resident of
the United States; (ii) a domestic corporation or domestic partnership; (iii) an
estate other than a "foreign estate" as defined in Section 7701(a)(31) of the
Code; or (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust.
Taxation of Stated Interest. In general, U.S. Holders of the Exchange
Notes will be required to include interest received thereon in taxable income as
ordinary income at the time it accrues or is received, in accordance with the
holder's regular method of accounting for federal income tax purposes.
Effect of Optional Redemption and Repurchase. Under certain circumstances
the Company may be entitled to redeem a portion of the Exchange Notes. In
addition, under certain circumstances, each holder of Exchange Notes will have
the right to require the Company to repurchase all or any part of such holder's
Exchange Notes. Treasury Regulations contain special rules for determining the
yield to maturity and maturity on a debt instrument in the event the debt
instrument provides for a contingency that could result in the acceleration or
deferral of one or more payments. The Company does not believe that these rules
should apply to either the Company's right to redeem Exchange Notes or to the
holders' rights to require the Company to repurchase Exchange
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<PAGE> 137
Notes. Therefore, the Company has no present intention of treating such
redemption and repurchase provisions of the Exchange Notes as affecting the
computation of the yield to maturity or maturity date of the Exchange Notes.
Sale or other Taxable Disposition of the Exchange Notes. The sale,
exchange, redemption, retirement or other taxable disposition of an Exchange
Note will result in the recognition of gain or loss to a U.S. Holder in an
amount equal to the difference between (a) the amount of cash and fair market
value of property received in exchange therefor (except to the extent
attributable to the payment of accrued but unpaid stated interest) and (b) the
holder's adjusted tax basis in such Exchange Note.
A U.S. Holder's basis in an Exchange Note acquired in exchange for a Note
pursuant to the terms set forth in this Prospectus should be the same as such
U.S. Holder's basis in the Notes exchanged therefor. See "Certain Federal Income
Tax Consequences of the Exchange Offer", above. Otherwise, a U.S. Holder's
initial tax basis in an Exchange Note purchased by such Holder will be equal to
the price paid for the Exchange Note.
Any gain or loss on the sale or other taxable disposition of an Exchange
Note generally will be capital gain or loss. Payments on such disposition for
accrued interest not previously included in income will be treated as ordinary
interest income.
Backup Withholding. The backup withholding rules require a payor to deduct
and withhold a tax if (i) the payee fails to furnish a taxpayer identification
number ("TIN") in the prescribed manner, (ii) the IRS notifies the payor that
the TIN furnished by the payee is incorrect, (iii) the payee has failed to
report properly the receipt of "reportable payments" and the IRS has notified
the payor that withholding is required, or (iv) the payee fails to certify under
the penalty of perjury that such payee is not subject to backup withholding. If
any one of the events discussed above occurs with respect to a holder of
Exchange Notes, the Company, its paying agent or other withholding agent will be
required to withhold a tax equal to 31% of any "reportable payment" made in
connection with the Exchange Notes of such holder. A "reportable payment"
includes, among other things, amounts paid in respect of interest on an Exchange
Note. Any amounts withheld from a payment to a holder under the backup
withholding rules will be allowed as a refund or credit against such holder's
federal income tax, provided that the required information is furnished to the
IRS. Certain holders (including, among others, corporations and certain
tax-exempt organizations) are not subject to backup withholding.
MARKET DISCOUNT AND PREMIUM
If a U.S. Holder of an Exchange Note has a tax basis in the Exchange Note
that is less than its "stated redemption price at maturity," the amount of the
difference will be treated as "market discount" for U.S. federal income tax
purposes, unless such difference is less than a specified de minimis amount.
Under the market discount rules of the Code, a U.S. Holder will be required to
treat any principal payment on, or any gain on the sale, exchange, retirement or
other disposition of, an Exchange Note as ordinary income to the extent of any
accured market discount that has not previously been included in income. Market
discount generally accrues on a straight-line basis over the term of a debt
instrument remaining after the acquisition. A U.S. Holder may not be allowed to
deduct immediately all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or to carry such Exchange Note (or the Note
for which the Exchange Note was exchanged, as the case may be). A U.S. Holder
may elect to include market discount in income currently as it accrues (either
on a straight-line basis or, if the U.S. Holder so elects, on a constant yield
basis), in which case the interest deferral rule set forth in the preceding
sentence will not apply. Such an election will apply to all bonds acquired by
the U.S. Holder on or after the first day of the first taxable year to which
such election applies and may be revoked only with the consent of the IRS.
130
<PAGE> 138
If a U.S. Holder purchases an Exchange Note (or purchased the Note for
which the Exchange Note was exchanged, as the case may be) for an amount greater
than the sum of all amounts payable on the Exchange Note (or Note) after the
purchase date, other than stated interest, such holder will be considered to
have purchased such Exchange Note (or such Note) with "amortizable bond premium"
equal in amount to such excess, and may elect (in accordance with applicable
Code provisions) to amortize such premium, using a constant yield method over
the remaining term. The amount amortized in any year will be treated as a
reduction of the U.S. Holder's interest income from the Exchange Note in such
year. A U.S. Holder that elects to amortize bond premium must reduce its tax
basis in the Exchange Note by the amount of the premium amortized in any year.
An election to amortize bond premium applies to all taxable debt obligations
then owned and thereafter acquired by the U.S. Holder and may be revoked only
with the consent of the IRS.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS
This section discusses special rules applicable to a Non-U.S. Holder of
Exchange Notes. This summary does not address the tax consequences to
stockholders, partners or beneficiaries in a Non-U.S. Holder. For purposes
hereof, a "Non-U.S. Holder" is any person who is not a U.S. Holder and is not
subject to U.S. federal income tax on a net basis on income with respect to an
Exchange Note because such income is effectively connected with the conduct of a
U.S. trade or business.
Interest. Payments of interest to a Non-U.S. Holder that do not qualify
for the portfolio interest exception discussed below will be subject to
withholding of U.S. federal income tax at a rate of 30% unless a U.S. income tax
treaty applies to reduce the rate of withholding. To claim a treaty reduced
rate, the Non-U.S. Holder must provide a properly executed Form 1001.
Interest that is paid to a Non-U.S. Holder on an Exchange Note will not be
subject to U.S. income or withholding tax if the interest qualifies as
"portfolio interest". Generally, interest on the Exchange Notes that is paid by
the Company will qualify as portfolio interest if (i) the Non-U.S. Holder does
not own, actually or constructively, 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote; (ii) the Non-U.S.
Holder is not a controlled foreign corporation that is related to the Company
actually or constructively through stock ownership for U.S. federal income tax
purposes; (iii) the Non-U.S. Holder is not a bank receiving interest on a loan
entered into in the ordinary course of business; and (iv) either (x) the
beneficial owner of the Exchange Note provides the Company or its paying agent
with a properly executed certification on IRS Form W-8 (or a suitable substitute
form) signed under penalties of perjury that the beneficial owner is not a "U.S.
person" for U.S. federal income tax purposes and that provides the beneficial
owner's name and address, or (y) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its business holds the Exchange Note and certifies to the Company or
its agent under penalties of perjury that the IRS Form W-8 (or a suitable
substitute) has been received by it from the beneficial owner of the Exchange
Note or a qualifying intermediary and furnishes the payor a copy thereof.
Recently issued Treasury regulations (the "Withholding Regulations") that
will be effective with respect to payments made after December 31, 1998, will
provide alternative methods for satisfying the certification requirements
described in clause (iv) above. The Withholding Regulations also will require,
in the case of Exchange Notes held by a foreign partnership, that (x) the
certification described in clause (iv) above be provided by the partners and (y)
the partnership provide certain information, including its taxpayer
identification number. A look-through rule will apply in the case of tiered
partnerships.
Sale, Exchange or Retirement of Exchange Notes. Any gain realized by a
Non-U.S. Holder on the sale, exchange or retirement of the Exchange Notes, will
generally not be subject to U.S. federal income tax or withholding unless (i)
the Non-U.S. Holder is an individual who was present in the U.S. for 183 days or
more in the taxable year of the disposition and meets certain other
131
<PAGE> 139
requirements; or (ii) the Non-U.S. Holder is subject to tax pursuant to certain
provisions of the Code applicable to certain individuals who renounce their U.S.
citizenship or terminate long-term U.S. residency. If a Non-U.S. Holder falls
under (ii) above, the holder will be taxed on the net gain derived from the sale
under the graduated U.S. federal income tax rates that are applicable to U.S.
citizens and resident aliens, and may be subject to withholding under certain
circumstances. If a Non-U.S. Holder falls under (i) above, the holder generally
will be subject to U.S. federal income tax at a rate of 30% on the gain derived
from the sale (or reduced treaty rate) and may be subject to withholding in
certain circumstances.
U.S. Information Reporting and Backup Withholding Tax. Back-up withholding
generally will not apply to an Exchange Note issued in registered form that is
beneficially owned by a Non-U.S. Holder if the certification of Non-U.S. Holder
status is provided to the Company or its agent as described above in "Certain
Federal Income Tax Consequences to Non-U.S. Holders -- Interest", provided that
the payor does not have actual knowledge that the holder is a U.S. person. The
Company may be required to report annually to the IRS and to each Non-U.S.
Holder the amount of interest paid to, and the tax withheld, if any, with
respect to each Non-U.S. Holder.
If payments of principal and interest are made to the beneficial owner of
an Exchange Note by or through the foreign office of a custodian, nominee or
other agent of such beneficial owner, or if the proceeds of the sale of Exchange
Notes are paid to the beneficial owner of an Exchange Note through a foreign
office of a "broker" (as defined in the pertinent Regulations), the proceeds
will not be subject to backup withholding (absent actual knowledge that the
payee is a U.S. person). Information reporting (but not backup withholding) will
apply, however, to a payment by a foreign office of a custodian, nominee, agent
or broker that is (i) a U.S. person, (ii) a controlled foreign corporation for
U.S. federal income tax purposes, or (iii) a foreign person that derives 50% or
more of its gross income from the conduct of a U.S. trade or business for a
specified three-year period or, effective after December 31, 1998, by a foreign
office of certain other persons; unless the broker has in its records
documentary evidence that the holder is a Non-U.S. Holder and certain conditions
are met (including that the broker has no actual knowledge that the holder is a
U.S. Holder) or the holder otherwise establishes an exemption. Payment through
the U.S. office of a custodian, nominee, agent or broker is subject to both
backup withholding at a rate of 31% and information reporting, unless the holder
certifies that it is a Non-U.S. Holder under penalties of perjury or otherwise
establishes an exemption.
Any amount withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against, or refund of, such holder's
U.S. federal income tax liability, provided that certain information is provided
by the holder to the IRS.
132
<PAGE> 140
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 195 days after the Registration Statement is declared effective, it
will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until May
, 1998 (90 days after commencement of the Exchange Offer), all dealers
effecting transactions in the Exchange Notes may be required to deliver a
Prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, or negotiated prices. Any such resale may be made directly to
the purchaser 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 the
Exchange Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Notes and any
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.
For a period of 195 days after the Registration Statement is declared
effective, the Company will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal. The Company has agreed to
pay certain expenses incident to the Exchange Offer, other than commission or
concessions of any brokers or dealers, and will indemnify the holders of the
Exchange Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the company of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or which
requires the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemental Prospectus to such broker-dealer.
EXPERTS
The financial statements and schedule of the Company as of December 31,
1995 and 1996 and for the years ended December 31, 1994, 1995 and 1996, included
in this Prospectus, have been included herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein and in the Registration
Statement, and upon the authority of said firm as experts in accounting and
auditing.
VALIDITY OF THE EXCHANGE NOTES
The validity of the Exchange Notes will be passed upon for the Company by
Wachtell, Lipton, Rosen & Katz, New York, New York, counsel to the Company.
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<PAGE> 141
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Audited Financial Statements and Schedule:
Report of Independent Auditors....................................................... F-2
Consolidated Balance Sheets -- December 31, 1996 and 1995............................ F-3
Consolidated Statements of Income -- For the Years Ended December 31,
1996, 1995 and 1994............................................................... F-4
Consolidated Statements of Stockholders' Equity -- For the Years Ended
December 31, 1996, 1995 and 1994.................................................. F-5
Consolidated Statements of Cash Flows -- For the Years Ended
December 31, 1996, 1995 and 1994.................................................. F-6
Notes to Consolidated Financial Statements........................................... F-8
Schedule -- Valuation and Qualifying Accounts........................................ F-31
Unaudited Financial Statements:
Consolidated Balance Sheets -- September 30, 1997 and December 31, 1996.............. F-32
Consolidated Statements of Income -- For the Nine Months Ended
September 30, 1997 and 1996....................................................... F-33
Consolidated Statement of Stockholders' Equity -- For the Nine Months Ended
September 30, 1997................................................................ F-34
Consolidated Statements of Cash Flows -- For the Nine Months Ended
September 30, 1997 and 1996....................................................... F-35
Notes to Consolidated Financial Statements........................................... F-36
</TABLE>
F-1
<PAGE> 142
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
AMSCAN HOLDINGS, INC.:
We have audited the accompanying consolidated financial statements of
Amscan Holdings, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Amscan
Holdings, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG PEAT MARWICK LLP
February 14, 1997, except for Notes 16 and 18
which are as of December 19, 1997
Stamford, Connecticut
F-2
<PAGE> 143
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 1,589 $ 2,492
Accounts receivable, net of allowances of $4,138 and $2,505,
respectively................................................. 37,378 31,880
Inventories..................................................... 45,693 45,013
Deposits and other.............................................. 11,360 2,920
-------- --------
Total current assets......................................... 96,020 82,305
Property, plant and equipment, net................................ 34,663 29,173
Intangible assets, net............................................ 7,443 350
Other assets, net................................................. 2,148 2,773
-------- --------
Total assets................................................. $140,274 $114,601
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans and notes payable......................................... $ 29,328 $ 37,849
Subordinated debt and other to stockholders..................... 1,393 18,453
Accounts payable................................................ 7,128 5,855
Accrued expenses................................................ 10,225 9,526
Current installments of long-term indebtedness.................. 2,541 2,239
-------- --------
Total current liabilities.................................... 50,615 73,922
Long-term indebtedness, excluding current installments............ 15,085 12,284
Deferred tax liabilities.......................................... 5,662 --
Other............................................................. 963 1,190
-------- --------
Total liabilities............................................ 72,325 87,396
Stockholders' equity:
Preferred stock................................................. -- --
Common stock.................................................... 2,070 393
Additional paid-in capital...................................... 61,503 9,090
Retained earnings............................................... 4,748 18,462
Foreign currency translation adjustment......................... (372) (653)
Treasury stock, at cost......................................... -- (87)
-------- --------
Total stockholders' equity................................... 67,949 27,205
-------- --------
Total liabilities and stockholders' equity................... $140,274 $114,601
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 144
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Net sales.......................................... $ 192,705 $167,403 $132,029
Cost of sales...................................... 123,913 108,654 86,748
-------- -------- --------
Gross profit.................................. 68,792 58,749 45,281
Operating expenses:
Selling.......................................... 11,838 12,241 11,309
General and administrative....................... 19,266 15,002 14,460
Art and development.............................. 5,173 4,256 2,796
Non-recurring compensation in connection with the
IPO........................................... 15,535
Special bonuses.................................. 4,222 2,581 2,200
-------- -------- --------
Total operating expenses...................... 56,034 34,080 30,765
-------- -------- --------
Income from operations........................ 12,758 24,669 14,516
Interest expense, net.............................. 6,691 5,772 3,843
Other expense (income), net........................ 335 (309) 82
-------- -------- --------
Income before income taxes and minority
interests........................................ 5,732 19,206 10,591
Income taxes....................................... 1,952 731 464
Minority interests................................. 1,653 1,041 160
-------- -------- --------
Net income.................................... $ 2,127 $ 17,434 $ 9,967
======== ======== ========
Pro forma data (unaudited) (note (16)):
Income before income taxes....................... $ 4,079 $ 18,165 $ 10,431
Pro forma income tax expense..................... 1,827 7,403 4,238
-------- -------- --------
Pro forma net income.......................... $ 2,252 $ 10,762 $ 6,193
======== ======== ========
Pro forma net income used for pro forma net
income per share calculation................ $ 12,010
Pro forma net income per share................ $ 11,891
Pro forma weighted average common shares
outstanding................................. 1,010
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 145
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------- ---------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1993..... $ 393 $ 9,090 $ 9,520 $ (420) $ (87) $ 18,496
Net income.......................... 9,967 9,967
Subchapter S distributions and
other............................. (7,450) (7,450)
Net change in cumulative translation
adjustment........................ (193) (193)
------ ------- -------- ----- ---- --------
Balance as of December 31, 1994..... 393 9,090 12,037 (613) (87) 20,820
Net income.......................... 17,434 17,434
Subchapter S distributions and
other............................. (11,009) (11,009)
Net change in cumulative translation
adjustment........................ (40) (40)
------ ------- -------- ----- ---- --------
Balance as of December 31, 1995..... 393 9,090 18,462 (653) (87) 27,205
Net income.......................... 2,127 2,127
Net adjustment for exchange of
shares issued in the
Organization...................... 1,123 (1,210) 87 --
Subchapter S distributions and
other............................. (7,583) (15,841) (23,424)
Net proceeds from IPO............... 400 42,940 43,340
Shares issued to officer............ 66 7,854 7,920
Shares issued for acquisition....... 63 7,437 7,500
Contribution to ESOP and stock
bonuses........................... 25 2,975 3,000
Net change in cumulative translation
adjustment........................ 281 281
------ ------- -------- ----- ---- --------
Balance as of December 31, 1996..... $2,070 $ 61,503 $ 4,748 $ (372) $ -- $ 67,949
====== ======= ======== ===== ==== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 146
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................... $ 2,127 $ 17,434 $ 9,967
Adjustments to reconcile net income to net cash provided by
operating activities:
Stock compensation expenses in connection with the IPO...... 10,920
Depreciation and amortization............................... 5,137 4,332 3,672
Loss (gain) on disposal of property and equipment........... 660 (5) 35
Provision for doubtful accounts............................. 2,350 1,581 2,676
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable....................................... (7,848) (9,614) (5,041)
Inventories............................................... (680) (10,548) (5,682)
Deposits and other, net................................... (3,048) (101) (155)
Other assets.............................................. 683 (1,172) (1,265)
Accounts payable and accrued expenses..................... 1,972 2,814 912
--------- --------- --------
Net cash provided by operating activities................. 12,273 4,721 5,119
Cash flows from investing activities:
Capital expenditures.......................................... (7,613) (4,522) (7,392)
Proceeds from disposal of property and equipment.............. 9 98
--------- --------- --------
Net cash used in investing activities..................... (7,613) (4,513) (7,294)
Cash flows from financing activities:
Net proceeds from IPO......................................... 43,340
Proceeds from loans, notes payable and long-term
indebtedness................................................ 3,273 42,311 6,324
Repayment of loans, notes payable and long-term indebtedness.. (11,968) (32,313) (2,434)
Proceeds from loans, notes payable and subordinated
indebtedness to Principal Stockholder....................... 4,000 6,316
Repayment of loans, notes payable and subordinated
indebtedness to Principal Stockholder....................... (17,179) (2,842)
Subchapter S distributions and other.......................... (23,424) (11,009) (7,450)
--------- --------- --------
Net cash (used in) provided by financing activities....... (5,958) 147 2,756
Effect of exchange rate changes on cash....................... 395 (92) 270
--------- --------- --------
Net increase (decrease) in cash and cash equivalents...... (903) 263 851
Cash and cash equivalents at beginning of year.................. 2,492 2,229 1,378
--------- --------- --------
Cash and cash equivalents at end of year........................ $ 1,589 $ 2,492 $ 2,229
========= ========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest...................................................... $ 7,826 $ 4,486 $ 4,025
Taxes......................................................... 1,085 601 112
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 147
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
SUPPLEMENTAL INFORMATION ON NONCASH ACTIVITIES:
Capital lease obligations of $3,395 and $648 were incurred in 1996 and 1994
respectively. There were no capital lease obligations incurred in 1995.
In conjunction with the IPO, John A. Svenningsen (the "Principal
Stockholder") and certain affiliates of the Principal Stockholder exchanged
shares in Amscan Inc. and certain affiliated entities for 15,024,616 and 138,461
shares, respectively, in the Company.
In conjunction with the IPO, the Company entered into an agreement to
purchase an additional 50% of Am-Source, Inc. The Am-Source, Inc. stockholders
exchanged all of their outstanding capital stock for 624,999 shares of the
Company's stock valued at $7,500.
In conjunction with the IPO, the Company incurred stock compensation
expense of $7,920 for the issuance of stock to an officer and $3,000 for the
establishment of the ESOP for the benefit of the Company's domestic employees
and the payment of stock bonuses to certain of such employees.
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 148
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Amscan Holdings, Inc. ("Amscan Holdings") was incorporated on October 3,
1996 for the purpose of becoming the holding company for Amscan Inc. and certain
affiliated entities in connection with an initial public offering of common
stock ("IPO") involving the sale of 4,000,000 shares of its common stock at
$12.00 per share. The IPO was completed on December 18, 1996 pursuant to which
the Principal Stockholder and certain affiliates of the Principal Stockholder
exchanged shares in Amscan Inc. and certain affiliates for 15,024,616 and
138,461 shares, respectively, in Amscan Holdings (the "Organization") and in the
case of the Principal Stockholder, $133,000 in cash. Prior to the IPO, certain
subsidiaries of Amscan Holdings were operated as Subchapter S corporations for
federal and, where available, for state income tax purposes. In connection with
the IPO, such subsidiaries declared a dividend representing distributions of
accumulated Subchapter S corporation profits and a return of capital. These
amounts were reflected as subordinated debt and repaid from the net proceeds of
the IPO.
Amscan Holdings and its subsidiaries (collectively the "Company") design,
manufacture, contract for manufacture and distribute party and novelty goods
principally in the United States, Canada and Europe.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Amscan
Holdings and its majority-owned subsidiaries (or with respect to less than
majority-owned subsidiaries, on the equity basis). In connection with the IPO,
there was a transfer of ownership between the former stockholders of Amscan Inc.
and certain of its affiliates and Amscan Holdings whereby Amscan Holdings became
the holding company for the business conducted by Amscan Inc. and certain of its
affiliates. Such transfer of ownership was accounted for in a manner similar to
a pooling of interests and resulted in Amscan Inc., Am-Source, Inc., JCS Realty
Corp. and SSY Realty Corp. being taxed as Subchapter C corporations under
federal and certain state income tax requirements. All material intercompany
balances and transactions have been eliminated in consolidation. For periods
prior to December 18, 1996, financial statements are presented on a combined
basis. The name, Amscan Holdings' ownership and a brief description of the
principal business activity of each consolidated subsidiary is presented below.
<TABLE>
<CAPTION>
SUBSIDIARY OWNERSHIP PRINCIPAL ACTIVITY
- ------------------------------------ --------- ---------------------------------------------
<S> <C> <C>
Amscan Inc.......................... 100% Manufacturer -- paper tableware; and
distributor -- worldwide
Am-Source, Inc...................... 100 Manufacturer -- plastic products
Trisar, Inc......................... 100 Manufacturer -- gift products
Amscan Distributors (Canada) Ltd.... 100 Distributor -- Canada
Amscan Holdings Limited............. 75 Distributor -- United Kingdom
Amscan (Asia-Pacific) Pty. Ltd...... 85 Distributor -- Australia and Asia
Amscan Partyartikel GmbH............ 95 Distributor -- Germany
Amscan Svenska AB................... 100 Distributor -- Sweden
Amscan de Mexico, S.A. de C.V....... 50 Distributor -- Mexico
JCS Realty Corp..................... 100 Real estate -- Canada
SSY Realty Corp..................... 100 Real estate -- United States
</TABLE>
F-8
<PAGE> 149
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACQUISITIONS
In conjunction with the IPO, the Company entered into an agreement to
acquire an additional 50% of Am-Source, Inc. The stockholders of Am-Source, Inc.
exchanged all of their outstanding capital stock for 624,999 shares of the
Company's stock valued at $7,500,000. The acquisition has been accounted for as
a purchase and the excess purchase price over the fair value of the net assets
acquired of $7,443,000 is being amortized on a straight-line basis over thirty
years.
The results of operations for the acquisition of the 50% balance of
Am-Source, Inc. are included in the accompanying financial statements from the
date of acquisition. The results of operations for this acquisition for the
years ended December 31, 1996, 1995 and 1994 had the acquisition occurred at the
beginning of 1994, are not significant.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Highly liquid investments with a maturity of three months or less when
purchased are considered to be equivalents.
INVENTORIES
Substantially all inventories of the Company are valued at the lower cost
or market (principally on the first-in, first-out method).
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are stated at cost. Machinery and equipment
under capital leases are stated at the present value of the minimum lease
payments at the inception of the lease.
Depreciation is calculated principally on the straight-line method over the
estimated useful lives of the assets. Machinery and equipment held under capital
leases and leasehold improvements are amortized straight-line over the shorter
of the lease term or estimated useful life of the asset.
INTANGIBLE ASSETS
Intangible assets are comprised of $7,443,000 and $350,000 at December 31,
1996 and 1995 respectively, of goodwill, net of amortization, which represents
the excess of the purchase price of acquired companies over the estimated fair
value of the net assets acquired. Goodwill is being amortized on a straight-line
basis over periods ranging from three years to thirty years. Accumulated
amortization was $1,050,000 and $700,000 as of December 31, 1996 and 1995,
respectively.
The Company adopted Financial Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). Such adoption had no impact on the Company's financial
statements. In accordance with SFAS No. 121, the Company systematically reviews
the recoverability of its intangible and other long-lived assets by comparing
their unamortized carrying value to their related anticipated undiscounted
future cash flows. Any impairment related to long-lived assets is measured by
reference to the assets' fair market value, and any impairment related to
goodwill is measured against discounted cash flows. Impairments are charged to
expense when such determination is made.
F-9
<PAGE> 150
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue from product sales when the goods are
shipped to the customers. Product returns and warranty costs are immaterial.
CATALOGUE COSTS
The Company expenses costs associated with the production of annual
catalogues when incurred.
ART AND DEVELOPMENT COSTS
Art and development costs are primarily internal costs that are not easily
associated with specific designs which may not reach commercial production.
Accordingly, the Company expenses these costs as incurred.
INCOME TAXES
Prior to the IPO, Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY
Realty Corp. were operated as Subchapter S corporations for federal income and,
where available, for state income tax purposes. As a result, these corporations
did not record or pay any federal or state income taxes except in states which
do not recognize Subchapter S corporation status.
Since December 18, 1996, the Company has been taxed as a Subchapter C
corporation, and as a result, the Company accounts for income taxes in
accordance with the provisions of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes ("SFAS 109"). Under the asset and liability
method of SFAS 109, certain income and expense items are reported differently
for financial reporting and income tax purposes. Deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities and operating loss and tax
credit carryforwards applying enacted statutory tax rates in effect for the year
in which the differences are expected to reverse. Deferred tax assets are
reduced by a valuation allowance when, in the judgment of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.
NON-RECURRING COMPENSATION EXPENSES
In conjunction with the IPO, the Company has recorded non-recurring
compensation expenses of $15,535,000 in 1996 related to stock and cash payments
of $12,535,000 to certain executives in connection with the termination of prior
employment agreements and $3,000,000 for the establishment of an ESOP for the
benefit of the Company's domestic employees and the payment of stock bonuses to
certain of such employees.
STOCK-BASED COMPENSATION
The Company has accounted for the distribution of stock and for the
issuance of stock options under its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25 "Accounting for
Stock Issued to Employees" and related interpretations ("APB 25"). As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On January 1,
1996, the Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows
entities to apply the provisions of APB Opinion No. 25 and provide pro forma net
F-10
<PAGE> 151
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
income and pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied. The Company has elected to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123 (see note (10)).
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION
Realized foreign currency exchange gains or losses, which result from the
settlement of receivables or payables in currencies other than U.S. dollars, are
credited or charged to operations. Unrealized gains or losses on foreign
currency exchanges are insignificant.
The balance sheets of foreign subsidiaries are translated into U.S. dollars
at the exchange rates in effect on the balance sheet date. The results of
operations of foreign subsidiaries are translated into U.S. dollars at the
average exchange rates effective for the periods presented. The differences from
historical exchange rates are reflected as a separate component of stockholders'
equity.
CONCENTRATION OF CREDIT RISK
While the Company's customers are geographically disbursed throughout North
America, South America, Europe, Asia and Australia, there is a concentration of
sales made to and accounts receivable from the stores which operate in the party
superstore channel of distribution. At December 31, 1996 and 1995, the Company's
two largest customers, with approximately 185 stores, accounted for 21.7% and
12%, respectively, of consolidated accounts receivable. For the years ended
December 31, 1996, 1995 and 1994, sales to the Company's two largest customers
represented 21.5%, 17% and 10%, respectively, of consolidated net sales. Of such
amount, sales to the Company's largest customer represented 14.5%, 11% and 8%,
respectively. No other group or combination of customers subjected the Company
to a concentration of credit risk.
RECLASSIFICATIONS
In connection with the preparation of the accompanying financial
statements, the Company has classified printing plates purchased from third
party vendors as property, plant and equipment. Previously, the Company
classified such printing plates that are used in the Company's manufacturing
process as other assets. Prior balances of property, plant and equipment and
other assets have been reclassified accordingly.
Certain other amounts in prior financial statements have been reclassified
to conform to the current year presentation.
USE OF ESTIMATES
Management has made estimates and assumptions relating to the reporting of
assets and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
F-11
<PAGE> 152
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVENTORIES
Inventories at December 31, 1996 and 1995 consisted of the following
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Finished goods.............................................. $42,127 $42,125
Raw materials............................................... 3,863 2,277
Work-in-process............................................. 1,388 1,839
------- -------
47,378 46,241
Less: reserve for slow moving and obsolete inventory........ (1,685) (1,228)
------- -------
$45,693 $45,013
======== ========
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
Major classifications of property, plant and equipment at December 31, 1996
and 1995 consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED
1996 1995 USEFUL LIVES
-------- -------- ------------
<S> <C> <C> <C>
Machinery and equipment................... $ 31,621 $ 25,530 3-15
Buildings................................. 10,153 9,524 31-40
Data processing equipment................. 9,259 6,123 5
Leasehold improvements.................... 3,449 4,784 25
Furniture and fixtures.................... 3,071 2,370 10
Land...................................... 1,917 1,917 --
-------- --------
59,470 50,248
Less: accumulated depreciation and
amortization............................ (24,807) (21,075)
-------- --------
$ 34,663 $ 29,173
========= =========
</TABLE>
Depreciation and amortization expense was $4,787,000, $3,982,000 and
$3,322,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
(5) LOANS AND NOTES PAYABLE
The Company has entered into a revolving credit agreement with several
banks which expires on September 20, 2000. Amounts available for borrowing under
this agreement, subject to asset availability and other restrictions, are as
follows (dollars in thousands):
<TABLE>
<S> <C>
September 20, 1996 -- September 19, 1997................................ $55,000
September 20, 1997 -- September 20, 2000................................ 60,000
</TABLE>
Such revolving credit agreement is collateralized by a first lien on
certain of the assets of the Company. The revolving credit agreement provides
for interest on the borrowings to be based on either a prime borrowing rate or
LIBOR plus 0.875%, whichever is lower. Additionally, the revolving credit
agreement requires the Company to comply with certain covenants including the
maintenance of financial ratios, as defined. At December 31, 1996, the Company
was in compliance with all such covenants.
F-12
<PAGE> 153
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loans and notes payable outstanding at December 31, 1996 and 1995 consisted
of the following (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Revolving credit line with interest at LIBOR plus 0.875% (6.75% and
6.41%, at December 31, 1996 and 1995, respectively)................. $ 5,000 $35,000
Revolving credit line with interest at the prime rate (8.25% and 8.5%,
at December 31, 1996 and 1995, respectively)........................ 23,950 2,060
Revolving credit line denominated in Canadian Dollars with interest at
the Canadian prime rate (4.75% at December 31, 1996)................ 378
Revolving credit line denominated in British Pounds Sterling with
interest at the U.K. Base rate plus 2% (8.5% at December 31,
1995)............................................................... 789
------- -------
$29,328 $37,849
======= =======
</TABLE>
The weighted average interest rates on loans and notes payable outstanding
at December 31, 1996 and 1995 were 7.95% and 6.57%, respectively.
The Company is currently involved in three interest rate swap transactions
covering $25,000,000 of its outstanding obligation under the revolving credit
agreement. The transactions fix the interest rates as indicated below and
entitles the Company to settle with the counterparty on a quarterly basis, the
product of the notional amount times the amount, if any, by which the ninety day
LIBOR exceeds the fixed rate. Net payments to the counterparty under the swap
agreements for the years ended December 31, 1996, 1995 and 1994, which have been
recorded as additional interest expense, were as follows (dollars in thousands):
<TABLE>
<CAPTION>
ADDITIONAL INTEREST
EXPENSE
NOTIONAL FIXED ---------------------
DATE OF CONTRACT AMOUNT TERM RATE 1996 1995 1994
- ------------------------------------- -------- -------- ------ ---- ---- ---
<S> <C> <C> <C> <C> <C> <C>
September 28, 1994................... $ 5,000 10 years 7.945% $122 $ 94 $34
May 12, 1995......................... 10,000 5 years 6.590 105 42
July 20, 1995........................ 10,000 10 years 6.750 122 38
---- ---- ---
$349 $174 $34
==== ==== ===
</TABLE>
(6) LONG-TERM INDEBTEDNESS
Long-term indebtedness at December 31, 1996 and 1995 consisted of the
following (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Mortgage obligations(a)..................................... $ 6,654 $ 6,956
Term loans(b)............................................... 5,778 5,152
Capital lease obligations(c)................................ 5,194 2,415
------- -------
Total long-term indebtedness.............................. 17,626 14,523
Less: current installments.................................. (2,541) (2,239)
------- -------
Long-term indebtedness, excluding current installments...... $15,085 $12,284
======= =======
</TABLE>
(a) The Company has mortgage obligations payable to financial institutions
relating to certain distribution facilities due through September 13,
2004. The mortgages are
F-13
<PAGE> 154
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
collateralized by specific real estate assets of the Company and carry
interest rates ranging from the Canadian prime rate plus 0.5% (5.25%
and 8.0% as of December 31, 1996 and 1995, respectively) to 8.51%. At
December 31, 1996 and 1995, $2,100,000 and $1,800,000 of mortgage
obligations, respectively, are denominated in Canadian dollars.
(b) The Company has various term loans payable to financial institutions
due through April 1, 2002. The loans are collateralized by specific
assets of the Company and carry interest rates which range from 8.01%
to 9.5%.
(c) The Company has entered into various capital leases for machinery and
equipment with implicit interest rates ranging from 4.71% to prime rate
plus 1.0% (9.25% at December 31, 1996) which extend to 2003.
At December 31, 1996, principal maturities of long-term indebtedness
consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
CAPITAL
MORTGAGES LEASE
AND LOANS OBLIGATIONS TOTAL
--------- ----------- -------
<S> <C> <C> <C>
1997.......................................... $ 1,682 $ 1,139 $ 2,821
1998.......................................... 1,741 1,243 2,984
1999.......................................... 1,718 1,176 2,894
2000.......................................... 1,682 1,136 2,818
2001.......................................... 1,682 1,281 2,963
Thereafter.................................... 3,927 147 4,074
------- ------ -------
12,432 6,122 18,554
Amount representing interest.................. (928) (928)
------- ------ -------
Long-term indebtedness........................ $12,432 $ 5,194 $17,626
======= ====== =======
</TABLE>
(7) DUE TO PRINCIPAL STOCKHOLDER
At December 31, 1996 and 1995, the Company owed the Principal Stockholder
$1,274,000 and $16,000,000, respectively, under a subordinated note with
interest payable monthly. This note is subject to a subordination agreement
among the Principal Stockholder, Amscan Inc., and the lenders involved with the
revolving credit agreement as discussed in note (5). Interest is the prime rate
plus 0.5% (8.75% and 9% at December 31, 1996 and 1995, respectively).
Prior to the IPO, certain subsidiaries of the Company declared a dividend
representing distributions of accumulated Subchapter S profits of $15,841,000
and a return of capital of $7,583,000. These amounts and nearly all of the
previous balances of subordinated debt were repaid from the net proceeds of the
IPO. A waiver was obtained from the banks for the repayment of these amounts due
to the Principal Stockholder.
Further, the Company had unsecured current loans payable to the Principal
Stockholder aggregating $2,453,000 at December 31, 1995 at interest rates
ranging from 7% to 12%. The loans had different forms of collateral but were
generally subordinated to the credit facility discussed in note (5). During
1996, these amounts were converted to subordinated debt.
(8) EMPLOYEE BENEFIT PLANS
Certain subsidiaries of the Company maintain a profit-sharing plan for all
eligible employees providing for annual discretionary contributions to a trust.
As of January 1, 1995, the plan required
F-14
<PAGE> 155
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the subsidiaries to match 25% to 50% of the first 6% of an employee's annual
salary contributed to the plan. Benefit expense for the years ended December 31,
1996, 1995 and 1994 totaled $731,000, $558,000 and $548,000, respectively.
In connection with the IPO, the Company established the Employee Stock
Ownership Plan (the "ESOP") for the benefit of its domestic employees and
authorized the payments of stock bonuses to certain of such employees. There was
a special one-time issuance of 250,000 shares of common stock of the Company,
valued at $1,898,000 for the establishment of the ESOP and $1,102,000 for
payment of stock bonuses.
(9) SPECIAL BONUSES
During the periods presented, Amscan Inc. had employment agreements with
certain key executives and senior managers which provided for these individuals
to receive annual bonuses based upon the pre-tax income of Amscan, Inc. and
certain of its affiliates. These bonuses, which amounted to approximately 18% to
20% of pre-tax income, are reflected in the Consolidated Statements of
Operations in the caption "Special Bonuses". These individuals will not receive
such special bonuses after 1996. At December 31, 1996 and 1995, respectively,
$1,584,000 and $2,581,000 were accrued for such bonuses and included in accrued
expenses.
(10) STOCK OPTION PLAN
In 1996, the Company adopted a stock option plan (the "Plan") pursuant to
which a committee of the Company's Board of Directors may grant stock options to
officers and key employees. The Plan authorizes grants of options to purchase up
to 2,000,000 shares of authorized but unissued common stock. Stock options are
granted with an exercise price no less than the stock's fair market value at the
date of grant. An option may not be exercised within one year of grant and no
option will be exercisable after ten years from the date granted. Participants
may exercise approximately 25% of the total number of shares granted in each
year subsequent to the year of the grant.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized in connection with the
issuance of options under the stock option plan. Had the Company's stock option
plan been determined based on the fair value of the options granted at the grant
date, the compensation cost for 1996 would not have been material.
Options were issued in connection with the IPO totaling 425,000 shares of
common stock at the initial offering price. It has been assumed that the
estimated fair value of the options is amortized on a straight line basis to
compensation expense over the vesting period of the grant, which is
approximately four years. The estimated fair value of each option on the date of
grant is $5.22, using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 0%; expected volatility of 25%; risk-free
interest rate of 6.43%; and expected lives of 7 years. All options issued were
outstanding and none was exercisable as of December 31, 1996.
(11) INCOME TAXES
Prior to the consummation of the IPO, Amscan Inc., Am-Source, Inc., JCS
Realty Corp. and SSY Realty Corp. elected to be taxed as Subchapter S
corporations under the Internal Revenue Code. Accordingly, these companies were
not subject to federal and state income taxes, to the extent that states
recognize Subchapter S corporation status. Upon the termination of the
Subchapter S corporation status in connection with the IPO, the aforementioned
companies became subject to federal and state income taxes. The cumulative
effect of such tax status change relating to the
F-15
<PAGE> 156
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recording of deferred taxes as of December 18, 1996 was $786,000 and has been
included in the income tax expense for the year ended December 31, 1996.
A summary of the domestic and foreign pre-tax income for the years ended
December 31, 1996, 1995 and 1994 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- -------
<S> <C> <C> <C>
Domestic.......................................... $3,137 $17,750 $10,009
Foreign........................................... 2,595 1,456 582
</TABLE>
The provision for income taxes consisted of the following (dollars in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
Current:
Foreign.............................................. $ 992 $731 $464
State................................................ 212
------ ---- ----
Total current provision........................... 1,204 731 464
------ ---- ----
Deferred:
Change in tax status................................. 786
Foreign.............................................. 100
Federal.............................................. (113)
State................................................ (25)
------ ---- ----
Total deferred provision.......................... 748 -- --
------ ---- ----
Income tax expense..................................... $1,952 $731 $464
====== ==== ====
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1996, the
deferred assets and liabilities consisted of the following (dollars in
thousands):
<TABLE>
<S> <C>
Current deferred tax assets:
Provision for doubtful accounts........................................ $1,692
Accrued liabilities.................................................... 1,568
Inventories............................................................ 1,438
Other.................................................................. 175
------
Current deferred tax assets......................................... $4,873
======
Non-current deferred tax liabilities:
Property, plant and equipment.......................................... $4,484
Future taxable income resulting from a change in accounting method for
tax purposes........................................................ 823
Other.................................................................. 355
------
Non-current deferred tax liabilities..................................... $5,662
======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate
F-16
<PAGE> 157
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical income and
projections for future taxable income over the periods in which the deferred tax
assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences.
The difference between the Company's effective tax rate and the federal
statutory rate of 35% is reconciled below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Provision at federal statutory rate.................... 35.0% 35.0% 35.0%
Effect of Subchapter S income not subject to federal
income taxes......................................... (19.1) (32.3) (33.1)
Change in tax status................................... 13.7
Other.................................................. 4.5 1.1 2.5
----- ----- -----
Effective tax rate..................................... 34.1% 3.8% 4.4%
===== ===== =====
</TABLE>
(12) STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING
On December 18, 1996, the Company completed the IPO in which it sold
4,000,000 shares of its common stock for $12.00 per share. The proceeds, net of
underwriter's discount, fees and expenses, of $43,340,000 were used to repay
subordinated debt outstanding to stockholders and loans payable to banks.
At December 31, 1996, the Company's authorized capital stock consisted of
5,000,000 shares of preferred stock, $0.10 par value, of which no shares were
issued or outstanding, and 50,000,000 shares of common stock, $0.10 par value,
of which 20,698,076 shares were issued and outstanding.
(13) LEASES
The Company is obligated under various capital leases for certain machinery
and equipment which expire on various dates through October 1, 2001 (see also
note (6)). At December 31, 1996 and 1995, the amount of machinery and equipment
and related accumulated amortization recorded under capital leases and included
with property, plant and equipment consisted of the following (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Machinery and equipment...................................... $ 6,452 $3,174
Less: accumulated amortization............................... (1,042) (564)
------- ------
$ 5,410 $2,610
======= ======
</TABLE>
Amortization of assets held under capitalized leases is included with
depreciation expense.
The Company has several noncancelable operating leases with unaffiliated
third parties, primarily for office and manufacturing space, showrooms, and
warehouse equipment that expire
F-17
<PAGE> 158
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
over the next eight years. These leases generally contain renewal options and
require the Company to pay real estate taxes, utilities and related insurance.
At December 31, 1996, the Company also had noncancelable operating leases
with the Principal Stockholder and real estate entities owned either directly or
indirectly by the Principal Stockholder ("Unconsolidated Affiliates") for
warehouse and office space that expire over the next five years. Rent due to
Unconsolidated Affiliates represents future commitments associated with property
leased by the Company from the Principal Stockholder or such entities owned
directly or indirectly by the Principal Stockholder.
At December 31, 1996 future minimum lease payments under all operating
leases consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
UNCONSOLIDATED
THIRD PARTIES AFFILIATES TOTAL
------------- -------------- -------
<S> <C> <C> <C>
1997..................................... $ 3,831 $2,246 $ 6,077
1998..................................... 3,883 2,309 6,192
1999..................................... 2,713 2,374 5,087
2000..................................... 1,908 1,239 3,147
2001..................................... 1,908 167 2,075
2002-2006................................ 6,184 6,184
2007-2011................................ 4,631 4,631
2012-2016................................ 4,325 4,325
Thereafter............................... 505 505
------- ------ -------
$29,888 $8,335 $38,223
======= ====== =======
</TABLE>
Rent expense for the years ended December 31, 1996, 1995 and 1994 was
$5,300,000, $2,547,000 and $2,245,000, respectively, of which $2,134,000,
$936,000 and $893,000, respectively, related to leases with Unconsolidated
Affiliates.
On April 5, 1996, the Company entered into an operating lease agreement
with a third party whereby the Company may lease up to $11,000,000 of machinery
and equipment. The agreement provides for equal monthly payments over 12 years,
including renewal options. In connection with this agreement, the Company has
entered into commitments for equipment with a fair value of approximately
$10,800,000 as of December 31, 1996. Assuming the entire lease facility is
utilized, future minimum lease payments will be increased as follows (dollars in
thousands):
<TABLE>
<S> <C>
1997......................................................... $ 1,305
1998......................................................... 1,305
1999......................................................... 1,305
2000......................................................... 1,305
2001......................................................... 1,305
Thereafter................................................... 9,135
-------
$15,660
=======
</TABLE>
F-18
<PAGE> 159
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) SEGMENT INFORMATION
INDUSTRY SEGMENTS
The Company operates in one industry segment which involves the design,
manufacture, contract for manufacture and distribution of party and novelty
goods.
GEOGRAPHIC SEGMENTS
The Company's export sales, other than those intercompany sales reported
below as sales between geographic areas, are not material. Sales between
geographic areas primarily consist of sales of finished goods for distribution
in the foreign markets of Australia, Canada, Germany, Mexico, Sweden, and the
United Kingdom. No one single foreign operation is significant to the Company's
consolidated operations. Intersegment sales between geographic areas are made at
cost plus a share of operating profit.
The Company's geographic area data for each of the three fiscal years ended
December 31, 1996, 1995 and 1994 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
1996
Sales to unaffiliated customers....... $168,165 $ 24,540 $192,705
Sales between geographic areas........ 8,643 116 $ (8,759) --
-------- -------- -------- --------
Net sales............................. $176,808 $ 24,656 $ (8,759) $192,705
======== ======== ======== ========
Income from operations................ $ 10,643 $ 2,115 $ 12,758
======== ========
Interest expense, net................. 6,691
Other expense, net.................... 335
--------
Income before income taxes and
minority interests.................. $ 5,732
========
Identifiable assets................... $127,472 $ 12,802 $140,274
======== ======== ========
1995
Sales to unaffiliated customers....... $146,198 $ 21,205 $167,403
Sales between geographic areas........ 8,508 60 $ (8,568) --
-------- -------- -------- --------
Net sales............................. $154,706 $ 21,265 $ (8,568) $167,403
======== ======== ======== ========
Income from operations................ $ 22,782 $ 1,887 $ 24,669
======== ========
Interest expense, net................. 5,772
Other income, net..................... (309)
--------
Income before income taxes and
minority interests.................. $ 19,206
--------
Identifiable assets................... $ 99,123 $ 15,478 $114,601
======== ======== ========
</TABLE>
F-19
<PAGE> 160
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1994
Sales to unaffiliated customers....... $115,196 $ 16,833 $132,029
Sales between geographic areas........ 5,645 89 $ (5,734) --
-------- -------- -------- --------
Net sales............................. $120,841 $ 16,922 $ (5,734) $132,029
======== ======== ======== ========
Income from operations................ $ 13,468 $ 1,048 $ 14,516
Interest expense, net................. 3,843
Other expense, net.................... 82
-------- -------- -------- --------
Income before income taxes and
minority interests.................. $ 10,591
Identifiable assets................... $ 80,117 $ 13,767 $ 93,884
======== ======== ======== ========
</TABLE>
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, accounts receivables,
deposits and other current assets, loans and notes payable, accounts payable,
accrued expenses (non-derivatives) and other current liabilities approximates
fair value at December 31, 1996 because of the short term maturity of those
instruments or their variable rate of interest.
The carrying amounts for long term debt approximates fair value at December
31, 1996. Fair value has been estimated by discounting the future cash flow of
each instrument at rates currently offered for similar debt instruments of
comparable maturity.
The fair value of interest rate swaps is the estimated amount that the bank
would receive or pay to terminate the swap agreements at the reporting date,
taking into account current interest rates and the current creditworthiness of
the swap counterparties. Termination of the swap agreements at December 31, 1996
would require the Company to pay the bank $719,500.
(16) PRO FORMA DATA (UNAUDITED)
Pro forma net income for the years ended December 31, 1996, 1995 and 1994
give effect to pro forma income tax provisions at statutory rates (40.5%)
assuming Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had
not elected Subchapter S corporation status for those periods.
For purposes of the pro forma net income per share calculation for the year
ended December 31, 1996, net income has been adjusted to give effect to (i) the
reduction in compensation expenses ($14,173,000) paid to an officer assuming the
officer was a stockholder as of the beginning of the period presented, (ii) the
reduction in interest expense related to bank debt and subordinated indebtedness
due to the Principal Stockholder assuming such debt was repaid from the net
proceeds of the IPO as of the beginning of the period presented ($2,228,000),
and (iii) additional pro forma income taxes calculated at 40.5% assuming Amscan
Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not elected
Subchapter S corporation status ($6,518,000).
The pro forma weighted average common shares outstanding represents the
number of common shares outstanding following the Effective Time (see note
(18)).
F-20
<PAGE> 161
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(17) SUBSEQUENT EVENT
On January 8, 1997, an additional 422,400 shares of common stock were sold
at $12.00 per share to cover the over-allotments as provided for in the
underwriting agreements between the Company and the underwriters associated with
the IPO. The proceeds, net of underwriter's discount, fees and expenses, of
$4,588,984 were used to repay borrowings outstanding to banks.
(18) MERGER TRANSACTION
On August 10, 1997, Amscan Holdings and Confetti Acquisition, Inc.
("Confetti"), a newly formed Delaware corporation affiliated with GS Capital
Partners II, L.P. and certain other private investment funds managed by Goldman,
Sachs & Co. (collectively, "GSCP"), entered into an Agreement and Plan of Merger
(the "Merger Agreement") providing for a recapitalization of Amscan Holdings in
which Confetti will be merged with and into Amscan Holdings (the "Merger"), with
Amscan Holdings as the surviving corporation.
On December 19, 1997 (the "Effective Time"), the Merger was consummated
pursuant to the Merger Agreement. Confetti was merged with and into the Company,
with the Company as the surviving corporation. At the Effective Time, each share
of the Common Stock, par value $0.10 per share, of the Company (the "Company
Common Stock"), issued and outstanding immediately prior to the Effective Time
(other than shares of Company Common Stock owned, directly or indirectly, by the
Company or by Confetti) were converted, at the election of each of the Company's
stockholders, into the right to receive from the Company either (A) $16.50 in
cash (the "Cash Consideration") or (B) $9.33 in cash plus a retained interest in
the Company equal to one share of Company Common Stock for every 150,000 shares
held by such stockholder (the "Mixed Consideration"), with fractional shares of
Company Common Stock paid in cash. The Estate of John A. Svenningsen (the
"Estate"), which owned approximately 72% of the outstanding Company Common Stock
immediately prior to the Effective Time, elected to retain almost 10% of the
outstanding shares of Company Common Stock. No stockholder other than the Estate
elected to retain shares. Also pursuant to the Merger Agreement, at the
Effective Time each outstanding share of Common Stock, par value $0.10 per
share, of Confetti ("Confetti Common Stock"), was converted into an equal number
of shares of Company Common Stock as surviving corporation in the Merger.
Pursuant to certain employment arrangements, certain employees of the Company
purchased an aggregate of 10 shares of Company Common Stock following the
Effective Time. Accordingly, in the Merger the 825 shares of Confetti Common
Stock owned by GSCP immediately prior to the Effective Time were converted into
825 shares of Company Common Stock, representing approximately 81.7% of the
1,010 issued and outstanding shares of the Company immediately following the
Effective Time.
The Merger was financed with an equity contribution of approximately $67.5
million (including contributions of Company Common Stock by certain employee
stockholders and including issuances of restricted stock), $117 million from a
senior term loan and $110 million from the issuance of senior subordinated
notes. The senior subordinated notes are guaranteed jointly and severally, fully
and unconditionally, by each of the Company's wholly-owned domestic
subsidiaries, which include Amscan Inc., Trisar, Inc., Am-Source, Inc., SSY
Realty Corp. and JCS Realty Corp.
F-21
<PAGE> 162
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Non-guarantor companies include the following:
- Amscan Distributors (Canada) Ltd.
- Amscan Holdings Limited
- Amscan (Asia-Pacific) Pty. Ltd.
- Amscan Partyartikel GmbH
- Amscan Svenska AB
- Amscan de Mexico, S.A. de C.V.
The following consolidating information presents consolidating balance
sheets as of December 31, 1996 and 1995, and the related consolidating
statements of income and cash flows for the years ended December 31, 1996, 1995,
and 1994 for the combined guarantors and the combined non-guarantors and
elimination entries necessary to consolidate the entities comprising the
combined companies.
F-22
<PAGE> 163
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 272 $ 1,317 $ 1,589
Accounts receivable, net................. 32,605 4,773 37,378
Inventories.............................. 40,101 5,592 45,693
Deposits and other....................... 10,749 611 11,360
--------- -------- --------- ---------
Total current assets................ 83,727 12,293 96,020
Property, plant and equipment, net......... 33,387 1,276 34,663
Intangible assets, net..................... 7,443 -- 7,443
Other assets, net.......................... 12,298 -- $(10,150) 2,148
--------- -------- --------- ---------
Total assets........................ $136,855 $ 13,569 $(10,150) $140,274
========= ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans and notes payable.................. $ 28,950 $ 378 $ 29,328
Subordinated debt and other due to
stockholders.......................... 1,392 1 1,393
Accounts payable......................... 6,843 285 7,128
Accrued expenses......................... 8,650 1575 10,225
Current installments of long-term
obligations........................... 2,472 69 2,541
--------- -------- --------- ---------
Total current liabilities........... 48,307 2,308 50,615
Long-term obligations, excluding current
portion.................................. 14,994 91 15,085
Deferred tax liabilities................... 5,605 57 5,662
Other...................................... 4,021 $ (3,058) 963
--------- -------- --------- ---------
Total liabilities................... 68,906 6,477 (3,058) 72,325
Stockholders' equity:
Preferred Stock..........................
Common Stock............................. 2,070 339 (339) 2,070
Additional paid-in capital............... 61,503 158 (158) 61,503
Retained earnings........................ 4,748..... 6,911 (6,911) 4,748
Foreign currency translation
adjustment............................ (372) (316) 316 (372)
--------- -------- --------- ---------
Total stockholders' equity.......... 67,949 7,092 (7,092) 67,949
--------- -------- --------- ---------
Total liabilities and stockholders'
equity........................... $136,855 $ 13,569 $(10,150) $140,274
========= ======== ========= =========
</TABLE>
F-23
<PAGE> 164
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 1,593 $ 899 $ 2,492
Accounts receivable, net............... 27,969 3,911 31,880
Inventories............................ 39,643 5,370 45,013
Deposits and other..................... 2,298 622 2,920
-------- ------- ------- --------
Total current assets.............. 71,503 10,802 82,305
Property, plant and equipment, net....... 28,059 1,114 29,173
Intangible assets, net................... 350 350
Other assets, net........................ 6,047 $ (3,274) 2,773
-------- ------- ------- --------
Total assets...................... $105,959 $ 11,916 $ (3,274) $114,601
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans and notes payable................ $ 37,060 $ 789 $ 37,849
Subordinated debt and other due to
stockholders........................ 18,174 279 18,453
Accounts payable....................... 4,511 1,344 5,855
Accrued expenses....................... 9,526 9,526
Current installments of long-term
obligations......................... 2,197 42 2,239
-------- ------- ------- --------
Total current liabilities......... 71,468 2,454 73,922
Long-term obligations, excluding current
portion................................ 12,218 66 12,284
Other.................................... 655 3,809 $ (3,274) 1,190
-------- ------- ------- --------
Total liabilities................. 84,341 6,329 (3,274) 87,396
Stockholders' equity:
Preferred Stock........................ --
Common Stock........................... 54 339 393
Additional paid-in capital............. 9,082 8 9,090
Retained earnings...................... 12,636 5,826 18,462
Foreign currency translation
adjustment.......................... (67) (586) (653)
Treasury stock, at cost................ (87) (87)
-------- ------- ------- --------
Total stockholders' equity............. 21,618 5,587 27,205
-------- ------- ------- --------
Total liabilities and
stockholders' equity........... $105,959 $ 11,916 $ (3,274) $114,601
======== ======= ======= ========
</TABLE>
F-24
<PAGE> 165
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales................................ $176,808 $ 24,656 $ (8,759) $192,705
Cost of sales............................ 118,244 15,704 (10,035) 123,913
-------- ------- --------- --------
Gross profit...................... 58,564 8,952 1,276 68,792
Operating expenses:
Selling expenses....................... 9,723 2,173 (58) 11,838
General and administrative expenses.... 15,718 4,562 (1,014) 19,266
Art and development.................... 5,173 5,173
Non-recurring compensation in
connection with the IPO............. 15,535 15,535
Special bonuses..................... 4,222 4,222
-------- ------- --------- --------
Income from operations............ 8,193 2,217 2,348 12,758
Interest expense, net.................... 6,602 3 86 6,691
Other expense (income), net.............. (5,550) (38) 5,923 335
-------- ------- --------- --------
Income before income taxes and
minority interests............. 7,141 2,252 (3,661) 5,732
Income taxes............................. 1,035 917 1,952
Minority interests....................... 1,403 250 1,653
-------- ------- --------- --------
Net income........................ $ 4,703 $ 1,085 $ (3,661) $ 2,127
======== ======= ========= ========
Pro forma data (unaudited) (note(16)):
Income before income taxes............. $ 4,079
Pro forma income tax expense........... 1,827
--------
Pro forma net income.............. $ 2,252
========
</TABLE>
F-25
<PAGE> 166
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales................................ $154,706 $ 21,265 $ (8,568) $167,403
Cost of sales............................ 107,009 13,447 (11,802) 108,654
------------ ---------- ------------ ------------
Gross profit...................... 47,697 7,818 3,234 58,749
Operating expenses:
Selling expenses....................... 10,273 1,968 12,241
General and administrative expenses.... 12,188 3,896 (1,082) 15,002
Art and development.................... 4,256 4,256
Special bonuses........................ 2,581 2,581
------------ ---------- ------------ ------------
Income from operations............ 18,399 1,954 4,316 24,669
Interest expense, net.................. 5,582 304 (114) 5,772
Other expense (income), net............ (3,170) (154) 3,015 (309)
------------ ---------- ------------ ------------
Income before income taxes and
minority interests............. 15,987 1,804 1,415 19,206
Income taxes............................. 83 648 731
Minority interests....................... 927 114 1,041
------------ ---------- ------------ ------------
Net income........................ $ 14,977 $ 1,042 $ 1,415 $ 17,434
========== ========= ========== ==========
Pro forma data (unaudited) (note(16)):
Income before income taxes............. $ 18,165
Pro forma income tax expense........... 7,403
------------
Pro forma net income.............. $ 10,762
==========
</TABLE>
F-26
<PAGE> 167
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales................................ $120,841 $ 16,922 $ (5,734) $132,029
Cost of sales............................ 83,512 10,649 (7,413) 86,748
-------- ------- --------- --------
Gross profit...................... 37,329 6,273 1,679 45,281
Operating expenses:
Selling expenses....................... 9,427 1,882 11,309
General and administrative expenses 12,528.... 3,321 (1,389) 14,460
Art and development.................... 2,474 322 2,796
Special bonuses........................ 2,200 2,200
-------- ------- --------- --------
Income from operations............ 10,700 1,070 2,746 14,516
Interest expense, net.................... 3,775 68 3,843
Other expense (income), net.............. (2,593) 34 2,641 82
-------- ------- --------- --------
Income before income taxes and
minority interests............. 9,518 968 105 10,591
Income taxes............................. 73 391 464
Minority interests....................... 103 57 160
-------- ------- --------- --------
Net income........................ $ 9,342 $ 520 $ 105 $ 9,967
======== ======= ========= ========
Pro forma data (unaudited) (note(16)):
Income before income taxes............. $ 10,431
Pro forma income tax expense........... 4,238
--------
Pro forma net income.............. $ 6,193
========
</TABLE>
F-27
<PAGE> 168
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 4,703 $ 1,085 $ (3,661) $ 2,127
Adjustments to reconcile net income to net
cash provided by operating activities:
Stock compensation expense in connection
with the IPO.......................... 10,920 10,920
Depreciation and amortization........... 4,764 373 5,137
Loss on disposal of property and
equipment............................. 660 660
Provision for doubtful accounts......... 2,048 302 2,350
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable................ (6,684) (1,164) (7,848)
Inventories........................ (1,574) (222) 1,116 (680)
Deposits and other, net............ (3,544) 496 (3,048)
Other assets....................... (1,670) (215) 2,568 683
Accounts payable and accrued
expenses......................... 1,508 516 (52) 1,972
--------- -------- -------- ---------
Net cash provided by operating
activities....................... 11,131 1,171 (29) 12,273
Cash flows from investing activities:
Capital expenditures....................... (7,076) (537) (7,613)
--------- -------- -------- ---------
Net cash used in investing
activities....................... (7,076) (537) (7,613)
Cash flows from financing activities:
Net proceeds from IPO...................... 43,340 43,340
Proceeds from loans, notes payable and
long-term indebtedness.................. 2,777 496 3,273
Repayment of loans, notes payable and long-
term indebtedness....................... (11,113) (855) (11,968)
Repayment of loans, notes and subordinated
indebtedness to Principal Stockholder... (16,900) (279) (17,179)
Subchapter S distributions and other....... (23,574) 150 (23,424)
--------- -------- -------- ---------
Net cash used in financing
activities....................... (5,470) (488) (5,958)
Effect of exchange rate changes on cash...... 94 272 29 395
--------- -------- -------- ---------
Net increase (decrease) in cash and
cash equivalents................. (1,321) 418 -- (903)
Cash and cash equivalents at beginning of
year....................................... 1,593 899 2,492
--------- -------- -------- ---------
Cash and cash equivalents at end of year..... $ 272 $ 1,317 -- $ 1,589
========= ======== ======== =========
</TABLE>
F-28
<PAGE> 169
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... 14$,977.... $ 1,042 $ 1,415 $ 17,434
Adjustments to reconcile net income to net
cash provided by activities:
Depreciation and amortization.............. 4,029..... 303 4,332
Gain on disposal of property and
equipment................................ (5) (5)
Provision for doubtful accounts............ 1,570 11 1,581
Changes in operating assets and
liabilities:
Accounts receivable................... (8,769) (845) (9,614)
Inventories........................... (9,055) (1,493) (10,548)
Deposits and other, net............... 128 (229) (101)
Other assets.......................... (1,282) 1,525 (1,415) (1,172)
Accounts payable and accrued
expenses............................ 3,088 (274) 2,814
-------- ------- ------- --------
Net cash provided by operating
activities............................... 4,681 40 -- 4,721
Cash flows from investing activities:
Capital expenditures......................... (4,033) (489) (4,522)
Proceeds from disposal of property and
equipment.................................. 9 9
-------- ------- ------- --------
Net cash used in investing
activities.......................... (4,024) (489) (4,513)
Cash flows from financing activities:
Proceeds from loans, notes payable and
long-term indebtedness..................... 41,415 896 42,311
Repayment of loans, notes payable and
long-term indebtedness..................... (32,246) (67) (32,313)
Proceeds from loans, notes and subordinated
indebtedness to Principal Stockholder...... 4,000 4,000
Repayment of loans, notes and subordinated
indebtedness to Principal Stockholder...... (2,557) (285) (2,842)
Subchapter S distributions and other......... (11,009) (11,009)
-------- ------- ------- --------
Net cash (used in) provided by
financing activities................ (397) 544 147
Effect of exchange rate changes on cash........ (23) (69) (92)
-------- ------- ------- --------
Net increase in cash and cash
equivalents......................... 237 26 263
Cash and cash equivalents at beginning of
year......................................... 1,356 873 2,229
-------- ------- ------- --------
Cash and cash equivalents at end of year....... $ 1,593 $ 899 -- $ 2,492
======== ======= ======= ========
</TABLE>
F-29
<PAGE> 170
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 9,342 $ 520 $ 105 $ 9,967
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 3,522 150 3,672
Loss on disposal of property and
equipment........................... 35 35
Provision for doubtful accounts....... 2,676 2,676
Changes in operating assets and
liabilities:
Accounts receivable.............. (4,495) (546) (5,041)
Inventories...................... (4,904) (778) (5,682)
Deposits and other, net.......... (1,126) 1,076 (105) (155)
Other assets..................... (1,280) 15 (1,265)
Accounts payable and accrued
expenses....................... 969 (57) 912
------- ----- ---- -------
Net cash provided by operating
activities..................... 4,739 380 -- 5,119
Cash flows from investing activities:
Capital expenditures.................... (7,276) (116) (7,392)
Proceeds from disposal of property and
equipment............................. 98 98
------- ----- ---- -------
Net cash used in investing
activities..................... (7,178) (116) (7,294)
Cash flows from financing activities:
Proceeds from loans, notes payable and
long-term indebtedness................ 6,266 58 6,324
Repayment of loans, notes payable and
long-term indebtedness................ (2,434) (2,434)
Proceeds from loans, notes and
subordinated indebtedness to Principal
Stockholder........................... 6,316 6,316
Subchapter S distributions and other.... (7,450) (7,450)
------- ----- ---- -------
Net cash provided by financing
activities..................... 2,698 58 2,756
Effect of exchange rate changes on cash... 403 (133) 270
------- ----- ---- -------
Net increase in cash and cash
equivalents.................... 662 189 851
Cash and cash equivalents at beginning of
year.................................... 694 684 1,378
------- ----- ---- -------
Cash and cash equivalents at end of
year.................................... $ 1,356 $ 873 -- $ 2,229
======= ===== ==== =======
</TABLE>
F-30
<PAGE> 171
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BEGINNING ENDING
BALANCE WRITE-OFFS ADDITIONS BALANCE
--------- ---------- --------- -------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
For the year ended:
December 31, 1994....................... $ 1,104 $1,855 $ 2,676 $ 1,925
December 31, 1995....................... 1,925 1,001 1,581 2,505
December 31, 1996....................... 2,505 717 2,350 4,138
</TABLE>
<TABLE>
<CAPTION>
BEGINNING ENDING
BALANCE WRITE-OFFS ADDITIONS BALANCE
--------- ---------- --------- -------
<S> <C> <C> <C> <C>
Inventory Reserves
For the year ended:
December 31, 1994....................... $ 609 $ 375 $ 600 $ 834
December 31, 1995....................... 834 406 800 1,228
December 31, 1996....................... 1,228 731 1,188 1,685
</TABLE>
F-31
<PAGE> 172
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
SEPTEMBER 30, ------------
1997 (NOTE)
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 684 $ 1,589
Accounts receivable, net of allowances..................... 56,276 37,378
Inventories................................................ 48,736 45,693
Deposits and other current assets.......................... 9,680 11,360
-------- --------
Total current assets.................................. 115,376 96,020
Property, plant and equipment, net........................... 37,157 34,663
Intangible assets, net....................................... 7,540 7,443
Other assets, net............................................ 2,687 2,148
-------- --------
Total assets.......................................... $ 162,760 $140,274
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans and notes payable.................................... $ 10,020 $ 29,328
Subordinated and other indebtedness due to stockholders.... 1,393
Accounts payable........................................... 11,153 7,128
Accrued expenses........................................... 7,317 9,403
Income taxes payable....................................... 6,458 822
Current portion of long-term obligations................... 5,556 2,541
-------- --------
Total current liabilities............................. 40,504 50,615
Long-term obligations, excluding current portion............. 24,828 15,085
Deferred tax liabilities..................................... 5,585 5,662
Other........................................................ 2,841 963
-------- --------
Total liabilities..................................... 73,758 72,325
Stockholders' equity:
Preferred Stock ($0.10 par value; 5,000,000 shares
authorized; none issued and outstanding) Common stock
($0.10 par value; 50,000,000 shares authorized; 21,120,476
and 20,698,076 shares issued, respectively)................ 2,112 2,070
Additional paid-in-capital................................... 65,985 61,503
Retained earnings............................................ 21,649 4,748
Foreign currency translation adjustment...................... (454) (372)
Treasury stock, at cost (21,691 shares)...................... (290)
-------- --------
Total stockholders' equity............................ 89,002 67,949
-------- --------
Total liabilities and stockholders' equity......... $ 162,760 $140,274
======== ========
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
consolidated financial statements at that date.
See accompanying notes to consolidated financial statements.
F-32
<PAGE> 173
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996
---------
1997 (NOTE)
-----------
(UNAUDITED)
<S> <C> <C>
Net sales....................................................... $ 161,286 $ 147,008
Cost of sales................................................... 103,460 92,861
---------- --------
Gross profit.................................................... 57,826 54,147
Operating expenses:
Selling expenses.............................................. 9,598 8,691
General and administrative expenses........................... 13,225 14,113
Art and development costs..................................... 3,891 3,671
Special bonuses............................................... 3,300
---------- --------
Total operating expenses................................. 26,714 29,775
---------- --------
Income from operations................................... 31,112 24,372
Interest expense, net........................................... 2,654 4,569
Other (income) expense, net..................................... (219) (301)
---------- --------
Income before income taxes and minority interests........ 28,677 20,104
Income taxes.................................................... 11,627 767
Minority interests.............................................. 149 1,242
---------- --------
Net income............................................... $ 16,901 $ 18,095
========== ========
Pro forma net income per common share (Note (5))......... $ 16,734
==========
Pro forma weighted average common shares outstanding
(Note (5))............................................ 1,010
==========
Pro forma data (Note(6)):
Income before income taxes.................................... $ 18,862
Pro forma income tax expense.................................. 7,888
--------
Pro forma net income.......................................... $ 10,974
========
</TABLE>
Note: The statement of income for the nine months ended September 30, 1996 has
been derived from the audited consolidated financial statements at that
date.
See accompany notes to consolidated financial statements.
F-33
<PAGE> 174
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------ ---------- -------- ---------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1996... $2,070 $ 61,503 $ 4,748 $ (372) $67,949
Net income........................ 16,901 16,901
Net proceeds from sale of Common
Stock (Note 3).................. 42 4,482 4,524
Payments to acquire treasury
stock........................... $ (290) (290)
Net change in translation
adjustment...................... (82) (82)
------ ---------- -------- ---------- -------- -------
Balance as of September 30, 1997.. $2,112 $ 65,985 $ 21,649 $ (454) $ (290) $89,002
======= ======== ======== ========= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE> 175
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996
---------
1997 (NOTE)
-----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................... $ 16,901 $ 18,095
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 4,505 3,579
Provision for doubtful accounts............................. 1,423 963
Gain on disposal of equipment............................... (29)
Changes in operating assets and liabilities:
Increase in accounts receivable............................. (24,310) (20,442)
Increase in inventories..................................... (3,043) (61)
Decrease in deposits and other current assets............... 2,469 262
Increase in accounts payable, accrued expenses and income
taxes payable............................................. 7,575 (1,029)
Other, net..................................................... 2,988 195
------- -------
Net cash provided by operating activities.............. 8,479 1,562
Cash flows from investing activities:
Capital expenditures........................................... (6,895) (5,574)
Proceeds from disposal of equipment............................ 140
-------
Net cash used in investing activities.................. (6,755) (5,574)
Cash flows from financing activities:
Net proceeds from sale of Common Stock......................... 4,524
Proceeds from loans, notes payable and long-term obligations... 15,620 10,242
Repayment of loans, notes payable and long-term obligations.... (22,208) (2,003)
Repayment of subordinated and other indebtedness due to
stockholders................................................ (182) (3,220)
Payments to acquire treasury stock............................. (290) --
------- -------
Net cash (used in) provided by financing activities.... (2,536) 5,019
Effect of exchange rate changes on cash and cash equivalents... (93) 31
------- -------
Net (decrease) increase in cash and cash equivalents........... (905) 1,038
Cash and cash equivalents at beginning of period............... 1,589 2,492
------- -------
Cash and cash equivalents at end of period..................... $ 684 $ 3,530
======= =======
SUPPLEMENTAL DISCLOSURE:
Interest paid.................................................. $ 2,622 $ 4,970
Taxes paid..................................................... $ 6,612 $ 546
</TABLE>
Supplemental information on non-cash activities:
Capital lease obligations of $59 and $2,074 were incurred during the nine
months ended September 30, 1997 and 1996, respectively.
During September 1996, the Company declared the distribution of $7,600 of
previously provided capital and $13,067 of previously undistributed earnings.
Such amounts were included in subordinated and other indebtedness to
stockholders.
Note: The statement of cash flows for the nine months ended September 30, 1996
has been derived from the audited consolidated financial statements at
that date.
See accompanying notes to consolidated financial statements.
F-35
<PAGE> 176
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
NOTE (1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Amscan Holdings, Inc. ("Amscan Holdings") was incorporated on October 3,
1996 for the purpose of becoming the holding company for Amscan Inc. and certain
affiliated entities (the "Affiliated Group"). An initial public offering of
4,000,000 shares of the Company's Common Stock at $12.00 per share (the "IPO")
was completed on December 18, 1996 pursuant to which the principal stockholder
(the "Principal Stockholder") and certain affiliates of the Principal
Stockholder exchanged shares in the Affiliated Group for 15,024,616 and 138,461
shares, respectively, in Amscan Holdings (the "Organization") and in the case of
the Principal Stockholder, $133,000 in cash. Prior to the IPO, certain members
of the Affiliated Group were operated as Subchapter S corporations for federal
and, where available, state income tax purposes. In connection with the IPO,
such members declared dividends representing distributions of accumulated
Subchapter S corporation profits and a return of capital. These amounts were
reflected as subordinated debt and repaid from the net proceeds of the IPO.
Amscan Holdings and its subsidiaries (collectively the "Company") design,
manufacture, contract for manufacture and distribute paper and plastic party
goods, accessories and novelty items principally in the United States, Canada
and Europe.
NOTE (2) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Amscan
Holdings and its majority-owned subsidiaries. Investments in less than
majority-owned subsidiaries are accounted for on an equity basis. As a result of
the transfer of ownership between the former stockholders of the Affiliated
Group and Amscan Holdings, certain members of the Affiliated Group terminated
their Subchapter S election on December 18, 1996 and are being taxed as
Subchapter C corporations under federal and certain state income tax
requirements. Such transfer of ownership was accounted for in a manner similar
to a pooling of interests. For the period prior to December 18, 1996, financial
statements are presented on a combined basis. Certain reclassifications have
been made to conform to the current year's presentation.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. The results of operations may be affected by
seasonal factors such as the timing of holidays or industry factors that may be
specific to a particular period, such as movement in and the general level of
raw material costs. For further information, see the financial statements and
footnotes thereto included in the Amscan Holdings annual report on Form 10-K for
the year ended December 31, 1996.
NOTE (3) COMMON STOCK
On January 8, 1997, an additional 422,400 shares of the Company's Common
Stock were sold at $12.00 per share to cover the over-allotment option as
provided for in the underwriting agreement between the Company and the
underwriters associated with the IPO. The proceeds, net of
F-36
<PAGE> 177
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
underwriters' discount, fees and expenses, of $4,523,984 were used to repay
outstanding bank borrowings.
NOTE (4) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Finished goods....................................... $45,357 $ 42,127
Raw materials........................................ 3,408 3,863
Work-in-process...................................... 1,708 1,388
------- -------
50,473 47,378
Less: reserve for slow moving and obsolete
inventory.......................................... (1,737) (1,685)
------- -------
$48,736 $ 45,693
======= =======
</TABLE>
Substantially all inventories are valued at the lower of cost, determined
on a first in-first out basis, or market.
NOTE (5) PRO FORMA NET INCOME PER COMMON SHARE
Pro forma net income per common share is computed by dividing net income by
the number of common shares outstanding following the Effective Time (see Note
(7)).
NOTE (6) INCOME TAXES
The consolidated income tax provision for the nine months ended September
30, 1997 was determined based upon an estimate of the Company's consolidated
effective income tax rates for the year ending December 31, 1997. The
differences between the consolidated effective income tax rate and the U.S.
Federal statutory rate are primarily attributable to state income taxes and the
effects of foreign operations.
The amounts shown as income taxes for the nine months ended September 30,
1996 consisted principally of foreign income taxes as most of the members of the
Affiliated Group had elected Subchapter S Corporation status for such period.
Pro forma net income for the nine months ended September 30, 1996 gives effect
to pro forma income tax provisions at an estimated effective tax rate (40.5%)
assuming those members of the Affiliated Group had not elected Subchapter S
corporation status for such periods.
NOTE (7) MERGER TRANSACTION
On August 10, 1997, Amscan Holdings and Confetti Acquisition, Inc.
("Confetti"), a newly formed Delaware corporation affiliated with GS Capital
Partners II, L.P. and certain other private investment funds managed by Goldman,
Sachs & Co. (collectively, "GSCP"), entered into an Agreement and Plan of Merger
(the "Merger Agreement") providing for a recapitalization of Amscan Holdings in
which Confetti will be merged with and into Amscan Holdings (the "Merger"), with
Amscan Holdings as the surviving corporation.
On December 19, 1997 (the "Effective Time"), the Merger was consummated
pursuant to the Merger Agreement. Confetti was merged with and into the Company,
with the Company as the
F-37
<PAGE> 178
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
surviving corporation. At the Effective Time, each share of the Common Stock,
par value $0.10 per share, of the Company (the "Company Common Stock"), issued
and outstanding immediately prior to the Effective Time (other than shares of
Company Common Stock owned, directly or indirectly, by the Company or by
Confetti) were converted, at the election of each of the Company's stockholders,
into the right to receive from the Company either (A) $16.50 in cash (the "Cash
Consideration") or (B) $9.33 in cash plus a retained interest in the Company
equal to one share of Company Common Stock for every 150,000 shares held by such
stockholder (the "Mixed Consideration"), with fractional shares of Company
Common Stock paid in cash. The Estate of John A. Svenningsen (the "Estate"),
which owned approximately 72% of the outstanding Company Common Stock
immediately prior to the Effective Time, elected to retain almost 10% of the
outstanding shares of Company Common Stock. No stockholder other than the Estate
elected to retain shares. Also pursuant to the Merger Agreement, at the
Effective Time each outstanding share of Common Stock, par value $0.10 per
share, of Confetti ("Confetti Common Stock"), was converted into an equal number
of shares of Company Common Stock as surviving corporation in the Merger.
Pursuant to certain employment arrangements, certain employees of the Company
purchased an aggregate of 10 shares of Company Common Stock following the
Effective Time. Accordingly, in the Merger the 825 shares of Confetti Common
Stock owned by GSCP immediately prior to the Effective Time were converted into
825 shares of Company Common Stock, representing approximately 81.7% of the
1,010 issued and outstanding shares of the Company immediately following the
Effective Time.
The Merger was financed with an equity contribution of approximately $67.5
million (including contributions of Company Common Stock by certain employee
stockholders and including issuances of restricted stock), $117 million from a
senior term loan and $110 million from the issuance of senior subordinated
notes. The senior subordinated notes are guaranteed jointly and severally, fully
and unconditionally, by each of the Company's wholly-owned domestic
subsidiaries, which include Amscan Inc., Trisar, Inc., Am-Source, Inc., SSY
Realty Corp. and JCS Realty Corp.
Non-guarantor companies include the following:
- Amscan Distributors (Canada) Ltd.
- Amscan Holdings Limited
- Amscan (Asia-Pacific) Pty. Ltd.
- Amscan Partyartikel GmbH
- Amscan Svenska AB
- Amscan de Mexico, S.A. de C.V.
F-38
<PAGE> 179
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following consolidating information presents consolidating balance
sheets as of September 30, 1997, and the related consolidating statements of
income and cash flows for the nine-month periods ended September 30, 1997 and
1996 for the combined guarantors and the combined non-guarantors and the
elimination entries necessary to consolidate the entities comprising the
combined companies.
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 111 $ 573 $ 684
Accounts receivable, net...................... 50,253 6,023 56,276
Inventories................................... 40,396 8,340 48,736
Deposits and other current assets............. 8,697 983 9,680
------ ------ ------ ------
Total current assets...................... 99,457 15,919 115,376
Property, plant and equipment, net............ 35,470 1,687 37,157
Intangible assets, net........................ 7,254 286 7,540
Other assets, net............................. 14,490 $(11,803) 2,687
------ ------ ------ ------
Total assets.............................. $156,671 $ 17,892 $(11,803) $162,760
====== ====== ====== ======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Loans and notes payable $ 9,550 $ 470 $ 10,020
Accounts payable.............................. 10,471 682 11,153
Accrued expenses.............................. 5,872 1,445 7,317
Income taxes payable.......................... 5,953 505 6,458
Current portion of long-term obligations...... 5,489 67 5,556
------ ------ ------ ------
Total current liabilities................. 37,335 3,169 40,504
Long-term obligations excluding current
portion....................................... 24,749 79 24,828
Deferred tax liabilities........................ 5,585 5,585
Other........................................... 6,915 $ (4,074) 2,841
------ ------ ------ ------
Total liabilities......................... 67,669 10,163 (4,074) 73,758
Stockholders' equity:
Preferred Stock............................... --
Common Stock.................................. 2,112 339 (339) 2,112
Additional paid-in capital.................... 65,985 458 (458) 65,985
Retained earnings............................. 21,649 7,322 (7,322) 21,649
Foreign currency translation adjustment....... (454) (390) 390 (454)
Treasury stock, at cost....................... (290) (290)
------ ------ ------ ------
Total stockholders' equity................ 89,002 7,729 (7,729) 89,002
------ ------ ------ ------
Total liabilities and stockholders'
equity............................... $156,671 $ 17,892 $(11,803) $162,760
====== ====== ====== ======
</TABLE>
F-39
<PAGE> 180
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales................................ $151,378 $ 19,054 $ (9,146) $161,286
Cost of sales............................ 100,485 12,803 (9,828) 103,460
-------- ------- ------- --------
Gross profit........................... 50,893 6,251 682 57,826
Operating expenses:
Selling expenses....................... 7,257 2,341 9,598
General and administrative expenses.... 10,654 3,045 (474) 13,225
Art and development costs.............. 3,891 3,891
-------- ------- ------- --------
Total operating expenses.......... 21,802 5,386 (474) 26,714
-------- ------- ------- --------
Income from operations......... 29,091 865 1,156 31,112
Interest expense, net.................... 2,615 39 2,654
Other income, net........................ (1,312) (6) 1,099 (219)
-------- ------- ------- --------
Income before income taxes and
minority interests........... 27,788 832 57 28,677
Income taxes............................. 11,308 273 46 11,627
Minority interests....................... 149 149
-------- ------- ------- --------
Net income..................... $ 16,480 $ 410 $ 11 $ 16,901
======== ======= ======= ========
</TABLE>
F-40
<PAGE> 181
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales................................ $136,816 $ 17,198 $ (7,006) $147,008
Cost of sales............................ 88,326 10,644 (6,109) 92,861
-------- ------- ------- --------
Gross profit........................... 48,490 6,554 (897) 54,147
Operating expenses:
Selling expenses....................... 7,168 1,523 8,691
General and administrative expenses.... 11,025 3,628 (540) 14,113
Art and development costs.............. 3,671 3,671
Special bonuses........................ 3,300 3,300
-------- ------- ------- --------
Total operating expenses....... 25,164 5,151 (540) 29,775
-------- ------- ------- --------
Income from operations......... 23,326 1,403 (357) 24,372
Interest expense, net.................... 4,528 41 4,569
Other income, net........................ (1,348) (22) 1,069 (301)
-------- ------- ------- --------
Income before income taxes and
minority interests........... 20,146 1,384 (1,426) 20,104
Income taxes............................. 268 499 767
Minority interests....................... 1,138 104 1,242
-------- ------- ------- --------
Net income..................... $ 18,740 $ 781 $ (1,426) $ 18,095
======== ======= ======= ========
Pro forma data (Note (6)):
Income before income taxes............. $ 18,862
Pro forma income tax expense........... 7,888
--------
Pro forma net income........... $ 10,974
========
</TABLE>
F-41
<PAGE> 182
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 16,480 $ 410 $ 11 $ 16,901
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization............. 4,233 272 4,505
Provision for doubtful accounts........... 1,116 307 1,423
Gain on disposal of property and
equipment.............................. (29) (29)
Changes in operating assets and
liabilities, net of acquisitions:
Increase in accounts receivable........... (22,764) (1,546) (24,310)
Increase in inventories................... (232) (2,748) (63) (3,043)
Decrease (increase) in deposits and other
assets, net............................ 2,841 (372) 2,469
Increase in accounts payable and accrued
expenses............................... 6,757 772 46 7,575
Other, net...................................... 121 2,880 (13) 2,988
--------- -------- ----- --------
Net cash provided by (used in) operating
activities............................. 8,523 (25) (19) 8,479
Cash flows from investing activities:
Capital expenditures.......................... (6,216) (679) (6,895)
Proceeds from disposal of equipment........... 140 140
--------- -------- ----- --------
Net cash used in investing activities......... (6,076) (679) (6,755)
--------- -------- ----- --------
Cash flows from financing activities:
Net proceeds from sale of Common Stock........ 4,524 4,524
Proceeds from loans, notes payable and long
term obligations............................ 15,480 140 15,620
Repayment of loans, notes payable and long
term obligations............................ (22,154) (54) (22,208)
Repayment of subordinated and other
indebtedness to stockholder................. (181) (1) (182)
Payments to acquire treasury stock............ (290) (290)
--------- -------- ----- --------
Net cash provided by (used in) financing
activities............................. (2,621) 85 (2,536)
Effect of exchange rate changes on cash......... 13 (125) 19 (93)
--------- -------- ----- --------
Net decrease in cash and cash
equivalents............................ (161) (744) -- (905)
Cash and cash equivalents at beginning of
period........................................ 272 1,317 1,589
--------- -------- ----- --------
Cash and cash equivalents at end of period...... $ 111 $ 573 -- $ 684
========= ======== ===== ========
</TABLE>
F-42
<PAGE> 183
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 18,740 $ 781 $ (1,426) $ 18,095
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization................. 3,313 266 3,579
Provision for doubtful accounts............... 808 155 963
Changes in operating assets and liabilities:
Increase in accounts receivable............... (18,826) (1,616) (20,442)
Increase in inventories....................... (244) (1,243) 1,426 (61)
Decrease (increase) in deposits and other
current assets.............................. 416 (154) 262
(Increase) decrease in other assets........... (263) 969 706
(Decrease) increase in accounts payable,
accrued expenses and income taxes payable... (1,586) 557 (1,029)
Other, net...................................... (511) (511)
-------- ------- ------- --------
Net cash provided by (used in) operating
activities............................. 1,847 (285) -- 1,562
Cash flows from investing activities:
Capital expenditures.......................... (5,166) (408) (5,574)
Proceeds from disposal of property and
equipment...................................
-------- ------- ------- --------
Net cash used in investing activities..... (5,166) (408) (5,574)
Cash flows from financing activities:...........
Proceeds from loans, notes payable and long
term obligations............................ 8,771 1,471 10,242
Repayment of loans, notes payable and long
term obligations............................ (1,819) (184) (2,003)
Repayment of subordinated and other
indebtedness to stockholder................. (2,941) (279) (3,220)
-------- ------- ------- --------
Net cash provided by financing
activities............................. 4,011 1,008 5,019
Effect of exchange rate changes on cash and cash
equivalents................................... 15 16 31
-------- ------- ------- --------
Net increase in cash and cash equivalents....... 707 331 1,038
Cash and cash equivalents at beginning of
period........................................ 1,593 899 2,492
-------- ------- ------- --------
Cash and cash equivalents at end of period...... $ 2,300 $ 1,230 -- $ 3,530
======== ======= ======= ========
</TABLE>
F-43
<PAGE> 184
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE (8) OTHER MATTERS
On July 7, 1997, a customer accounting for approximately 2% of the
Company's consolidated sales for the nine months ended September 30, 1997 and
the year ended December 31, 1996, filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code. According to publicly available
documents, the customer is currently operating as a debtor-in-possession and
plans to reorganize pursuant to the Bankruptcy Code. At September 30, 1997,
amounts receivable from the customer which totaled approximately $1.8 million,
have been substantially provided for in the Company's allowance for doubtful
accounts. The Company does not believe the potential loss of this customer will
have a material adverse effect on the Company's future results of operations or
its financial condition.
During September 1997, the Company entered into an agreement to convert
$4.0 million of trade accounts receivable from a customer into an equity
interest. The Company subsequently transferred this interest to the Estate for
(i) a cash payment of $1.0 million, (ii) satisfaction of approximately $2.0
million of certain debts and future lease obligations owed to the Estate, and
(iii) substantially all of the assets of Ya Otta Pinata ("Ya Otta"), a
California corporation 100% owned by the Estate, at a valuation of approximately
$1.0 million.
F-44
<PAGE> 185
=========================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
OR ANY SALE 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.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Available Information.................... iv
Prospectus Summary....................... 1
Risk Factors............................. 20
The Exchange Offer....................... 27
Certain Federal Income Tax Consequences
of the Exchange Offer.................. 35
The Transaction.......................... 36
Capitalization........................... 38
Transaction Pro Forma Consolidated
Financial Data (Unaudited)............. 39
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 52
Business................................. 67
Management............................... 77
Ownership of Capital Stock............... 89
Description of Senior Debt............... 91
Description of Exchange Notes............ 94
Description of Certain Federal Income Tax
Consequences of an Investment in the
Exchange Notes......................... 129
Plan of Distribution..................... 133
Experts.................................. 133
Validity of the Exchange Notes........... 133
Index to Financial Statements............ F-1
Independent Auditors' Report............. F-2
</TABLE>
=========================================================
=========================================================
AMSCAN HOLDINGS, INC.
OFFER TO EXCHANGE
9 7/8% SENIOR SUBORDINATED NOTES
DUE 2007
($110,000,000 PRINCIPAL AMOUNT)
FOR
9 7/8% SENIOR SUBORDINATED NOTES
DUE 2007
($110,000,000 PRINCIPAL AMOUNT OUTSTANDING)
------------------------------
[AMSCAN LOGO]
------------------------------
=========================================================
<PAGE> 186
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") 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, 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
in such capacity at 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 that such person's conduct was
unlawful.
Section 145 of the DGCL also provides that a corporation may indemnify any
person who was or is a party or 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 acted in
any of the capacities set forth above, 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 under similar
standards, 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 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 Court of Chancery or such other court shall deem proper.
Section 145 of the DGCL also provides that to the extent that a director,
officer, employee or agent of a corporation is successful on the merits or
otherwise in the defense of any action referred to above, or in defense of any
claim, issue or matter therein, the corporation must indemnify such person
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
In accordance with Section 145 of the DGCL, the Registrant's By-laws
provide that the Registrant will indemnify, to the maximum extent permitted by
applicable law, 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, including any action
by or in the right of the Registrant 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 Registrant or is or was serving at the request of the Registrant 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.
The Registrant's By-laws also provide that expenses incurred by an officer
or director in defending an action, suit or proceeding will be paid by the
Registrant in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person seeking
indemnification to repay such amount in the event that it shall be ultimately
determined that such person is not entitled to be indemnified by the Registrant
by law or pursuant to the Registrant's By-laws. The Registrant's By-laws define
the term "expenses" to include, without limitation, costs of and expenses
incurred in connection with or in preparation for litigation,
II-1
<PAGE> 187
attorneys' fees, judgments, fines, penalties, amounts paid in settlement, excise
taxes in respect of any employee benefit plan of the Registrant, and interest on
any of the foregoing.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of a corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the directors' 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 law, (iii) under Section 174 of the DGCL
(regarding certain illegal distributions) or (iv) for any transaction from which
the director derived an improper personal benefit. The Registrant's Certificate
of Incorporation provides that the personal liability of the Registrant's
directors to the Registrant or any of its stockholders for monetary damages for
breach of fiduciary duty by such director as a director is limited to the
fullest extent permitted by Delaware law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, by and among Amscan Holdings, Inc. and Confetti
Acquisition, Inc., dated as of August 10, 1997.
3.1 Certificate of Incorporation of Amscan Holdings, Inc.
3.2 Amended By-Laws of Amscan Holdings, Inc.
3.3 Certificate of Incorporation of Amscan Inc.
3.4 By-Laws of Amscan Inc.
3.5 Restated Articles of Incorporation of Trisar, Inc.
3.6 By-Laws of Trisar, Inc.
3.7 Original Articles of Incorporation of Am-Source, Inc.
3.8 By-Laws of Am-Source Inc.
3.9 Certificate of Incorporation of SSY Realty Corp.
3.10 By-Laws of SSY Realty Corp.
3.11 Certificate of Incorporation of JCS Realty Corp.
3.12 By-Laws of JCS Realty Corp.
4.1 Indenture, dated as of December 19, 1997, by and among the Company, the Guarantors
named therein and IBJ Schroder Bank & Trust Company with respect to the Senior
Subordinated Notes.
5.1 Opinion of Wachtell, Lipton, Rosen & Katz.
10.1 Exchange and Registration Rights Agreement, dated as of December 19, 1997, by and
among the Company and Goldman, Sachs & Co.
10.2 Revolving Loan Credit Agreement, dated as of December 19, 1997, among the Company,
Goldman, Sachs Credit Partners L.P., as Arranger and Syndication Agent, Fleet
National Bank as Administrative Agent and the respective lenders signatory thereto.*
10.3 AXEL Credit Agreement, dated as of December 19, 1997, among the Company, Goldman,
Sachs Credit Partners L.P., as Arranger and Syndication Agent, Fleet National Bank
as Administrative Agent and the respective lenders signatory thereto.*
10.4 Stockholders' Agreement, dated as of December 19, 1997, by and among the Company and
the Stockholders thereto.
10.5 Employment Agreement, dated as of August 10, 1997, by and among the Company and
Gerald C. Rittenberg.
</TABLE>
II-2
<PAGE> 188
<TABLE>
<C> <S>
10.6 Employment Agreement, dated as of August 10, 1997, by and among the Company and
James M. Harrison.
10.7 Amscan Holdings, Inc. 1997 Stock Incentive Plan (contained in Exhibit 10.4).
12.1 Statement re computation of ratios.
21.1 Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).
24.1 Powers of Attorney.
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of IBJ Schroder
Bank & Trust Company under the Trust Indenture Act of 1939.
99.1 Form of Letter of Transmittal for the 9 7/8% Senior Subordinated Notes due 2007.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) (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 most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such posteffective 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> 189
(b) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
II-4
<PAGE> 190
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on February 23, 1998.
AMSCAN HOLDINGS, INC.
By: *
------------------------------------
Name: James M. Harrison
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on February 23, 1998.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------ ------------------------------------------------
<C> <S>
* Chief Executive Officer
- ------------------------------------------
Gerald C. Rittenberg
* President, Chief Financial Officer and Treasurer
- ------------------------------------------
James M. Harrison
* Secretary and Controller
- ------------------------------------------
Michael A. Correale
* Chairman of the Board and Director
- ------------------------------------------
Terence M. O'Toole
* Director
- ------------------------------------------
Sanjeev K. Mehra
* Director
- ------------------------------------------
Joseph P. DiSabato
/s/ TERENCE M. O'TOOLE
- ------------------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-5
<PAGE> 191
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on February 23, 1998.
AMSCAN INC.
By: *
------------------------------------
Name: James M. Harrison
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on February 23, 1998.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------ ------------------------------------------------
<C> <S>
* President and Director
- ------------------------------------------
Gerald C. Rittenberg
* Treasurer, Secretary and Director
- ------------------------------------------
James M. Harrison
* Director
- ------------------------------------------
Michael A. Correale
/s/ TERENCE M. O'TOOLE
- ------------------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-6
<PAGE> 192
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on February 23, 1998.
TRISAR, INC.
By: *
------------------------------------
Name: James M. Harrison
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on February 23, 1998.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------ ------------------------------------------------
<C> <S>
* President and Director
- ------------------------------------------
Gerald C. Rittenberg
* Treasurer, Secretary and Director
- ------------------------------------------
James M. Harrison
* Director
- ------------------------------------------
Michael A. Correale
/s/ TERENCE M. O'TOOLE
- ------------------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-7
<PAGE> 193
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on February 23, 1998.
AM-SOURCE, INC.
By: *
--------------------------------------
Name: James M. Harrison
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on February 23, 1998.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------ ------------------------------------------------
<C> <S>
* President and Director
- ------------------------------------------
Gerald C. Rittenberg
* Treasurer, Secretary and Director
- ------------------------------------------
James M. Harrison
* Director
- ------------------------------------------
Michael A. Correale
/s/ TERENCE M. O'TOOLE
- ------------------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-8
<PAGE> 194
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on February 23, 1998.
SSY REALTY CORP.
By: *
------------------------------------
Name: James M. Harrison
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on February 23, 1998.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------ ------------------------------------------------
<C> <S>
* President and Director
- ------------------------------------------
Gerald C. Rittenberg
* Treasurer, Secretary and Director
- ------------------------------------------
James M. Harrison
* Director
- ------------------------------------------
Michael A. Correale
/s/ TERENCE M. O'TOOLE
- ------------------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-9
<PAGE> 195
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on February 23, 1998.
JCS REALTY CORP.
By: *
------------------------------------
Name: James M. Harrison
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on February 23, 1998.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------ ------------------------------------------------
<C> <S>
* President and Director
- ------------------------------------------
Gerald C. Rittenberg
* Treasurer, Secretary and Director
- ------------------------------------------
James M. Harrison
* Director
- ------------------------------------------
Michael A. Correale
/s/ TERENCE M. O'TOOLE
- ------------------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-10
<PAGE> 196
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
------------
<C> <S> <C>
*2.1 Agreement and Plan of Merger, by and among Amscan Holdings, Inc. and
Confetti Acquisition, Inc., dated as of August 10, 1997. ...............
*3.1 Certificate of Incorporation of Amscan Holdings, Inc. ..................
*3.2 Amended By-Laws of Amscan Holdings, Inc. ...............................
*3.3 Certificate of Incorporation of Amscan Inc. ............................
*3.4 By-Laws of Amscan Inc. .................................................
*3.5 Restated Articles of Incorporation of Trisar, Inc. .....................
*3.6 By-Laws of Trisar, Inc. ................................................
*3.7 Original Articles of Incorporation of Am-Source, Inc. ..................
*3.8 By-Laws of Am-Source Inc. ..............................................
*3.9 Certificate of Incorporation of SSY Realty Corp. .......................
*3.10 By-Laws of SSY Realty Corp. ............................................
*3.11 Certificate of Incorporation of JCS Realty Corp. .......................
*3.12 By-Laws of JCS Realty Corp. ............................................
*4.1 Indenture, dated as of December 19, 1997, by and among the Company, the
Guarantors named therein and IBJ Schroder Bank & Trust Company with
respect to the Senior Subordinated Notes. ..............................
*5.1 Opinion of Wachtell, Lipton, Rosen & Katz. .............................
*10.1 Exchange and Registration Rights Agreement, dated as of December 19,
1997, by and among the Company and Goldman, Sachs & Co. ................
10.2 Revolving Loan Credit Agreement, dated as of December 19, 1997, among
the Company, Goldman, Sachs Credit Partners L.P., as Arranger and
Syndication Agent, Fleet National Bank as Administrative Agent and the
respective lenders signatory thereto.*..................................
10.3 AXEL Credit Agreement, dated as of December 19, 1997, among the Com-
pany, Goldman, Sachs Credit Partners L.P., as Arranger and Syndication
Agent, Fleet National Bank as Administrative Agent and the respective
lenders signatory thereto.*.............................................
10.4 Stockholders' Agreement, dated as of December 19, 1997, by and among the
Company and the Stockholders thereto. ..................................
*10.5 Employment Agreement, dated as of August 10, 1997, by and among the
Company and Gerald C. Rittenberg. ......................................
*10.6 Employment Agreement, dated as of August 10, 1997, by and among the
Company and James M. Harrison. .........................................
*10.7 Amscan Holdings, Inc. 1997 Stock Incentive Plan (contained in Exhibit
10.4). .................................................................
12.1 Statement re computation of ratios. ....................................
*21.1 Subsidiaries of the Company. ...........................................
*23.1 Consent of KPMG Peat Marwick LLP. ......................................
*23.2 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit
5.1). ..................................................................
*24.1 Powers of Attorney. ....................................................
</TABLE>
<PAGE> 197
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
------------
<C> <S> <C>
*25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of IBJ
Schroder Bank & Trust Company under the Trust Indenture Act of 1939. ...
99.1 Form of Letter of Transmittal for the 9 7/8% Senior Subordinated Notes
due 2007. ..............................................................
99.2 Form of Notice of Guaranteed Delivery...................................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 10.2
================================================================================
REVOLVING LOAN CREDIT AGREEMENT
DATED AS OF DECEMBER 19, 1997
AMONG
AMSCAN HOLDINGS, INC.,
AS BORROWER,
THE LENDERS LISTED HEREIN,
AS LENDERS,
GOLDMAN SACHS CREDIT PARTNERS L.P.,
AS ARRANGER AND SYNDICATION AGENT,
AND
FLEET NATIONAL BANK,
AS ADMINISTRATIVE AGENT
================================================================================
<PAGE> 2
AMSCAN HOLDINGS, INC.
REVOLVING LOAN CREDIT AGREEMENT
TABLE OF CONTENTS
Page
----
SECTION 1.
DEFINITIONS............................... 3
1.1 Certain Defined Terms..................................... 3
1.2 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement.............................. 41
1.3 Other Definitional Provisions and Rules of Construction... 41
SECTION 2.
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS................ 42
2.1 Commitments; Making of Loans; the Register; Notes......... 42
2.2 Interest on the Revolving Loans........................... 46
2.3 Fees...................................................... 49
2.4 Prepayments and Reductions in Revolving Loan Commitments;
General Provisions Regarding Payments; Application of
Proceeds of Collateral and Payments Under Subsidiary
Guaranty.................................................. 50
2.5 Use of Proceeds........................................... 55
2.6 Special Provisions Governing Eurodollar Rate Loans........ 55
2.7 Increased Costs; Taxes; Capital Adequacy.................. 58
2.8 Obligation of Lenders and Issuing Lenders to Mitigate..... 62
2.9 Defaulting Lenders........................................ 63
2.10 Removal or Replacement of a Lender........................ 64
SECTION 3.
LETTERS OF CREDIT............................ 66
3.1 Issuance of Letters of Credit and Lenders' Purchase of
Participations Therein.................................... 66
3.2 Letter of Credit Fees..................................... 69
3.3 Drawings and Reimbursement of Amounts Paid Under Letters
of Credit................................................. 70
3.4 Obligations Absolute...................................... 73
3.5 Indemnification; Nature of Issuing Lenders' Duties........ 74
3.6 Increased Costs and Taxes Relating to Letters of Credit... 75
SECTION 4.
CONDITIONS TO LOANS AND LETTERS OF CREDIT................ 76
4.1 Conditions to Initial Revolving Loans..................... 76
(i)
<PAGE> 3
Page
----
4.2 Conditions to All Revolving Loans......................... 84
4.3 Conditions to Letters of Credit........................... 85
SECTION 5.
COMPANY'S REPRESENTATIONS AND WARRANTIES................. 86
5.1 Organization, Powers, Qualification, Good Standing,
Business and Subsidiaries................................. 86
5.2 Authorization of Borrowing, etc........................... 87
5.3 Financial Condition....................................... 88
5.4 No Material Adverse Change; No Restricted Junior
Payments.................................................. 89
5.5 Title to Properties; Liens; Real Property................. 89
5.6 Litigation; Adverse Facts................................. 90
5.7 Payment of Taxes.......................................... 90
5.8 Performance of Agreements; Materially Adverse Agreements;
Material Contracts........................................ 91
5.9 Governmental Regulation................................... 91
5.10 Securities Activities..................................... 91
5.11 Employee Benefit Plans.................................... 91
5.12 Certain Fees.............................................. 92
5.13 Environmental Protection.................................. 92
5.14 Employee Matters.......................................... 93
5.15 Solvency.................................................. 93
5.16 Matters Relating to Collateral............................ 93
5.17 Related Agreements........................................ 94
5.18 Disclosure................................................ 95
5.19 AXEL Credit Agreement..................................... 95
SECTION 6.
COMPANY'S AFFIRMATIVE COVENANTS..................... 96
6.1 Financial Statements and Other Reports.................... 96
6.2 Corporate Existence, etc..................................102
6.3 Payment of Taxes and Claims; Tax Consolidation............102
6.4 Maintenance of Properties; Insurance; Application of Net
Insurance/Condemnation Proceeds...........................102
6.5 Inspection Rights; Audits of Inventory and Accounts
Receivable; Lender Meeting................................104
6.6 Compliance with Laws, etc.................................105
6.7 Environmental Review and Investigation, Disclosure, Etc.;
Company's Actions Regarding Hazardous Materials Activities,
Environmental Claims and Violations of Environmental
Laws......................................................105
6.8 Execution of Subsidiary Guaranty and Personal Property
Collateral Documents by Certain Subsidiaries and Future
Subsidiaries..............................................108
(ii)
<PAGE> 4
Page
----
6.9 Conforming Leasehold Interests; Matters Relating to
` Real Property Collateral..................................109
6.10 Interest Rate Protection..................................112
6.11 Cash Management Systems...................................112
SECTION 7.
COMPANY'S NEGATIVE COVENANTS.......................113
7.1 Indebtedness..............................................113
7.2 Liens and Related Matters.................................116
7.3 Investments; Joint Ventures...............................117
7.4 Contingent Obligations....................................118
7.5 Restricted Junior Payments................................119
7.6 Financial Covenants.......................................119
7.7 Restriction on Fundamental Changes; Asset Sales and
Acquisitions..............................................124
7.8 Consolidated Capital Expenditures.........................126
7.9 Sales and Lease-Backs.....................................127
7.10 Transactions with Shareholders and Affiliates.............127
7.11 Disposal of Subsidiary Stock..............................127
7.12 Conduct of Business.......................................128
7.13 Amendments or Waivers of Certain Related Agreements;
Amendments of Documents Relating to Subordinated
Indebtedness..............................................128
7.14 Fiscal Year...............................................128
SECTION 8.
EVENTS OF DEFAULT............................129
8.1 Failure to Make Payments When Due.........................129
8.2 Default in Other Agreements...............................129
8.3 Breach of Certain Covenants...............................129
8.4 Breach of Warranty........................................129
8.5 Other Defaults Under Revolving Loan Documents.............130
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc......130
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc........130
8.8 Judgments and Attachments.................................131
8.9 Dissolution...............................................131
8.10 Employee Benefit Plans....................................131
8.11 Change in Control.........................................131
8.12 Invalidity of Subsidiary Guaranty; Failure of Security;
Repudiation of Obligations................................132
8.13 Failure to Consummate Merger..............................132
8.14 Amendment of Certain Documents of Company.................132
SECTION 9.
AGENTS..................................133
(iii)
<PAGE> 5
Page
9.1 Appointment...............................................133
9.2 Powers and Duties; General Immunity.......................135
9.3 Representations and Warranties; No Responsibility For
Appraisal of Creditworthiness............................136
9.4 Right to Indemnity........................................137
9.5 Successor Agent...........................................137
9.6 Collateral Documents and Guaranties.......................138
SECTION 10.
MISCELLANEOUS..............................139
10.1 Assignments and Participations in Loans and Letters of
Credit....................................................139
10.2 Expenses..................................................142
10.3 Indemnity.................................................143
10.4 Set-Off; Security Interest in Deposit Accounts............144
10.5 Ratable Sharing...........................................144
10.6 Amendments and Waivers....................................145
10.7 Independence of Covenants.................................146
10.8 Notices...................................................146
10.9 Survival of Representations, Warranties and Agreements....147
10.10 Failure or Indulgence Not Waiver; Remedies
Cumulative................................................147
10.11 Marshalling; Payments Set Aside...........................147
10.12 Severability..............................................148
10.13 Obligations Several; Independent Nature of Lenders'
Rights....................................................148
10.14 Headings..................................................148
10.15 Applicable Law............................................148
10.16 Successors and Assigns....................................148
10.17 Consent to Jurisdiction and Service of Process............149
10.18 Waiver of Jury Trial......................................149
10.19 Confidentiality...........................................150
10.20 Counterparts; Effectiveness...............................150
Signature pages S-1
(iv)
<PAGE> 6
EXHIBITS
I FORM OF NOTICE OF BORROWING
II FORM OF NOTICE OF CONVERSION/CONTINUATION
III FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT
IV [INTENTIONALLY OMITTED]
V FORM OF REVOLVING NOTE
VI FORM OF COMPLIANCE CERTIFICATE
VII-A FORM OF OPINION OF WACHTELL, LIPTON, ROSEN & KATZ
VII-B FORM OF OPINION OF KURZMAN & EISENBERG
VIII FORM OF OPINION OF O'MELVENY & MYERS
IX FORM OF ASSIGNMENT AGREEMENT
X FORM OF CERTIFICATE RE NON-BANK STATUS
XI FORM OF FINANCIAL CONDITION CERTIFICATE
XII FORM OF COMPANY PLEDGE AGREEMENT
XIII FORM OF COMPANY SECURITY AGREEMENT
XIV FORM OF SUBSIDIARY GUARANTY
XV FORM OF SUBSIDIARY PLEDGE AGREEMENT
XVI FORM OF SUBSIDIARY SECURITY AGREEMENT
XVII FORM OF MORTGAGE
XVIII FORM OF COLLATERAL ACCESS AGREEMENT
XIX FORM OF BORROWING BASE CERTIFICATE
(v)
<PAGE> 7
SCHEDULES
2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES
4.1C CORPORATE AND CAPITAL STRUCTURE; OWNERSHIP; MANAGEMENT
4.1F INDEBTEDNESS TO BE REPAID UNDER EXISTING CREDIT AGREEMENTS
5.1 SUBSIDIARIES OF COMPANY
5.5 REAL PROPERTY
5.6 LITIGATION
5.8 MATERIAL CONTRACTS
5.13 ENVIRONMENTAL MATTERS
6.11 CASH MANAGEMENT SYSTEM
7.1 CERTAIN EXISTING INDEBTEDNESS
7.2 CERTAIN EXISTING LIENS
7.3 CERTAIN EXISTING INVESTMENTS
7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS
7.10 CERTAIN TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
(vi)
<PAGE> 8
AMSCAN HOLDINGS, INC.
REVOLVING LOAN CREDIT AGREEMENT
This REVOLVING LOAN CREDIT AGREEMENT is dated as of December 19, 1997 and
entered into by and among AMSCAN HOLDINGS, INC., a Delaware corporation
("Company"), GOLDMAN SACHS CREDIT PARTNERS L.P., ("GSCP") as arranger (in such
capacity, "Arranger"), and as syndication agent (in such capacity, "Syndication
Agent"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each,
including GSCP and Fleet (as hereinafter defined), individually referred to
herein as a "Lender" and collectively as "Lenders"), and FLEET NATIONAL BANK
("Fleet"), as administrative agent for Lenders (in such capacity,
"Administrative Agent").
R E C I T A L S
WHEREAS, GSII (this and other capitalized terms used in these recitals
without definition being used as defined in subsection 1.1) has formed Confetti
Acquisition, Inc., a Delaware corporation ("Newco") for the purpose of entering
into a series of recapitalization transactions pursuant to the Recapitalization
Agreement;
WHEREAS, on or before the Closing Date, Newco and Company shall have
consummated the transactions contemplated under the Recapitalization Agreement,
and in connection with such transactions, Company will have, following the
Merger of Newco with and into Company, not less than $75,000,000 of equity
financing, consisting of (i) approximately $7,500,000 in shares of Company
retained by current shareholders, (ii) approximately $750,000 in cash common
equity contributions by certain Management Investors (which contributions will
be financed by Company and will be made following consummation of the Merger)
and (iii) approximately $67,500,000 in equity financing from Newco, which equity
financing shall have been contributed to Newco immediately prior to the Merger
as follows: (x) an amount not less than $61,875,000 in cash by GSII, (y)
approximately $4,500,000 of Old Management Shares (valued at the highest cash
price offered to public shareholders in the Acquisition) contributed by a
certain Management Investor in exchange for common stock of Newco which will be
converted in the Merger into shares of Company Common Stock and (z)
approximately $1,125,000 of restricted shares of common stock of Newco granted
to a certain Management Investor which will be converted in the Merger into
shares of Company Common Stock;
WHEREAS, pursuant to the Recapitalization Agreement, on the Closing Date,
Newco will be merged with and into Company, with Company being the surviving
corporation in such merger;
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
<PAGE> 9
WHEREAS, on or before the Closing Date, Company will issue and sell not
less than $110,000,000 in aggregate principal amount of Senior Subordinated
Notes;
WHEREAS, on the date hereof Company has entered into a separate AXEL
Credit Agreement (such credit agreement as amended, supplemented, refinanced,
renewed, extended, or otherwise modified from time to time, the "AXEL Credit
Agreement") with Fleet National Bank as administrative agent, (the "AXEL
Facility Agent"), Goldman Sachs Credit Partners L.P. as arranger and syndication
agent and the financial institutions named therein as lenders (the "AXEL
Lenders") pursuant to which AXEL Lenders have agreed to extend certain credit
facilities to Company the proceeds of which will be used together with the
proceeds of the issuance and sale of the Senior Subordinated Notes and the
equity financing described above, to fund the Recapitalization Financing
Requirements.
WHEREAS, Lenders have agreed to extend certain credit facilities to
Company pursuant to the terms and conditions of this Agreement, the proceeds of
which will be used (i) together with the proceeds of the AXEL facility under the
AXEL Credit Agreement and the issuance and sale of the Senior Subordinated Notes
and the equity financing described above, to fund the Recapitalization Financing
Requirements, and (ii) to provide financing for working capital and other
general corporate purposes of Company and its Subsidiaries;
WHEREAS, on the date hereof the Administrative Agent and the AXEL Facility
Agent have entered into an Intercreditor Agreement pursuant to which the
Administrative Agent and the AXEL Facility Agent have appointed Fleet to serve
as collateral agent and representative (in such capacity, the "Collateral
Agent") for the Lenders, the AXEL Lenders, the Administrative Agent, the AXEL
Facility Agent and the other agents under this Agreement and the AXEL Credit
Agreement (collectively, the "Secured Parties") and agreed to the terms on which
Collateral, the benefits of guarantees and the proceeds thereof will be shared
between the credit facilities;
WHEREAS, Company desires to secure all of the Obligations hereunder and
under the other Loan Documents by granting to Collateral Agent, on behalf of
Secured Parties, a first priority Lien on substantially all of its real,
personal and mixed property, including a pledge of all of the capital stock of
each of its Domestic Subsidiaries and 66% of the capital stock of each of its
Foreign Subsidiaries; and
WHEREAS, all of the Domestic Subsidiaries of Company have agreed to
guarantee the Obligations hereunder and under the other Loan Documents and to
secure their guaranties by granting to Collateral Agent, on behalf of Secured
Parties, a first priority Lien on substantially all of their respective personal
and mixed property, including a pledge of all of the capital stock of each of
their respective Domestic Subsidiaries and 66% of the capital stock of each of
their respective Foreign Subsidiaries:
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Company, Lenders and Agents agree as
follows:
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
2
<PAGE> 10
SECTION 1.
DEFINITIONS
1.1 Certain Defined Terms.
The following terms used in this Agreement shall have the following
meanings:
"Account" means, with respect to any Person, all present and future
rights of such Person to payment for goods sold or leased or for services
rendered (except those evidenced by instruments or chattel paper), whether
now existing or hereafter arising and wherever arising, and whether or not
they have been earned by performance.
"Adjusted Eurodollar Rate" means, for any Interest Rate
Determination Date with respect to an Interest Period for a Eurodollar
Rate Loan, the interest rate per annum (rounded upward, if necessary, to
the nearest 1/32 of one percent) as determined on the basis of the offered
rates for deposits in U.S. dollars, for a period of time comparable to
such Interest Period which appears on the Telerate Page 3750 as of 11:00
a.m. (New York time) two Business Days before the first day of such
Interest Period; provided, however, that if the rate described above does
not appear on the Telerate System on any applicable interest determination
date, the Adjusted Eurodollar Rates shall be the rate (rounded upward as
described above, if necessary) for deposits in U.S. dollars for a period
substantially equal to the interest period on the Reuters Page "LIBO" (or
such other page as may replace the LIBO page on that service for the
purpose of displaying such rates), as of 11:00 a.m. (London time) two
Business Days before the first day of such Interest Period.
If both the Telerate and Reuters system are unavailable, then the
rate for that date will be determined on the basis of the offered rates
for deposits in U.S. dollars for a period of time comparable to such
Interest Period which are offered by four major banks in the London
interbank market at approximately 11:00 a.m. (New York time) two Business
Days before the first day of such Interest Period as selected by the
Administrative Agent. The principal London office of each of the four
major London banks will be requested to provide a quotation of its U.S.
dollar deposit offered rate. If at least two such quotations are provided,
the rate for that date will be the arithmetic mean of the quotations. If
fewer than two quotations are provided as requested, the rate for that
date will be determined on the basis of the rates quoted for loans in U.S.
dollars to leading European banks for a period of time comparable to such
Interest Period offered by major banks in New York City at approximately
11:00 a.m. (New York time) two Business Days before the first day of such
Interest Period. In the event that the Administrative Agent is unable to
obtain any such quotation as provided above, it will be deemed that the
Adjusted Eurodollar Rate for such Interest Rate cannot be determined.
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
3
<PAGE> 11
In the event that the Board of Governors of the Federal Reserve
System shall impose a Eurodollar Rate Reserve Percentage with respect to
Eurocurrency Liabilities, the Adjusted Eurodollar Rate for an Interest
Period shall be equal to the amount determined above for such Interest
Period divided by a percentage equal to 100% minus the Eurodollar Rate
Reserve Percentage for such Interest Period.
"Administrative Agent" has the meaning assigned to that term in the
introduction to this Agreement and also means and includes any successor
Administrative Agent appointed pursuant to subsection 9.5A.
"Affected Lender" has the meaning assigned to that term in
subsection 2.6C.
"Affiliate", as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common control
with, that Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities or by contract
or otherwise.
"Agent" means, individually, each of Arranger, Syndication Agent,
Collateral Agent and Administrative Agent and "Agents" means Arranger,
Syndication Agent, Collateral Agent and Administrative Agent,
collectively.
"Agreement" means this Revolving Loan Credit Agreement dated as of
December 19, 1997, as it may be amended, supplemented or otherwise
modified from time to time.
"Applicable Leverage Ratio" means, with respect to any date of
determination, the Consolidated Leverage Ratio set forth in the most
recent Compliance Certificate delivered pursuant to subsection 6.1(iv)
hereof, provided that (i) the Applicable Leverage Ratio for the period
from the Closing Date to but excluding the fifth Business Day following
delivery of the first Compliance Certificate pursuant to subsection
6.1(iv) hereof, shall be deemed to be no less than 5.25:1, (ii) no change
in the Applicable Leverage Ratio shall be effective until five Business
Days after the date on which Administrative Agent receives a Compliance
Certificate pursuant to subsection 6.1(iv) calculating the Consolidated
Leverage Ratio and (iii) in the event the Company fails to deliver to the
Administrative Agent a Compliance Certificate calculating the Consolidated
Leverage Ratio in accordance with subsection 6.1(iv) when required
thereunder, then the Applicable Leverage Ratio shall be deemed to be not
less than 5.25:1 from the date such Compliance Certificate was due until
the date the Company shall deliver such Compliance Certificate.
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
4
<PAGE> 12
"Applicable Revolving Base Rate Margin" means, as at any date of
determination, a rate per annum equal to the percentage set forth below
opposite the Applicable Leverage Ratio in effect as of such date of
determination with any change in the Applicable Revolving Base Rate Margin
to be effective on the date of any corresponding change in the Applicable
Leverage Ratio.
<TABLE>
<CAPTION>
================================================================================
Applicable Leverage Ratio Applicable Revolving Base Rate Margin
- --------------------------------------------------------------------------------
<S> <C>
5.25:1.00 or greater 1.25%
- --------------------------------------------------------------------------------
4.75:1.00 or greater, but less than 1.00%
5.25:1.00
- --------------------------------------------------------------------------------
4.25:1.00 or greater, but less than 0.75%
4.75:1.00
- --------------------------------------------------------------------------------
3.75:1.00 or greater, but less than 0.50%
4.25:1.00
- --------------------------------------------------------------------------------
3.25:1.00 or greater, but less than 0.25%
3.75:1.00
- --------------------------------------------------------------------------------
less than 3.25:1.00 0.00%
================================================================================
</TABLE>
"Applicable Revolving Commitment Fee Percentage" means, as at any
date of determination, a rate per annum equal to the percentage set forth
below opposite the Applicable Leverage Ratio in effect as of such date of
determination, any change in the Applicable Revolving Commitment Fee
Percentage to be effective on the date of any corresponding change in the
Applicable Leverage Ratio:
<TABLE>
<CAPTION>
================================================================================
Applicable Leverage Ratio Applicable Revolving Commitment Fee
Percentage
- --------------------------------------------------------------------------------
<S> <C>
4.75:1.00 or greater 0.50%
- --------------------------------------------------------------------------------
3.75:1.00 or greater, but less than 0.375%
4.75: 1.00
- --------------------------------------------------------------------------------
less than 3.75:1.00 0.25%
================================================================================
</TABLE>
"Applicable Revolving Eurodollar Rate Margin" means, as at any date
of determination, with respect to any Eurodollar Rate Loans a rate per
annum equal to the percentage set forth below opposite the Applicable
Leverage Ratio in effect as of the first day of the Interest Period for
such Eurodollar Rate Loans:
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
5
<PAGE> 13
<TABLE>
<CAPTION>
================================================================================
Applicable Leverage Ratio Applicable Revolving Eurodollar Rate Margin
- --------------------------------------------------------------------------------
<S> <C>
5.25:1.00 or greater 2.25%
- --------------------------------------------------------------------------------
4.75:1.00 or greater, but less than 2.00%
5.25: 1.00
- --------------------------------------------------------------------------------
4.25:1.00 or greater, but less than 1.750%
4.75:1.00
- --------------------------------------------------------------------------------
3.75:1.00 or greater, but less than 1.50%
4.25:1.00
- --------------------------------------------------------------------------------
3.25:1.00 or greater, but less than 1.25%
3.75:1.00
- --------------------------------------------------------------------------------
2.75:1.00 or greater, but less than 0.875%
3.25:1.00
- --------------------------------------------------------------------------------
less than 2.75:1.00 0.625%
================================================================================
</TABLE>
"Arranger" has the meaning assigned to that term in the introduction
to this Agreement.
"Asset Sale" means the sale by Company or any of its Subsidiaries to
any Person other than Company or any of its wholly-owned Subsidiaries of
(i) any of the stock of any of Company's Subsidiaries, (ii) substantially
all of the assets of any division or line of business of Company or any of
its Subsidiaries, or (iii) any other assets (whether tangible or
intangible) of Company or any of its Subsidiaries (other than (a)
inventory sold in the ordinary course of business (b) sales of Cash
Equivalents for the fair market value thereof, and (c) any such other
assets to the extent that the aggregate value of such assets sold in any
single transaction or related series of transactions is equal to $500,000
or less).
"Assignment Agreement" means an Assignment Agreement in
substantially the form of Exhibit IX annexed hereto.
"Auxiliary Pledge Agreement" means each pledge agreement or similar
instrument governed by the laws of a country other than the United States,
executed on the Closing Date pursuant to subsection 4.1I(v) or from time
to time thereafter in accordance with subsection 6.8 by Company or any
Domestic Subsidiary that owns capital stock of one or more Foreign
Subsidiaries organized in such country, in form and substance satisfactory
to Collateral Agent, as such Auxiliary Pledge Agreement may be amended,
supplemented or otherwise modified from time to time, and "Auxiliary
Pledge Agreements" means all such pledge agreements or instruments,
collectively.
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
6
<PAGE> 14
"AXEL(TM)" or "AXELs(TM)" means a loan made by an AXEL Lender to
Company as an amortization extended loan pursuant to the AXEL Credit
Agreement. The term AXEL is a registered trademark of Goldman, Sachs & Co.
"AXEL Credit Agreement" means the AXEL Credit Agreement dated as of
December 19, 1997 among Company, the financial institutions from time to
time parties thereto, GSCP, as arranger and syndication agent, and Fleet,
as administrative agent as such AXEL Credit Agreement may be amended,
supplemented, refinanced, renewed, extended or otherwise modified from
time to time.
"AXEL Commitment" means a commitment of an AXEL Lender to extend an
AXEL under the AXEL Credit Agreement, and "AXEL Commitments" means such
commitments of all AXEL Lenders in the aggregate.
"AXEL Facility Agent" has the meaning assigned to that term in the
introduction to this Agreement.
"AXEL Lender" means a lender under the AXEL Credit Agreement holding
an outstanding AXEL or having an AXEL Commitment, and "AXEL Lenders" means
any such lender or lenders under the AXEL Credit Agreement, collectively.
"AXEL Loan Documents" means the AXEL Credit Agreement, the AXEL
Notes, the Subsidiary Guaranty, the Collateral Documents and the
Intercreditor Agreement.
"AXEL Notes" means the promissory notes of Company issued pursuant
to the AXEL Credit Agreement as they may be amended, supplemented or
otherwise modified from time to time.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"Base Rate" means, at any time, the higher of (x) the Prime Rate or
(y) the rate which is 1/2 of 1% in excess of the Federal Funds Effective
Rate.
"Base Rate Loans" means Revolving Loans bearing interest at rates
determined by reference to the Base Rate as provided in subsection 2.2A.
"Borrowing Base" means, as at any date of determination, an
aggregate amount (determined with reference to the most recent Borrowing
Base Certificate delivered pursuant to subsection 6.1(xviii)) equal to:
(i) eighty-five percent (85%) of Eligible Accounts Receivable of
Company and Subsidiary Guarantors plus
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
7
<PAGE> 15
(ii) fifty-five percent (55%) of Eligible Inventory of Company and
Subsidiary Guarantors minus
(iii) the aggregate amount of any reserves established by
Administrative Agent, in the exercise of its commercially reasonable
judgment, against Eligible Accounts Receivable and Eligible
Inventory of Company and Subsidiary Guarantors;
provided that Administrative Agent, in the exercise of its commercially
reasonable judgment, may (a) increase or decrease reserves against
Eligible Accounts Receivable and Eligible Inventory of any Loan Party and
(b) reduce the advance rates provided in this definition, or (c) restore
such advance rates to any level equal to or below the advance rates in
effect as of the Closing Date and provided further that if any Inventory
is held on or in any leased property, leased trailer or warehouse and the
applicable lessor or warehouseman has not entered into a Collateral Access
Agreement in favor of Administrative Agent, Administrative Agent may take
a reserve against the value of such Inventory equal to the lesser of (a)
the value of such Inventory included in the Borrowing Base and (b) two
months lease payments or warehouse storage payments payable to the
applicable lessor or warehouseman.
"Borrowing Base Certificate" means a completed certificate
substantially in the form of Exhibit XIX annexed hereto.
"Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the State of New York or is a
day on which banking institutions located in such state are authorized or
required by law or other governmental action to close.
"Capital Lease", as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee that,
in conformity with GAAP, is accounted for as a capital lease on the
balance sheet of that Person.
"Cash" means money, currency or a credit balance in a Deposit
Account.
"Cash Equivalents" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally
guaranteed as to interest and principal by the United States Government or
(b) issued by any agency of the United States the obligations of which are
backed by the full faith and credit of the United States, in each case
maturing within one year after such date; (ii) marketable direct
obligations issued by any state of the United States of America or any
political subdivision of any such state or any public instrumentality
thereof, in each case maturing within one year after such date and having,
at the time of the acquisition thereof, the highest rating obtainable from
either Standard & Poor's Ratings Group ("S&P") or Moody's Investors
Service, Inc. ("Moody's"); (iii) commercial paper
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<PAGE> 16
maturing no more than one year from the date of creation thereof and
having, at the time of the acquisition thereof, a rating of at least A-1
from S&P or at least P-1 from Moody's; (iv) certificates of deposit or
bankers' acceptances maturing within one year after such date and issued
or accepted by any Lender or by any commercial bank organized under the
laws of the United States of America or any state thereof or the District
of Columbia that (a) is at least "adequately capitalized" (as defined in
the regulations of its primary Federal banking regulator) and (b) has Tier
1 capital (as defined in such regulations) of not less than $100,000,000
(each Lender and each commercial bank being referred to herein as a "Cash
Equivalent Bank"); (v) shares of any money market mutual fund that (a) has
at least 95% of its assets invested continuously in the types of
investments referred to in clauses (i) and (ii) above, (b) has net assets
of not less than $500,000,000, and (c) has the highest rating obtainable
from either S&P or Moody's; and (vi) with respect to Foreign Subsidiaries,
investments of the types described in clause (iv) above issued by a Cash
Equivalent Bank or any commercial bank of recognized international
standing chartered in the country where such Foreign Subsidiary is
domiciled having unimpaired capital and surplus of at least $500,000,000.
"Certificate of Merger" means the Certificate of Merger dated as of
December 19, 1997 for the Merger of Newco with and into Company, as in
effect on the Closing Date.
"Certificate re Non-Bank Status" means a certificate substantially
in the form of Exhibit X annexed hereto delivered by a Lender to
Administrative Agent pursuant to subsection 2.7B(iii).
"Closing Date" means the date on or before December 19, 1997, on
which the initial Revolving Loans or AXELs are funded.
"Collateral" means, collectively, all of the real, personal and
mixed property (including capital stock) in which Liens are purported to
be granted pursuant to the Collateral Documents as security for the
Obligations.
"Collateral Access Agreement" means any landlord waiver, mortgagee
waiver, bailee letter or any similar acknowledgement or agreement of any
landlord in respect of any Leased Property or mortgagee in respect of any
real property in which Company or any of its Subsidiaries owns or holds a
fee interest and which is subject to a mortgage, held by such mortgagee,
in either case where any Collateral is located or any warehouseman or
processor in possession of any Inventory of any Loan Party, substantially
in the form of Exhibit XVIII annexed hereto with such changes thereto as
may be agreed to by Collateral Agent in the reasonable exercise of its
discretion.
"Collateral Accounts" has the meaning assigned to that term in the
Intercreditor Agreement.
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<PAGE> 17
"Collateral Agent" has the meaning assigned to that term in the
introduction to this Agreement.
"Collateral Documents" means the Company Pledge Agreement, the
Company Security Agreement, the Subsidiary Pledge Agreements, the
Subsidiary Security Agreements, the Mortgages, the Auxiliary Pledge
Agreements and all other instruments or documents delivered by any Loan
Party pursuant to this Agreement or any of the other Loan Documents in
order to grant to Collateral Agent, on behalf of Secured Parties, a Lien
on any real, personal or mixed property of that Loan Party as security for
the Obligations.
"Commercial Letter of Credit" means any letter of credit or similar
instrument issued for the purpose of providing the primary payment
mechanism in connection with the purchase of any materials, goods or
services by Company or any of its Subsidiaries in the ordinary course of
business of Company or such Subsidiary.
"Company" means Company as the surviving corporation in the Merger.
"Company Common Stock" means the shares of common stock of Company
par value $0.10 per share.
"Company Pledge Agreement" means the Company Pledge Agreement
executed and delivered by Company on the Closing Date, substantially in
the form of Exhibit XII annexed hereto, as such Company Pledge Agreement
may thereafter be amended, supplemented or otherwise modified from time to
time.
"Company Security Agreement" means the Company Security Agreement
executed and delivered by Company on the Closing Date, substantially in
the form of Exhibit XIII annexed hereto, as such Company Security
Agreement may thereafter be amended, supplemented or otherwise modified
from time to time.
"Compliance Certificate" means a certificate substantially in the
form of Exhibit VI annexed hereto delivered to Administrative Agent and
Lenders by Company pursuant to subsection 6.1(iv).
"Confidential Information Memorandum" means that certain
Confidential Information Memorandum prepared by GSCP relating to the AXELs
and Revolving Loans dated November 1997.
"Conforming Leasehold Interest" means any Recorded Leasehold
Interest as to which the lessor has agreed in writing for the benefit of
Administrative Agent (which writing has been delivered to Collateral
Agent), whether under the terms of the applicable lease, under the terms
of a Landlord Consent and Estoppel, or otherwise, to the matters
described in the definition of ""Landlord Consent and
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<PAGE> 18
Estoppel," which interest, if a subleasehold or sub-subleasehold interest,
is not subject to any contrary restrictions contained in a superior lease
or sublease.
"Consolidated Adjusted EBITDA" means, for any period, the sum of the
amounts for such period of (i) Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) provisions for taxes based on income, (iv) total
depreciation expense, (v) total amortization expense, (vi) to the extent
otherwise deducted in determining Consolidated Net Income, (a)
non-recurring expenses and fees relating to Company's initial public
offering in December 1996 in an amount not to exceed $16,000,000 and (b)
certain special bonuses paid by Company in 1996, in an aggregate amount
not to exceed $4,200,000 pursuant to certain profit-sharing arrangements
that were terminated by Company in connection with such initial public
offering, (vii) to the extent otherwise deducted in determining
Consolidated Net Income, non-recurring expenses and charges relating to
the transactions contemplated by the Related Agreements and the Loan
Documents including any special bonuses payable in connection therewith
and (viii) other non-cash items reducing Consolidated Net Income including
provisions for minority interests but only to the extent such items have
been deducted from operating income for such period in determining
Consolidated Net Income less other non-cash items increasing Consolidated
Net Income, all of the foregoing as determined on a consolidated basis for
Company and its Subsidiaries in conformity with GAAP.
"Consolidated Capital Expenditures" means, for any period, the sum,
without duplication, of (i) the aggregate of all expenditures (whether
paid in cash or other consideration or accrued as a liability) by Company
and its Subsidiaries during that period that, in conformity with GAAP, are
included in "additions to property, plant or equipment" or comparable
items reflected in the consolidated statement of cash flows of Company and
its Subsidiaries, but excluding any such expenditures relating to future
acquisitions and (ii) the aggregate amount of all additions to assets on
the consolidated balance sheet of Company and its Subsidiaries during that
period in conformity with GAAP in connection with Capital Leases
consummated by Company and its Subsidiaries. Notwithstanding the
foregoing, Consolidated Capital Expenditures shall not include any amounts
reinvested from Net Asset Sale Proceeds, Net Insurance/Condemnation
Proceeds or any amounts spent on Permitted Business Acquisitions.
"Consolidated Cash Interest Expense" means, for any period, amounts
included in Consolidated Interest Expense for such period paid or payable
in Cash (excluding amortization of original issue discount and
amortization of debt issuance costs).
"Consolidated Current Assets" means, as at any date of
determination, the total assets of Company and its Subsidiaries on a
consolidated basis which may
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
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<PAGE> 19
properly be classified as current assets in conformity with GAAP,
excluding any Cash and Cash Equivalents.
"Consolidated Current Liabilities" means, as at any date of
determination, the total liabilities of Company and its Subsidiaries on a
consolidated basis which may properly be classified as current liabilities
in conformity with GAAP excluding all Revolving Loans and the current
portion of any long-term Indebtedness.
"Consolidated Excess Cash Flow" means, for any period, an amount (if
positive) equal to (i) the sum, without duplication, of the amounts for
such period of (a) Consolidated Adjusted EBITDA and (b) the Consolidated
Working Capital Adjustment minus (ii) the sum, without duplication, of the
amounts for such period of (a) voluntary and scheduled repayments of
Consolidated Total Debt (excluding repayments of Revolving Loans except to
the extent the Revolving Loan Commitments are permanently reduced in
connection with such repayments), (b) the sum of Consolidated Capital
Expenditures and any expenditures during such period relating to
acquisitions to the extent excluded from Consolidated Capital Expenditures
(in each case net of any proceeds of any related financings with respect
to such expenditures), (c) Consolidated Cash Interest Expense, (d) the
provision for current taxes based on income of Company and its
Subsidiaries and payable in cash with respect to such period and (e) any
non-recurring restructuring charges and charges related to cost savings
paid in cash during such period.
"Consolidated Fixed Charges" means, for any period, the sum (without
duplication) of the amounts for such period of (i) Consolidated Cash
Interest Expense, (ii) provisions for taxes based on income, (iii)
scheduled repayments of principal on the Loans and other Indebtedness, and
(iv) Consolidated Capital Expenditures to the extent paid for in cash, all
of the foregoing as determined on a consolidated basis for Company and its
Subsidiaries in conformity with GAAP.
"Consolidated Interest Expense" means, for any period, total
interest expense (without reduction for interest income) (including that
portion attributable to Capital Leases in accordance with GAAP and
capitalized interest) of Company and its Subsidiaries on a consolidated
basis with respect to all outstanding Indebtedness of Company and its
Subsidiaries, including (i) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing and net costs under Interest Rate Agreements, in each case,
attributable to such period and (ii) commitment fees on the unused portion
of the Revolving Loan Commitment as set forth in subsection 2.3A, but
excluding, however, any amounts referred to in subsection 2.3B payable to
Agents and Lenders on or before the Closing Date and any amounts referred
to in subsection 2.3B of the AXEL Credit Agreement payable to the AXEL
Facility Agent, any other agents under the AXEL Credit Agreement and the
AXEL Lenders on or before the Closing Date.
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"Consolidated Leverage Ratio" means, as at any date of
determination, the ratio of (i) Consolidated Total Debt as of such date of
determination to (ii) Consolidated Adjusted EBITDA for the four-Fiscal
Quarter period ending (a) on such date of determination or (b) if such
date of determination is not the last day of a Fiscal Quarter, on the last
day of the Fiscal Quarter immediately preceding such date of
determination.
"Consolidated Net Income" means, for any period, the net income (or
loss) of Company and its Subsidiaries on a consolidated basis for such
period taken as a single accounting period determined in conformity with
GAAP; provided that there shall be excluded (i) the income (or loss) of
any Person (other than a Subsidiary of Company) in which any other Person
(other than Company or any of its Subsidiaries) has a joint interest,
except to the extent of the amount of dividends or other distributions
actually paid to Company or any of its Subsidiaries by such Person during
such period, (ii) the income (or loss) of any Person accrued prior to the
date it becomes a Subsidiary of Company or is merged into or consolidated
with Company or any of its Subsidiaries or that Person's assets are
acquired by Company or any of its Subsidiaries, (iii) the income of any
Subsidiary of Company to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that income is
not at the time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary, (iv) any after-tax
gains or losses attributable to Asset Sales or returned surplus assets of
any Pension Plan, and (v) (to the extent not included in clauses (i)
through (iv) above) any net extraordinary gains or net non-cash
extraordinary losses.
"Consolidated Net Worth" means, as at any date of determination, the
sum of the capital stock and additional paid-in capital plus retained
earnings (or minus accumulated deficits) of Company and its Subsidiaries
on a consolidated basis determined in conformity with GAAP.
"Consolidated Total Debt" means, as at any date of determination,
the aggregate stated balance sheet amount of all Indebtedness of Company
and its Subsidiaries, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Working Capital" means, as at any date of
determination, Consolidated Current Assets minus Consolidated Current
Liabilities.
"Consolidated Working Capital Adjustment" means, for any period on a
consolidated basis, the amount (which may be a negative number) equal to
Consolidated Working Capital as of the beginning of such period minus
Consolidated Working Capital as of the end of such period.
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"Contingent Obligation", as applied to any Person, means any direct
or indirect liability, contingent or otherwise, of that Person (i) with
respect to any Indebtedness, lease, dividend or other obligation of
another if the primary purpose or intent thereof by the Person incurring
the Contingent Obligation is to provide assurance to the obligee of such
obligation of another that such obligation of another will be paid or
discharged, or that any agreements relating thereto will be complied with,
or that the holders of such obligation will be protected (in whole or in
part) against loss in respect thereof, (ii) with respect to any letter of
credit issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings, or (iii) under Hedge
Agreements. Contingent Obligations shall include (a) the direct or
indirect guaranty, endorsement (otherwise than for collection or deposit
in the ordinary course of business), co-making, discounting with recourse
or sale with recourse by such Person of the obligation of another, (b) the
obligation to make take-or-pay or similar payments if required regardless
of non-performance by any other party or parties to an agreement, and (c)
any liability of such Person for the obligation of another through any
agreement (contingent or otherwise) (X) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide
funds for the payment or discharge of such obligation (whether in the form
of loans, advances, stock purchases, capital contributions or otherwise)
or (Y) to maintain the solvency or any balance sheet item, level of income
or financial condition of another if, in the case of any agreement
described under subclauses (X) or (Y) of this sentence, the primary
purpose or intent thereof is as described in the preceding sentence. The
amount of any Contingent Obligation shall be equal to the amount of the
obligation so guaranteed or otherwise supported or, if less, the amount to
which such Contingent Obligation is specifically limited.
"Contractual Obligation", as applied to any Person, means any
provision of any Security issued by that Person or of any material
indenture, mortgage, deed of trust, contract, undertaking, agreement or
other instrument to which that Person is a party or by which it or any of
its properties is bound or to which it or any of its properties is
subject.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement, futures contract, option contract, synthetic cap or other
similar agreement or arrangement to which Company or any of its
Subsidiaries is a party.
"Default Excess" has the meaning assigned to that term in subsection
2.9.
"Default Period" has the meaning assigned to that term in subsection
2.9.
"Defaulted Revolving Loan" has the meaning assigned to that term in
subsection 2.9.
"Defaulting Lender" has the meaning assigned to that term in
subsection 2.9.
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<PAGE> 22
"Deposit Account" means a demand, time, savings, passbook or like
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate
of deposit.
"Dollars" and the sign "$" mean the lawful money of the United
States of America.
"Domestic Subsidiary" means a Subsidiary of Company that is
organized under the laws of a state of the United States or the District
of Columbia.
"Eligible Accounts Receivable" means, with respect to Company or any
Subsidiary Guarantor, the aggregate amount of Accounts of such Loan Party
deemed by Administrative Agent, in the exercise of its commercially
reasonable judgment, to be eligible for inclusion in the calculation of
the Borrowing Base. In determining the amount to be so included, the face
amount of such Accounts shall be reduced by the amount of all returns,
discounts, deductions, claims, credits, charges, or other allowances.
Unless otherwise approved in writing by Administrative Agent, an Account
shall not be included in Eligible Account Receivable if:
(i) it arises out of a sale made by such Loan Party to another Loan
Party; or
(ii) it is unpaid for (a) more than 60 days after its due date or
(b) either more than 120 days after the date of invoice if such
Account is not a Seasonal/Promotional Account or 180 days after the
date of the invoice if such Account is a Seasonal/Promotional
Account; or
(iii) it is from the same account debtor or its Affiliate and fifty
percent (50%) or more of all Accounts from that account debtor (and
its Affiliates) are ineligible under clause (ii) above; or
(iv) when aggregated with all other Accounts of an account debtor,
such Account exceeds 15% in face value of all Accounts of all Loan
Parties then outstanding, but only to the extent of such excess,
unless such excess is supported by an irrevocable letter of credit
or other form of assurance satisfactory to Administrative Agent (as
to form, substance and issuer) and assigned to and directly drawable
by Administrative Agent provided that this clause (iv) shall not
apply to Accounts of Party City Corporation; or
(v) the account debtor for such Account is a creditor of such Loan
Party, has or has asserted a right of setoff against such Loan
Party, or has disputed its liability or otherwise has made any claim
with respect to such Account or any other Account which has not been
resolved, in each case to the extent of the amount owed by such Loan
Party to such account debtor, the amount of
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<PAGE> 23
such actual or asserted right of setoff, or the amount of such
dispute or claim, as the case may be; or
(vi) the account debtor is (or its assets are) the subject of an
Insolvency Event; or
(vii) such Account is not payable in Dollars or the account debtor
for such Account is located outside the continental United States,
unless such Account is supported by an irrevocable letter of credit
satisfactory to Administrative Agent (as to form, substance and
issuer) and assigned to and directly drawable by Administrative
Agent; or
(viii) the sale to the account debtor is on a bill-and-hold,
guarantied sale, sale-and-return, sale on approval or consignment
basis or was made pursuant to any other written agreement providing
for repurchase or return; or
(ix) Administrative Agent determines by its own credit analysis that
collection of such Account is uncertain or that such Account is not
likely to be paid; or
(x) the account debtor is the United States of America or any
department, agency or instrumentality thereof, unless such Loan
Party duly assigns its rights to payment of such Account to
Administrative Agent pursuant to the Assignment of Claims Act of
1940, as amended (31 U.S.C. ss.ss.3727 et seq.); or
(xi) unless such Account relates to permitted dated receivables, the
goods giving rise to such Account have not been shipped and
delivered to and accepted by the account debtor, the services giving
rise to such Account have not been performed and accepted, or such
Account otherwise does not represent a final sale; or
(xii) such Account does not comply with all Requirements of Law,
including the Federal Consumer Credit Protection Act, the Federal
Truth in Lending Act and Regulation Z of the Board of Governors of
the Federal Reserve System; or
(xiii) such Account is subject to any adverse security deposit,
progress payment or other similar advance made by or for the benefit
of the applicable account debtor; or
(xiv) such Account is not subject to a valid and perfected first
priority Lien in favor of Administrative Agent for the benefit of
Lenders or does not otherwise conform to the representations and
warranties contained in the Revolving Loan Documents.
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<PAGE> 24
provided that Administrative Agent, in the exercise of its commercially
reasonable judgment, may impose additional restrictions (or eliminate the
same) to the standards of eligibility set forth in this definition.
"Eligible Assignee" means (A) (i) a commercial bank organized under
the laws of the United States or any state thereof; (ii) a savings and
loan association or savings bank organized under the laws of the United
States or any state thereof; (iii) a commercial bank organized under the
laws of any other country or a political subdivision thereof; provided
that (x) such bank is acting through a branch or agency located in the
United States or (y) such bank is organized under the laws of a country
that is a member of the Organization for Economic Cooperation and
Development or a political subdivision of such country; and (iv) any other
entity which is an "accredited investor" (as defined in Regulation D under
the Securities Act) which extends credit or buys loans as one of its
businesses including insurance companies, mutual funds and lease financing
companies; and (B) any Lender, and any Related Fund or any Affiliate of
any Lender; provided that no Loan Party or any Subsidiary of any Loan
Party shall be an Eligible Assignee.
"Eligible Inventory" means, with respect to Company or any
Subsidiary Guarantor, the aggregate amount of Inventory of such Loan Party
deemed by Administrative Agent, in the exercise of its commercially
reasonable judgment, to be eligible for inclusion in the calculation of
the Borrowing Base. In determining the amount to be so included, Inventory
shall be valued at the lower of cost or market on a basis consistent with
such Loan Party's current and historical accounting practices. Unless
otherwise approved in writing by Administrative Agent, an item of
Inventory shall not be included in Eligible Inventory if:
(i) it is not owned solely by such Loan Party or such Loan Party
does not have good, valid and marketable title thereto; or
(ii) it is not located in the United States; or
(iii) it is not located on property (including trailers) owned or
leased by such Loan Party or in a contract warehouse, in each case
subject to a Collateral Access Agreement executed by any applicable
mortgagee, lessor or contract warehouseman, as the case may be, (or,
if not subject to a Collateral Access Agreement, subject to such
reserves against such Inventory as the Administrative Agent may deem
appropriate as set forth in the second proviso of the definition of
"Borrowing Base") and segregated or otherwise separately
identifiable from goods of others, if any, stored on the premises;
provided that any goods in transit to property owned or leased by a
Loan Party or to a contract warehouse, in each case subject to a
Collateral Access Agreement executed by any applicable mortgagee,
lessor or contract warehouseman, shall not be excluded under this
clause (iii) so long as title to such goods has
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passed to a Loan Party, and delivery to the property or warehouse of
the Loan Party is reasonably expected within 15 days; or
(iv) it is not subject to a valid and perfected first priority Lien
in favor of Collateral Agent except, with respect to Inventory
stored at sites described in clause (iii) above, to the extent such
Lien is subject to Liens for unpaid rent or normal and customary
warehousing charges; provided that any goods in transit to property
owned or leased by a Loan Party or to a contract warehouse, in each
case subject to a Collateral Access Agreement executed by any
applicable mortgagee, lessor or contract warehouseman, shall not be
excluded under this clause (iv) so long as title to such goods has
passed to a Loan Party, and delivery to the property or warehouse of
the Loan Party is reasonably expected within 15 days; or
(v) it is in excess of the amount required for 18 months supply of
such item of Inventory based on sales for the 12-month period ending
as of the end of the most recently ended Fiscal Quarter, provided
that this clause (v) shall not apply to Inventory in new stock
keeping units first purchased or produced by Company on or after the
first day of the 12-month period ending as of the end of the most
recently ended Fiscal Quarter; or
(vi) it consists of goods returned or rejected by such Loan Party's
customers that are not first-quality goods or are obsolete or goods
in transit to third parties other than to warehouse sites or
trailers covered by a Collateral Access Agreement or subject to such
reserves as the Administrative Agent may deem appropriate as set
forth in the second proviso of the definition of "Borrowing Base";
or
(vii) it is not first-quality goods, is obsolete (i.e. such item is
not included in the Company's current or next-scheduled catalog) or
does not otherwise conform to the representations and warranties
contained in the Revolving Loan Documents;
provided that Administrative Agent, in the exercise of its commercially
reasonable judgment, may impose additional restrictions (or eliminate the
same) to the standards of eligibility set forth in this definition.
"Employee Benefit Plan" means any "employee benefit plan" as defined
in Section 3(3) of ERISA which is or was maintained or contributed to by
Company, any of its Subsidiaries or any of their respective ERISA
Affiliates.
"Employment Agreements" means, collectively, the employment
agreements and stock and option agreements between the Company and certain
employees of the Company as set forth on Schedule 4.1C annexed hereto, in
certain cases providing
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for the exclusive employment of such Persons by Company, in the form
provided to Arranger and Administrative Agent pursuant to subsection 4.1C
on or prior to the Closing Date.
"Environmental Claim" means any investigation, notice, notice of
violation, claim, action, suit, proceeding, demand, abatement order or
other order or directive (conditional or otherwise), by any governmental
authority or any other Person, arising (i) pursuant to or in connection
with any actual or alleged violation of any Environmental Law, (ii) in
connection with any Hazardous Materials or any actual or alleged Hazardous
Materials Activity, or (iii) in connection with any actual or alleged
damage, injury, threat or harm to natural resources or the environment.
"Environmental Laws" means any and all current or future statutes,
ordinances, orders, rules, regulations, guidance documents, judgments,
Governmental Authorizations, or any other requirements of governmental
authorities relating to (i) environmental matters, including those
relating to any Hazardous Materials Activity, (ii) the generation, use,
storage, transportation or disposal of Hazardous Materials, or (iii)
occupational safety and health, industrial hygiene, land use or the
protection of human, plant or animal health or welfare, in any manner
applicable to Company or any of its Subsidiaries or any Facility,
including the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. ss. 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. ss. 6901 et seq.), the Federal Water Pollution
Control Act (33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss.
7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601 et
seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C.
ss.136 et seq.), the Occupational Safety and Health Act (29 U.S.C. ss. 651
et seq.), the Oil Pollution Act (33 U.S.C. ss. 2701 et seq) and the
Emergency Planning and Community Right-to-Know Act (42 U.S.C. ss. 11001 et
seq.), each as amended or supplemented, any analogous present or future
state or local statutes or laws, and any regulations promulgated pursuant
to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor thereto.
"ERISA Affiliate" means, as applied to any Person, (i) any
corporation which is a member of a controlled group of corporations within
the meaning of Section 414(b) of the Internal Revenue Code of which that
Person is a member; (ii) any trade or business (whether or not
incorporated) which is a member of a group of trades or businesses under
common control within the meaning of Section 414(c) of the Internal
Revenue Code of which that Person is a member; and (iii) any member of an
affiliated service group within the meaning of Section 414(m) or (o) of
the Internal Revenue Code of which that Person, any corporation described
in clause (i) above or any trade or business described in clause (ii)
above is a member. Any
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former ERISA Affiliate of Company or any of its Subsidiaries shall
continue to be considered an ERISA Affiliate of Company or such Subsidiary
within the meaning of this definition with respect to the period such
entity was an ERISA Affiliate of Company or such Subsidiary and with
respect to liabilities arising after such period for which Company or such
Subsidiary could be liable under the Internal Revenue Code or ERISA.
"ERISA Event" means (i) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect
to any Pension Plan (excluding those for which the provision for 30-day
notice to the PBGC has been waived by regulation); (ii) the failure to
meet the minimum funding standard of Section 412 of the Internal Revenue
Code with respect to any Pension Plan (whether or not waived in accordance
with Section 412(d) of the Internal Revenue Code) or the failure to make
by its due date a required installment under Section 412(m) of the
Internal Revenue Code with respect to any Pension Plan or the failure to
make any required contribution to a Multiemployer Plan; (iii) the
provision by the administrator of any Pension Plan pursuant to Section
4041(a)(2) of ERISA of a notice of intent to terminate such plan in a
distress termination described in Section 4041(c) of ERISA; (iv) the
withdrawal by Company, any of its Subsidiaries or any of their respective
ERISA Affiliates from any Pension Plan with two or more contributing
sponsors or the termination of any such Pension Plan resulting in
liability pursuant to Section 4063 or 4064 of ERISA; (v) the institution
by the PBGC of proceedings to terminate any Pension Plan, or the
occurrence of any event or condition which could reasonably be expected to
constitute grounds under ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan; (vi) the imposition of
liability on Company, any of its Subsidiaries or any of their respective
ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason
of the application of Section 4212(c) of ERISA; (vii) the withdrawal of
Company, any of its Subsidiaries or any of their respective ERISA
Affiliates in a complete or partial withdrawal (within the meaning of
Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is
any potential liability therefor, or the receipt by Company, any of its
Subsidiaries or any of their respective ERISA Affiliates of notice from
any Multiemployer Plan that it is in reorganization or insolvency pursuant
to Section 4241 or 4245 of ERISA, or that it intends to terminate or has
terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of
an act or omission which could reasonably be expected to give rise to the
imposition on Company, any of its Subsidiaries or any of their respective
ERISA Affiliates of fines, penalties, taxes or related charges under
Chapter 43 of the Internal Revenue Code or under Section 409, Section
502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee
Benefit Plan; (ix) the assertion of a material claim (other than routine
claims for benefits) against any Employee Benefit Plan other than a
Multiemployer Plan or the assets thereof, or against Company, any of its
Subsidiaries or any of their respective ERISA Affiliates in connection
with any Employee Benefit Plan; (x) receipt from the Internal Revenue
Service of notice of the failure of any
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Pension Plan (or any other Employee Benefit Plan intended to be qualified
under Section 401(a) of the Internal Revenue Code) to qualify under
Section 401(a) of the Internal Revenue Code, or the failure of any trust
forming part of any Pension Plan to qualify for exemption from taxation
under Section 501(a) of the Internal Revenue Code; or (xi) the imposition
of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue
Code or pursuant to ERISA with respect to any Pension Plan.
"Eurocurrency Liabilities" has the meaning specified in Regulation D
of the Board of Governors of the Federal Reserve System, as in effect from
time to time.
"Eurodollar Rate Loans" means Revolving Loans bearing interest at
rates determined by reference to the Adjusted Eurodollar Rate as provided
in subsection 2.2A.
"Eurodollar Rate Reserve Percentage" means, for any Interest Period
for all Eurodollar Rate Loans comprising part of the same Borrowing, the
reserve percentage applicable two Business Days before the first day of
such Interest Period under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal Reserve System in New York
City with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest rate
on Eurodollar Rate Loans is determined) having a term equal to such
Interest Period.
"Event of Default" means each of the events set forth in Section 8.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"Exchange Rate" means, on any date when an amount expressed in a
currency other than Dollars is to be determined with respect to any Letter
of Credit, the nominal rate of exchange of the applicable Issuing Lender
in the New York foreign exchange market for the purchase by such Issuing
Lender (by cable transfer) of such currency in exchange for Dollars at
12:00 noon (New York time) one Business Day prior to such date, expressed
as a number of units of such currency per one Dollar.
"Existing Credit Agreements" means any and all credit agreements
entered into by Company, in each case as amended prior to the Closing
Date, as set forth on Schedule 4.1F.
"Facilities" means any and all real property (including all
buildings, fixtures or other improvements located thereon) now, hereafter
or heretofore owned, leased,
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operated or used by Company or any of its Subsidiaries or any of their
respective predecessors or Affiliates.
"Federal Funds Effective Rate" means, for any period, a fluctuating
interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the
next preceding Business Day) by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by
Administrative Agent from three Federal funds brokers of recognized
standing selected by Administrative Agent.
"Fee Property" means any real property owned in fee simple by any
Loan Party, other than any such real property designated from time to time
by Collateral Agent in its sole discretion as not being required to be
included in the Collateral.
"Financial Plan" has the meaning assigned to that term in subsection
6.1(xiii).
"First Priority" means, with respect to any Lien purported to be
created in any Collateral pursuant to any Collateral Document, that (i)
such Lien has priority over any other Lien on such Collateral (other than
Liens permitted pursuant to subsection 7.2A) and (ii) such Lien is the
only Lien (other than Permitted Encumbrances and Liens permitted pursuant
to subsection 7.2) to which such Collateral is subject.
"Fiscal Quarter" means a fiscal quarter of any Fiscal Year.
"Fiscal Year" means the fiscal year of Company and its Subsidiaries
ending on December 31 of each calendar year. For purposes of this
Agreement, any particular Fiscal Year shall be designated by reference to
the calendar year in which such Fiscal Year ends.
"Fleet" has the meaning assigned to that term in the introduction to
this Agreement.
"Flood Hazard Property" means a Mortgaged Property located in an
area designated by the Federal Emergency Management Agency as having
special flood or mud slide hazards.
"Foreign Subsidiary" means a Subsidiary of Company other than a
Domestic Subsidiary.
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"Funding and Payment Office" means (i) the office of Administrative
Agent located at Fleet National Bank, 1 Federal Street, Boston,
Massachusetts 02110, or (ii) such other office of Administrative Agent as
may from time to time hereafter be designated as such in a written notice
delivered by Administrative Agent to Company and each Lender.
"Funding Date" means the date of the funding of a Revolving Loan.
"Funding Default" has the meaning assigned to that term in
subsection 2.9.
"GAAP" means, subject to the limitations on the application thereof
set forth in subsection 1.2, generally accepted accounting principles set
forth in 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 may be approved by a significant
segment of the accounting profession, in each case as the same are
applicable to the circumstances as of the date of determination.
"Governmental Authorization" means any permit, license,
authorization, plan, directive, consent order or consent decree of or from
any federal, state or local governmental authority, agency or court.
"GSCP" has the meaning assigned to that term in the introduction to
this Agreement.
"GSII" means, collectively, GS Capital Partners II, L.P., GS Capital
Partners II Offshore, L.P., Goldman, Sachs & Co. Verwaltungs GmbH, Stone
Street Fund 1997, L.P. and Bridge Street Fund 1997, L.P.
"Hazardous Materials" means (i) any chemical, material or substance
at any time defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "acutely hazardous waste", "radioactive waste",
"biohazardous waste", "pollutant", "toxic pollutant", "contaminant",
"restricted hazardous waste", "infectious waste", "toxic substances", or
any other term or expression intended to define, list or classify
substances by reason of properties harmful to health, safety or the indoor
or outdoor environment (including harmful properties such as ignitability,
corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity,
"TCLP toxicity" or "EP toxicity" or words of similar import under any
applicable Environmental Laws); (ii) any oil, petroleum, petroleum
fraction or petroleum derived substance; (iii) any drilling fluids,
produced waters and other wastes associated with the exploration,
development or production of crude oil, natural gas or geothermal
resources; (iv) any flammable substances or explosives; (v) any
radioactive materials; (vi) any asbestos-containing materials; (vii) urea
formaldehyde foam insulation; (viii) electrical equipment which contains
any oil or
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dielectric fluid containing polychlorinated biphenyls; (ix) pesticides;
and (x) any other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority or which
may or could pose a hazard to the health and safety of the owners,
occupants or any Persons in the vicinity of any Facility or to the indoor
or outdoor environment.
"Hazardous Materials Activity" means any past, current or future
activity, event or occurrence involving any Hazardous Materials, including
the use, manufacture, possession, storage, holding, presence, existence,
location, Release, threatened Release, discharge, placement, generation,
transportation, processing, construction, treatment, abatement, removal,
remediation, disposal, disposition or handling of any Hazardous Materials,
and any corrective action or response action with respect to any of the
foregoing.
"Hedge Agreement" means an Interest Rate Agreement or a Currency
Agreement designed to hedge against fluctuations in interest rates or
currency values, respectively.
"Increased Cost Lender" has the meaning assigned to that term in
subsection 2.10.
"Indebtedness", as applied to any Person, means (i) all indebtedness
for borrowed money, (ii) that portion of obligations with respect to
Capital Leases that is properly classified as a liability on a balance
sheet in conformity with GAAP, (iii) notes payable and drafts accepted
representing extensions of credit whether or not representing obligations
for borrowed money, (iv) any obligation owed for all or any part of the
deferred purchase price of property or services (excluding any such
obligations incurred under ERISA), which purchase price is (a) due more
than six months from the date of incurrence of the obligation in respect
thereof or 12 months in the case of a bona fide trade payable or (b)
evidenced by a note or similar written instrument, and (v) all
indebtedness secured by any Lien on any property or asset owned or held by
that Person regardless of whether the indebtedness secured thereby shall
have been assumed by that Person or is nonrecourse to the credit of that
Person. Obligations under Interest Rate Agreements and Currency Agreements
constitute (X) in the case of Hedge Agreements, Contingent Obligations,
and (Y) in all other cases, Investments, and in neither case constitute
Indebtedness. Any contingent earnout obligations incurred pursuant to any
acquisition agreements shall constitute Contingent Obligations and not
Indebtedness until actually earned and thereafter shall constitute
Indebtedness until paid.
"Indemnitee" has the meaning assigned to that term in subsection
10.3.
"Insolvency Event" means, with respect to any Person, the occurrence
of any of the events described in subsection 8.6 or 8.7; provided that,
solely for purposes of
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this definition, any references to Company or any of its Subsidiaries in
subsection 8.6 or 8.7 shall be deemed to be a reference to such Person.
"Insolvency Laws" means the Bankruptcy Code or any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect in the
United States of America or any state thereof.
"Intellectual Property" means all patents, trademarks, tradenames,
copyrights, technology, know-how and processes used in or necessary for
the conduct of the business of Company and its Subsidiaries as currently
conducted that are material to the condition (financial or otherwise),
business or operations of Company and its Subsidiaries, taken as a whole.
"Intercreditor Agreement" means the Intercreditor Agreement dated as
of December 19, 1997 among the Administrative Agent, the AXEL Facility
Agent, the Collateral Agent the Company and the Subsidiary Guarantors as
such agreement may be amended, supplemented or otherwise modified from
time to time.
"Interest Payment Date" means (i) with respect to any Base Rate
Loan, each March 15, June 15, September 15 and December 15 of each year,
commencing on the first such date to occur after the Closing Date, and
(ii) with respect to any Eurodollar Rate Loan, the last day of each
Interest Period applicable to such Eurodollar Rate Loan; provided that in
the case of each Interest Period of longer than three months "Interest
Payment Date" shall also include each date that is three months, or an
integral multiple thereof, after the commencement of such Interest Period.
"Interest Period" has the meaning assigned to that term in
subsection 2.2B.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other
similar agreement or arrangement to which Company or any of its
Subsidiaries is a party.
"Interest Rate Determination Date" means, with respect to any
Interest Period, the second Business Day prior to the first day of such
Interest Period.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter, and any
successor statute.
"Inventory" means, with respect to any Person as of any date of
determination, all goods, merchandise and other personal property which
are then held by such Person for sale or lease, including raw materials
and work in process.
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"Investment" means (i) any direct or indirect purchase or other
acquisition by Company or any of its Subsidiaries of, or of a beneficial
interest in, any Securities of any other Person (including any Subsidiary
of Company), (ii) any direct or indirect redemption, retirement, purchase
or other acquisition for value, by any Subsidiary of Company from any
Person other than Company or any of its Subsidiaries, of any equity
Securities of such Subsidiary, (iii) any direct or indirect loan, advance
(other than advances to employees for moving, entertainment and travel
expenses, drawing accounts and similar expenditures in the ordinary course
of business) or capital contribution by Company or any of its Subsidiaries
to any other Person, including all indebtedness and accounts receivable
from that other Person that are not current assets or did not arise from
sales to that other Person in the ordinary course of business, or (iv)
Interest Rate Agreements or Currency Agreements not constituting Hedge
Agreements. The amount of any Investment shall be the original cost of
such Investment plus the cost of all additions thereto, without any
adjustments for increases or decreases in value, or write-ups, write-downs
or write-offs with respect to such Investment.
"Issuing Lender" means, with respect to any Letter of Credit, the
Lender which agrees or is otherwise obligated to issue such Letter of
Credit, determined as provided in subsection 3.1B(ii).
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form;
provided that in no event shall any corporate Subsidiary of any Person be
considered to be a Joint Venture to which such Person is a party.
"Landlord Consent and Estoppel" means, with respect to any Leasehold
Property, a letter, certificate or other instrument in writing from the
lessor under the related lease, satisfactory in form and substance to
Collateral Agent, pursuant to which such lessor agrees, for the benefit of
Collateral Agent, (i) to the matters contained in the form of Collateral
Access Agreement applicable to a Leasehold Property, and (ii) to such
other matters relating to such Leasehold Property as Collateral Agent may
reasonably request, including, without limitation that without any further
consent of such lessor or any further action on the part of the Loan Party
holding such Leasehold Property, such Leasehold Property may be encumbered
pursuant to a Mortgage and may be assigned to the purchaser at a
foreclosure sale or in a transfer in lieu of such a sale (and to a
subsequent third party assignee if Collateral Agent, any Lender, or an
Affiliate of either so acquires such Leasehold Property).
"Leasehold Property" means any leasehold interest of any Loan Party
as lessee under any lease of real property, other than any such leasehold
interest designated from time to time by Collateral Agent in its sole
discretion as not being required to be included in the Collateral.
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"Lender" and "Lenders" means the persons identified as "Lenders" and
listed on the signature pages of this Agreement, together with their
successors and permitted assigns pursuant to subsection 10.1; provided
that the term "Lenders", when used in the context of a particular
Commitment, shall mean Lenders having that Commitment.
"Letter of Credit" or "Letters of Credit" means Commercial Letters
of Credit and Standby Letters of Credit issued or to be issued by Issuing
Lenders for the account of Company pursuant to subsection 3.1.
"Letter of Credit Usage" means, as at any date of determination, the
sum of (i) the maximum aggregate amount which is or at any time thereafter
may become available for drawing under all Letters of Credit then
outstanding plus (ii) the aggregate amount of all drawings under Letters
of Credit honored by Issuing Lenders and not theretofore reimbursed by
Company (including any such reimbursement out of the proceeds of Revolving
Loans pursuant to subsection 3.3B). For purposes of this definition, any
amount described in clause (i) or (ii) of the preceding sentence which is
denominated in a currency other than Dollars shall be valued based on the
applicable Exchange Rate for such currency as of the applicable date of
determination.
"Lien" means any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature thereof,
and any agreement to give any security interest) and any option, trust or
other preferential arrangement having the practical effect of any of the
foregoing.
"Loan Documents" means the Revolving Loan Documents and the AXEL
Loan Documents.
"Loan Party" means each of Company and any of Company's Subsidiaries
from time to time executing a Loan Document, and "Loan Parties" means all
such Persons, collectively.
"Management Investors" means the management officers and employees
of Company and its Subsidiaries identified as Management Investors on
Schedule 4.1C annexed hereto.
"Margin Stock" has the meaning assigned to that term in Regulation U
of the Board of Governors of the Federal Reserve System as in effect from
time to time.
"Material Adverse Effect" means (i) a material adverse effect upon
the business, operations, properties, assets, condition (financial or
otherwise) or prospects of Company or any of its Subsidiaries or (ii) the
impairment in any material respect
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of the ability of the Loan Parties, taken as a whole, to perform, or of
Administrative Agent or Lenders to enforce, the Obligations.
"Material Contract" means any contract or other arrangement to which
Company or any of its Subsidiaries is a party (other than the Loan
Documents) for which breach, nonperformance, cancellation or failure to
renew could reasonably be expected to have a Material Adverse Effect.
"Material Domestic Subsidiary" means each Domestic Subsidiary of
Company now existing or hereafter acquired or formed by Company which, on
a consolidated basis for such Subsidiary and its Subsidiaries, (i) for the
most recent Fiscal Year account for more than 5% of the consolidated
revenues of Company and its Subsidiaries or (ii) as at the end of such
Fiscal Year, was the owner of more than 5% of the consolidated assets of
Company and its Subsidiaries.
"Material Leasehold Property" means a Leasehold Property reasonably
determined by Administrative Agent to be of material value as Collateral
or of material importance to the operations of Company or any of its
Subsidiaries; provided, however that, excepting any such Leasehold
Properties set forth on Schedule 4.1I annexed hereto, no Leasehold
Property with respect to which the aggregate amount of all rents payable
during any one Fiscal Year is not expected to exceed $500,000 shall be a
"Material Leasehold Property".
"Merger" means the merger of Newco with and into Company in
accordance with the terms of the Recapitalization Agreement, with Company
being the surviving corporation in such Merger.
"Mortgage" means a security instrument (whether designated as a deed
of trust or a mortgage or by any similar title) executed and delivered by
any Loan Party, substantially in the form of Exhibit XVII annexed hereto
or in such other form as may be approved by Collateral Agent in its sole
discretion, in each case with such changes thereto as may be recommended
by Collateral Agent's local counsel based on local laws or customary local
mortgage or deed of trust practices. "Mortgages" means all such
instruments collectively.
"Mortgaged Property" has the meaning assigned to that term in
subsection 6.9.
"Mortgage Policy" has the meaning assigned to that term in
subsection 6.9.
"Multiemployer Plan" means any Employee Benefit Plan which is a
"multiemployer plan" as defined in Section 3(37) of ERISA.
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"Net Asset Sale Proceeds" means, with respect to any Asset Sale,
Cash payments (including any Cash received by way of deferred payment
pursuant to, or by monetization of, a note receivable or otherwise, but
only as and when so received) received from such Asset Sale, net of any
bona fide direct costs, including, without limitation, all transaction
costs, incurred in connection with such Asset Sale, including (i) income
taxes reasonably estimated to be actually payable within two years of the
date of such Asset Sale as a result of any gain recognized in connection
with such Asset Sale and (ii) payment of the outstanding principal amount
of, premium or penalty, if any, and interest on any Indebtedness
that is secured by a Lien on the stock or assets in question and that is
prior to the Lien securing the Revolving Loans on such stock or assets and
is required to be repaid under the terms thereof as a result of such Asset
Sale.
"Net Insurance/Condemnation Proceeds" means any Cash payments or
proceeds received by Company or any of its Subsidiaries (i) under any
business interruption or casualty insurance policy in respect of a covered
loss thereunder or (ii) as a result of the taking of any assets of Company
or any of its Subsidiaries by any Person pursuant to the power of eminent
domain, condemnation or otherwise, or pursuant to a sale of any such
assets to a purchaser with such power under threat of such a taking, in
each case net of (x) any actual and reasonable documented costs incurred
by Company or any of its Subsidiaries in connection with the adjustment or
settlement of any claims of Company or such Subsidiary in respect thereof
and (y) any amounts required to be applied to the repayment of any
Indebtedness secured by a Lien which is prior to any Liens of the Lenders
on the asset or assets that are subject to the taking, condemnation or
casualty but excluding, however, in each case any payments or proceeds
relating to assets having a value of $500,000 or less in any single
transaction or related series of transactions.
"Newco" has the meaning assigned to that term in the introduction to
this Agreement.
"Newco Common Stock" means the shares of common stock of Newco par
value $0.10 per share to be converted into shares of Company Common Stock
upon consummation of the Merger.
"Non-Consenting Lender" has the meaning assigned to that term in
subsection 2.10.
"Notice of Borrowing" means a notice substantially in the form of
Exhibit I annexed hereto delivered by Company to Administrative Agent
pursuant to subsection 2.1B with respect to a proposed borrowing.
"Notice of Conversion/Continuation" means a notice substantially in
the form of Exhibit II annexed hereto delivered by Company to
Administrative Agent pursuant
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to subsection 2.2D with respect to a proposed conversion or continuation
of the applicable basis for determining the interest rate with respect to
the Revolving Loans specified therein.
"Notice of Issuance of Letter of Credit" means a notice
substantially in the form of Exhibit III annexed hereto delivered by
Company to Administrative Agent pursuant to subsection 3.1B(i) with
respect to the proposed issuance of a Letter of Credit.
"Obligations" means all obligations of every nature of each Loan
Party from time to time owed to Agents, Lenders or their respective
Affiliates or any of them under the Revolving Loan Documents, whether for
principal, interest, reimbursement of amounts drawn under Letters of
Credit, fees, expenses, indemnification or otherwise.
"Officers' Certificate" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its chairman of the
board (if an officer) or its president or one of its vice presidents and
by its chief financial officer or its treasurer; provided that every
Officers' Certificate with respect to the compliance with a condition
precedent to the making of any Revolving Loans hereunder shall include (i)
a statement that the officer or officers making or giving such Officers'
Certificate have read such condition and any definitions or other
provisions contained in this Agreement relating thereto, (ii) a statement
that, in the opinion of the signers, they have made or have caused to be
made such examination or investigation as is necessary to enable them to
express an informed opinion as to whether or not such condition has been
complied with, and (iii) a statement as to whether, in the opinion of the
signers, such condition has been complied with.
"Old Management Shares" means shares of Company Common Stock held by
Management Investors prior to the consummation of the Merger.
"Operating Lease" means, as applied to any Person, any lease
(including leases that may be terminated by the lessee at any time) of any
property (whether real, personal or mixed) that is not a Capital Lease
other than any such lease under which that Person is the lessor.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Internal
Revenue Code or Section 302 of ERISA.
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"Permitted Business Acquisition" has the meaning assigned to that
term in subsection 7.7(vi).
"Permitted Encumbrances" means the following types of Liens
(excluding any such Lien imposed pursuant to Section 401(a)(29) or 412(n)
of the Internal Revenue Code or by ERISA, any such Lien relating to or
imposed in connection with any Environmental Claim, and any such Lien
expressly prohibited by any applicable terms of any of the Collateral
Documents):
(i) Liens for taxes, assessments or governmental charges or
claims the payment of which is not, at the time, required by
subsection 6.3;
(ii) statutory Liens of landlords, statutory Liens of banks
and rights of set-off, statutory Liens of carriers, warehousemen,
mechanics, repairmen, workmen and materialmen, and other Liens
imposed by law, in each case incurred in the ordinary course of
business (a) for amounts not yet overdue or (b) for amounts that are
overdue and that (in the case of any such amounts overdue for a
period in excess of 15 days) are being contested in good faith by
appropriate proceedings, so long as (1) such reserves or other
appropriate provisions, if any, as shall be required by GAAP shall
have been made for any such contested amounts, and (2) in the case
of a Lien with respect to any portion of the Collateral, such
contest proceedings conclusively operate to stay the sale of any
portion of the Collateral on account of such Lien;
(iii) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the
performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money), so
long as no foreclosure, sale or similar proceedings have been
commenced with respect to any portion of the Collateral on account
thereof;
(iv) any attachment or judgment Lien not constituting an Event
of Default under subsection 8.8;
(v) leases or subleases granted to third parties in accordance
with any applicable terms of the Collateral Documents and not
interfering in any material respect with the ordinary conduct of the
business of Company or any of its Subsidiaries or resulting in a
material diminution in the value of any Collateral as security for
the Obligations;
(vi) easements, rights-of-way, covenants, conditions,
restrictions, encroachments, and other defects or irregularities in
title, in each case which
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do not and will not interfere in any material respect with the
ordinary conduct of the business of Company or any of its
Subsidiaries or result in a material diminution in the value of
any Collateral as security for the Obligations;
(vii) any (a) interest or title of a lessor or sublessor under
any lease permitted by subsection 7.9, (b) restriction or
encumbrance that the interest or title of such lessor or sublessor
may be subject to, or (c) subordination of the interest of the
lessee or sublessee under such lease to any restriction or
encumbrance referred to in the preceding clause (b), so long as the
holder of such restriction or encumbrance agrees to recognize the
rights of such lessee or sublessee under such lease;
(viii) Liens arising from filing UCC financing statements
relating solely to leases permitted by this Agreement;
(ix) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection
with the importation of goods;
(x) any zoning or similar law or right reserved to or vested
in any governmental office or agency to control or regulate the use
of any real property;
(xi) Liens securing obligations (other than obligations
representing Indebtedness for borrowed money) under operating,
reciprocal easement or similar agreements entered into in the
ordinary course of business of Company and its Subsidiaries; and
(xii) licenses of patents, trademarks and other intellectual
property rights granted by Company or any of its Subsidiaries in the
ordinary course of business and not interfering in any material
respect with the ordinary conduct of the business of Company or such
Subsidiary.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, Joint Ventures,
associations, companies, trusts, banks, trust companies, land trusts,
business trusts or other organizations, whether or not legal entities, and
governments (whether federal, state or local, domestic or foreign, and
including political subdivisions thereof) and agencies or other
administrative or regulatory bodies thereof.
"Pledged Collateral" means, collectively, the "Pledged Collateral"
as defined in the Company Pledge Agreement and the Subsidiary Pledge
Agreements.
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"Potential Event of Default" means a condition or event that, after
notice or lapse of time or both, would constitute an Event of Default.
"Prime Rate" means the rate that Fleet announces from time to time
as its prime lending rate, as in effect from time to time. The Prime Rate
is a reference rate and does not necessarily represent the lowest or best
rate actually charged to any customer. Fleet or any other Lender may make
commercial loans or other loans at rates of interest at, above or below
the Prime Rate.
"Pro Forma Basis" means, with respect to compliance with the
Consolidated Leverage Test for purposes of subsections 7.1(viii), 7.1(x)
or 7.7(vi), compliance with the Consolidated Leverage Test after giving
effect to acquisitions and incurrence or assumption of any Indebtedness in
connection therewith. For purposes of such calculations any Indebtedness
incurred under subsection 7.1(viii), 7.1(x) or 7.7(vi) or otherwise
incurred or assumed in connection with an acquisition subsequent to the
beginning of the four quarter calculation period, but on or prior to the
date of calculation of the Consolidated Leverage Test, shall be deemed to
have been incurred or assumed at the beginning of such four quarter
calculation period. In addition, for such purposes, acquisitions will be
given pro forma effect as follows:
(i) (A) acquisitions that have been made or are being made by the
Company or any of its Subsidiaries during the four-quarter
reference period or subsequent to such reference period and on
or prior to the calculation date (including through mergers or
consolidations and including any related financing
transactions) shall be deemed to have occurred on the first
day of the four-quarter reference period, and
(B) for purposes of determining the pro forma effects of any
such acquisition, Consolidated Adjusted EBITDA shall be
increased to reflect the annualized amount of any cost savings
expected by the Company to be realized in connection with such
acquisition (from steps to be taken not later than the first
anniversary of such acquisition, and without reduction for any
non-recurring charges expected in connection with such
acquisition), as set forth in an Officers' Certificate signed
by the Company's chief executive and chief financial officers
(which shall be determinative of such matters) which states
(x) the amount of such increase, (y) that such increase is
based on the reasonable beliefs of the officers executing such
Officers' Certificate at the time of such execution (and that
estimates of cost savings from prior acquisitions have been
reevaluated and updated) and (z) that any related incurrence
of Indebtedness is permitted pursuant to this Agreement.
(ii) Consolidated Adjusted EBITDA shall be further increased to
reflect the annualized amount of any cost savings expected by the
Company but not
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yet realized in respect of any acquisition made by the Company
during the four fiscal quarters immediately preceding the
four-quarter calculation period prior to the calculation date, to
the extent such cost savings are (x) expected to result from steps
taken not later than the first anniversary of the relevant
acquisition and (y) determined and certified as set forth in clause
(i) above.
In addition, in calculating the Consolidated Leverage Ratio, discontinued
operations will be given pro forma effect by excluding any Consolidated
Adjusted EBITDA attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of on or prior
to the calculation date.
"Pro Rata Share" means with respect to all payments, computations
and other matters relating to the Revolving Loan Commitment or the
Revolving Loans of any Lender or any Letters of Credit issued or
participations therein purchased by any Lender, the percentage obtained by
dividing (x) the Revolving Loan Exposure of that Lender by (y) the
aggregate Revolving Loan Exposure of all Lenders, in any such case as the
applicable percentage may be adjusted by assignments permitted pursuant to
subsection 10.1.
"Qualified Public Offering" means any sale of capital stock of the
Company to the public pursuant to an offering registered under the
Securities Act of 1933 pursuant to which the Company receives cash
proceeds (net of all fees and expenses (including underwriting discounts
and legal, investment banking and accounting and other professional fees)
and disbursements actually incurred in connection therewith) in an amount
not less than $50,000,000.
"Real Property Asset" means, at any time of determination, any
interest then owned by any Loan Party in any real property.
"Recapitalization Agreement" means that certain Agreement and Plan
of Merger between Company and Newco dated as of August 10, 1997, in the
form delivered to Arranger, Administrative Agent and Lenders prior to
their execution of this Agreement and as such agreement may be amended
from time to time thereafter to the extent permitted under subsection
7.15A.
"Recapitalization Consideration" means payments required under
Article II of the Recapitalization Agreement.
"Recapitalization Documents" means the Recapitalization Agreement
and all other instruments or documents relating to the Recapitalization
Agreement.
"Recapitalization Financing Requirements" means the aggregate of all
amounts necessary (i) to pay the Recapitalization Consideration, (ii) to
refinance all
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Indebtedness outstanding under the Existing Credit Agreements, and (iii)
to pay Transaction Costs.
"Recorded Leasehold Interest" means a Leasehold Property with
respect to which a Record Document (as hereinafter defined) has been
recorded in all places necessary or desirable, in Collateral Agent's
reasonable judgment, to give constructive notice of such Leasehold
Property to third-party purchasers and encumbrancers of the affected real
property. For purposes of this definition, the term "Record Document"
means, with respect to any Leasehold Property, (a) the lease evidencing
such Leasehold Property or a memorandum thereof, executed and acknowledged
by the owner of the affected real property, as lessor, or (b) if such
Leasehold Property was acquired or subleased from the holder of a Recorded
Leasehold Interest, the applicable assignment or sublease document,
executed and acknowledged by such holder, in each case in form sufficient
to give such constructive notice upon recordation and otherwise in form
reasonably satisfactory to Administrative Agent.
"Register" has the meaning assigned to that term in subsection 2.1D.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Reimbursement Date" has the meaning assigned to that term in
subsection 3.3B.
"Related Agreements" means, collectively, the Certificate of Merger,
the Stockholders Agreement, the Voting Agreement, the Employment
Agreements, the Tax Indemnification Agreement, the Recapitalization
Agreement and the Senior Subordinated Note Indenture.
"Related Fund" means, with respect to any Lender that is a fund that
invests in commercial loans, any other fund that invests in commercial
loans and is managed by the same investment advisor as such Lender or by
an Affiliate of such investment advisor.
"Release" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Materials into the indoor or
outdoor environment (including the abandonment or disposal of any barrels,
containers or other closed receptacles containing any Hazardous
Materials), including the movement of any Hazardous Materials through the
air, soil, surface water or groundwater.
"Replacement Lender" has the meaning assigned to that term in
subsection 2.10.
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"Requirement of Law" means, with respect to any Person, (i) the
certificate or articles of incorporation, by-laws and other organizational
or governing documents of such Person, (ii) any law, treaty, rule,
regulation or determination of an arbitrator, court or other governmental
authority binding on such Person or any of its property, or (iii) any
franchise, license, lease, permit, certificate, authorization,
qualification, easement, right of way, or right of approval binding on
such Person or any of its property.
"Required Prepayment Date" has the meaning assigned to that term in
subsection 2.4.
"Requisite Lenders" means Lenders having or holding more than 50% of
the aggregate Revolving Loan Exposure of all Lenders.
"Restricted Junior Payment" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of
stock of Company now or hereafter outstanding, except a dividend payable
solely in shares of that class of stock to the holders of that class, (ii)
any redemption, retirement, sinking fund or similar payment, purchase or
other acquisition for value, direct or indirect, of any shares of any
class of stock of Company now or hereafter outstanding, (iii) any payment
made to retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire shares of any class of stock of Company
now or hereafter outstanding, and (iv) any payment or prepayment of
principal of, premium, if any, or interest on, or redemption, purchase,
retirement, defeasance (including in-substance or legal defeasance),
sinking fund or similar payment with respect to, any Subordinated
Indebtedness.
"Revolving Loan Commitment" means the commitment of a Lender to make
Revolving Loans to Company pursuant to subsection 2.1A, and "Revolving
Loan Commitments" means such commitments of all Lenders in the aggregate.
"Revolving Loan Commitment Termination Date" means December 31,
2002.
"Revolving Loan Documents" means this Agreement, the Revolving
Notes, the Letters of Credit (and any applications for, or reimbursement
agreements or other documents or certificates executed by Company in favor
of an Issuing Lender relating to, the Letters of Credit), the Subsidiary
Guaranty, the Collateral Documents, any Hedging Agreements with Lenders
and the Intercreditor Agreement.
"Revolving Loan Exposure" means, with respect to any Lender as of
any date of determination (i) prior to the termination of the Revolving
Loan Commitments, that Lender's Revolving Loan Commitment and (ii) after
the termination of the Revolving Loan Commitments, the sum of (a) the
aggregate outstanding principal amount of the Revolving Loans of that
Lender plus (b) in the event that Lender is
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an Issuing Lender, the aggregate Letter of Credit Usage in respect of all
Letters of Credit issued by that Lender (in each case net of any
participations purchased by other Lenders in such Letters of Credit or any
unreimbursed drawings thereunder) plus (c) the aggregate amount of all
participations purchased by that Lender in any outstanding Letters of
Credit or any unreimbursed drawings under any Letters of Credit.
"Revolving Loans" means the loans made by Lenders to Company
pursuant to subsection 2.1A.
"Revolving Notes" means (i) the promissory notes of Company issued
pursuant to subsection 2.1E on the Closing Date and (ii) any promissory
notes issued by Company pursuant to the last sentence of subsection
10.1B(i) in connection with assignments of the Revolving Loan Commitments
and Revolving Loans of any Lenders, in each case substantially in the form
of Exhibit V annexed hereto, as they may be amended, supplemented or
otherwise modified from time to time.
"Seasonal/Promotional Accounts" means (i) Accounts relating to sales
of merchandise which Accounts are categorized as seasonal by the Company
consistent with past practices and (ii) Accounts which are categorized as
promotional consistent with past practices of the Company because such
Accounts are with new Account Debtors (including, without limitation, new
stores for existing Account Debtors) or relate to new products.
"Secured Parties" has the meaning assigned to that term in the
introduction to this Agreement.
"Securities" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds,
debentures, notes, or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of
interest, shares or participations in temporary or interim certificates
for the purchase or acquisition of, or any right to subscribe to, purchase
or acquire, any of the foregoing provided that "Securities" shall not
include any earnout agreement or obligation or any employee bonus or other
incentive compensation plan or agreement.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and any successor statute.
"Senior Subordinated Note Indenture" means the indenture pursuant to
which the Senior Subordinated Notes are issued, as such indenture may be
amended from time to time to the extent permitted under subsection 7.15B.
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"Senior Subordinated Notes" means the $110,000,000 in aggregate
principal amount of 9,875% Senior Subordinated Notes due 2007 of Company
issued pursuant to the Senior Subordinated Note Indenture.
"Solvent" means, with respect to any Person, that as of the date of
determination both (A) (i) the then fair saleable value of the property of
such Person is (y) greater than the total amount of liabilities (including
contingent liabilities) of such Person and (z) not less than the amount
that will be required to pay the probable liabilities on such Person's
then existing debts as they become absolute and matured considering all
financing alternatives and potential asset sales reasonably available to
such Person; (ii) such Person's capital is not unreasonably small in
relation to its business or any contemplated or undertaken transaction;
and (iii) such Person does not intend to incur, or believe (nor should it
reasonably believe) that it will incur, debts beyond its ability to pay
such debts as they become due; and (B) such Person is "solvent" within the
meaning given that term and similar terms under applicable laws relating
to fraudulent transfers and conveyances. For purposes of this definition,
the amount of any contingent liability at any time shall be computed as
the amount that, in light of all of the facts and circumstances existing
at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"Standby Letter of Credit" means any standby letter of credit or
similar instrument issued for the purpose of supporting (i) Indebtedness
of Company or any of its Subsidiaries in respect of industrial revenue or
development bonds or financings, (ii) workers' compensation liabilities of
Company or any of its Subsidiaries, (iii) the obligations of third party
insurers of Company or any of its Subsidiaries arising by virtue of the
laws of any jurisdiction requiring third party insurers, (iv) obligations
with respect to Capital Leases or Operating Leases of Company or any of
its Subsidiaries, and (v) performance, payment, deposit or surety
obligations of Company or any of its Subsidiaries, in any case if required
by law or governmental rule or regulation or in accordance with custom and
practice in the industry; provided that Standby Letters of Credit may not
be issued for the purpose of supporting (a) trade payables or (b) any
Indebtedness constituting "antecedent debt" (as that term is used in
Section 547 of the Bankruptcy Code).
"Stockholders Agreement" means the Stockholders Agreement dated as
of December 19, 1997 by and among Company, GSII, the Estate of John A.
Svenningsen and certain other individuals and as such agreement may be
amended from time to time thereafter to the extent permitted under
subsection 7.14A.
"Subordinated Indebtedness" means (i) the Indebtedness of Company
evidenced by the Senior Subordinated Notes and (ii) any other Indebtedness
of Company subordinated in right of payment to the Obligations pursuant to
documentation containing maturities, amortization schedules, covenants,
defaults, remedies,
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subordination provisions and other material terms in form and substance
satisfactory to Administrative Agent and Requisite Lenders.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or
other business entity of which more than 50% of the total voting power of
shares of stock or other ownership interests entitled (without regard to
the occurrence of any contingency) to vote in the election of the Person
or Persons (whether directors, managers, trustees or other Persons
performing similar functions) having the power to direct or cause the
direction of the management and policies thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person or a combination thereof.
"Subsidiary Guarantor" means any Subsidiary of Company that executes
and delivers a counterpart of the Subsidiary Guaranty on the Closing Date
or from time to time thereafter pursuant to subsection 6.8.
"Subsidiary Guaranty" means the Subsidiary Guaranty executed and
delivered by existing Domestic Subsidiaries of Company on the Closing Date
and to be executed and delivered by additional Domestic Subsidiaries of
Company from time to time thereafter in accordance with subsection 6.8,
substantially in the form of Exhibit XIV annexed hereto, as such
Subsidiary Guaranty may hereafter be amended, supplemented or otherwise
modified from time to time.
"Subsidiary Pledge Agreement" means each Subsidiary Pledge Agreement
executed and delivered by an existing Subsidiary Guarantor on the Closing
Date or executed and delivered by any additional Subsidiary Guarantor from
time to time thereafter in accordance with subsection 6.8, in each case
substantially in the form of Exhibit XV annexed hereto, as such Subsidiary
Pledge Agreement may be amended, supplemented or otherwise modified from
time to time, and "Subsidiary Pledge Agreements" means all such Subsidiary
Pledge Agreements, collectively.
"Subsidiary Security Agreement" means each Subsidiary Security
Agreement executed and delivered by an existing Subsidiary Guarantor on
the Closing Date or executed and delivered by any additional Subsidiary
Guarantor from time to time thereafter in accordance with subsection 6.8,
in each case substantially in the form of Exhibit XVI annexed hereto, as
such Subsidiary Security Agreement may be amended, supplemented or
otherwise modified from time to time, and "Subsidiary Security Agreements"
means all such Subsidiary Security Agreements, collectively.
"Supplemental Collateral Agent" has the meaning assigned to that
term in subsection 9.1D.
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"Syndication Agent" has the meaning assigned to that term in the
introduction to this Agreement.
"Tax" or "Taxes" means any present or future tax, levy, impost,
duty, charge, fee, deduction or withholding of any nature and whatever
called, by whomsoever, on whomsoever and wherever imposed, levied,
collected, withheld or assessed; provided that "Tax on the overall net
income" of a Person shall be construed as a reference to a tax imposed by
the jurisdiction in which that Person is organized or in which that
Person's principal office (and/or, in the case of a Lender, its lending
office) is located or in which that Person (and/or, in the case of a
Lender, its lending office) is deemed to be doing business on all or part
of the net income, profits or gains (whether worldwide, or only insofar as
such income, profits or gains are considered to arise in or to relate to a
particular jurisdiction, or otherwise) of that Person (and/or, in the case
of a Lender, its lending office).
"Tax Indemnification Agreement" means the Tax Indemnification
Agreement dated as of August 10, 1997 by and between Company, Christine
Svenningsen and the Estate of John A. Svenningsen and as such agreement
may be amended from time to time thereafter to the extent permitted under
subsection 7.14A.
"Terminated Lender" has the meaning assigned to that term in
subsection 2.10.
"Title Company" means, collectively one or more title insurance
companies that are members of ALTA and are reasonably satisfactory to
Arranger and Administrative Agent.
"Total Utilization of Revolving Loan Commitments" means, as at any
date of determination, the sum of (i) the aggregate principal amount of
all outstanding Revolving Loans (other than Revolving Loans made for the
purpose of reimbursing the applicable Issuing Lender for any amount drawn
under any Letter of Credit but not yet so applied) plus (ii) the Letter of
Credit Usage.
"Transaction Costs" means the fees, costs and expenses payable by
Company in connection with the transactions contemplated by the Loan
Documents and the Related Agreements.
"UCC" means the Uniform Commercial Code (or any similar or
equivalent legislation) as in effect in any applicable jurisdiction.
"Unreinvested Asset Sale Proceeds" means that portion, if any, of
any Net Asset Sale Proceeds that shall not have been reinvested by Company
and its Subsidiaries in the business of Company and its Subsidiaries
within six months after the date of receipt by Company or any of its
Subsidiaries of such Net Asset Sale
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Proceeds or, in the case of Net Asset Sale Proceeds from the sale of the
Chester, New York, Montreal, Quebec or Melbourne, Australia properties,
(i) that portion of Net Asset Sale Proceeds that is not subject to a
binding agreement with a third party to reinvest such Net Asset Sale
Proceeds entered into within six months after the date of receipt of such
Net Asset Sale Proceeds or (ii) if subject to such a binding agreement,
that portion of such Net Asset Sale Proceeds that shall not have been
reinvested within nine months of such binding agreement, such reinvestment
to be evidenced by an Officers' Certificate, satisfactory in form and
substance to Administrative Agent, delivered by Company to Administrative
Agent prior to the expiration of such six-month period and demonstrating
in reasonable detail the reinvestment of such Net Asset Sale Proceeds as
aforesaid.
"Voting Agreement" means the Voting Agreement dated as of August 10,
1997 by and between Newco and the Estate of John A. Svenningsen and
Christine Svenningsen and as such agreement may be amended from time to
time thereafter to the extent permitted under subsection 7.14A.
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under
Agreement.
Except as otherwise expressly provided in this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to them in
conformity with GAAP. Financial statements and other information required to be
delivered by Company to Lenders pursuant to clauses (i), (ii), (iii) and (xiii)
of subsection 6.1 shall be prepared in accordance with GAAP as in effect at the
time of such preparation (and delivered together with the reconciliation
statements provided for in subsection 6.1(v)). Calculations in connection with
the definitions, covenants and other provisions of this Agreement shall utilize
accounting principles and policies in conformity with those used to prepare the
financial statements referred to in subsection 5.3.
1.3 Other Definitional Provisions and Rules of Construction.
A. Any of the terms defined herein may, unless the context otherwise
requires, be used in the singular or the plural, depending on the reference.
B. References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided.
C. The use herein of the word "include" or "including", when following any
general statement, term or matter, shall not be construed to limit such
statement, term or matter to the specific items or matters set forth immediately
following such word or to similar items or matters, whether or not nonlimiting
language (such as "without limitation" or "but not limited to" or words of
similar import) is used with reference thereto, but rather
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shall be deemed to refer to all other items or matters that fall within the
broadest possible scope of such general statement, term or matter.
SECTION 2.
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 Commitments; Making of Loans; the Register; Notes.
A. Commitments. Subject to the terms and conditions of this Agreement and
in reliance upon the representations and warranties of Company herein set forth,
each Lender hereby severally agrees, subject to the limitations set forth below
with respect to the maximum amount of Revolving Loans permitted to be
outstanding from time to time, to lend to Company from time to time during the
period from the Closing Date to but excluding the Revolving Loan Commitment
Termination Date an aggregate amount not exceeding its Pro Rata Share of the
aggregate amount of the Revolving Loan Commitments to be used for the purposes
identified in subsection 2.5A. The original amount of each Lender's Revolving
Loan Commitment is set forth opposite its name on Schedule 2.1 annexed hereto
and the aggregate original amount of the Revolving Loan Commitments is
$50,000,000; provided that the Revolving Loan Commitments of Lenders shall be
adjusted to give effect to any assignments of the Revolving Loan Commitments
pursuant to subsection 10.1B; and provided, further that the amount of the
Revolving Loan Commitments shall be reduced from time to time by the amount of
any reductions thereto made pursuant to subsections 2.4A(ii) and 2.4A(iii). Each
Lender's Revolving Loan Commitment shall expire on the Revolving Loan Commitment
Termination Date and all Revolving Loans and all other amounts owed hereunder
with respect to the Revolving Loans and the Revolving Loan Commitments shall be
paid in full no later than that date; provided that each Lender's Revolving Loan
Commitment shall expire immediately and without further action on January 31,
1998 if the AXELs are not funded on or before that date. Amounts borrowed under
this subsection 2.1A may be repaid and reborrowed to but excluding the Revolving
Loan Commitment Termination Date.
Anything contained in this Agreement to the contrary notwithstanding, the
Revolving Loans and the Revolving Loan Commitments shall be subject to the
following limitations in the amounts and during the periods indicated:
(i) in no event shall the Total Utilization of Revolving Loan
Commitments at any time exceed either (a) the Revolving Loan Commitments
then in effect or (b) the sum of the Borrowing Base then in effect plus
all amounts spent through such date on Permitted Business Acquisitions
(other than amounts funded through equity issuances or indebtedness other
than Revolving Loans); and
(ii) for 30 consecutive days during each consecutive twelve-month
period, the aggregate outstanding principal amount of all Revolving Loans
shall not exceed
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$10,000,000 plus all amounts spent on Permitted Business Acquisitions
(other than amounts funded through equity issuances or indebtedness other
than Revolving Loans).
B. Borrowing Mechanics. Revolving Loans made on any Funding Date (other
than Revolving Loans made pursuant to subsection 3.3B for the purpose of
reimbursing any Issuing Lender for the amount of a drawing under a Letter of
Credit issued by it) shall be in an aggregate minimum amount of (x) $1,000,000
and integral multiples of $100,000 in excess of that amount in the case of
Eurodollar Rate Loans and (y) $100,000 and integral multiples of $100,000 in
excess of that amount in the case of Base Rate Loans. Whenever Company desires
that Lenders make Revolving Loans it shall deliver to Administrative Agent a
Notice of Borrowing no later than 10:00 A.M. (New York City time) at least three
Business Days in advance of the proposed Funding Date (in the case of a
Eurodollar Rate Loan) or at least one Business Day in advance of the proposed
Funding Date (in the case of a Base Rate Loan). The Notice of Borrowing shall
specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the
amount requested, (iii) whether such Revolving Loans shall be Base Rate Loans or
Eurodollar Rate Loans, (iv) in the case of any Revolving Loans requested to be
made as Eurodollar Rate Loans, the initial Interest Period requested therefor
and (v) that, after giving effect to the requested Revolving Loans, the Total
Utilization of Revolving Loan Commitments will not exceed the Revolving Loan
Commitment then in effect or the sum of the Borrowing Base then in effect and
amounts spent on Permitted Business Acquisitions (other than amounts funded
through equity issuances or indebtedness other than Revolving Loans). Revolving
Loans may be continued as or converted into Base Rate Loans and Eurodollar Rate
Loans in the manner provided in subsection 2.2D. In lieu of delivering the
above-described Notice of Borrowing, Company may give Administrative Agent
telephonic notice by the required time of any proposed borrowing under this
subsection 2.1B; provided that such notice shall be promptly confirmed in
writing by delivery of a Notice of Borrowing to Administrative Agent on or
before the applicable Funding Date.
Neither Administrative Agent nor any Lender shall incur any liability to
Company in acting upon any telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow on behalf of Company or
for otherwise acting in good faith under this subsection 2.1B, and upon funding
of Revolving Loans by Lenders in accordance with this Agreement pursuant to any
such telephonic notice Company shall have effected Revolving Loans hereunder.
Company shall notify Administrative Agent prior to the funding of any
Revolving Loans in the event that any of the matters to which Company is
required to certify in the applicable Notice of Borrowing is no longer true and
correct as of the applicable Funding Date, and the acceptance by Company of the
proceeds of any Revolving Loans shall constitute a re-certification by Company,
as of the applicable Funding Date, as to the matters to which Company is
required to certify in the applicable Notice of Borrowing.
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Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice
of Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu thereof)
shall be irrevocable on and after the related Interest Rate Determination Date,
and Company shall be bound to make a borrowing in accordance therewith.
C. Disbursement of Funds. All Revolving Loans under this Agreement shall
be made by Lenders simultaneously and proportionately to their respective Pro
Rata Shares, it being understood that no Lender shall be responsible for any
default by any other Lender in that other Lender's obligation to make a
Revolving Loan requested hereunder nor shall the Revolving Loan Commitment of
any Lender be increased or decreased as a result of a default by any other
Lender in that other Lender's obligation to make a Revolving Loan requested
hereunder. Promptly after receipt by Administrative Agent of a Notice of
Borrowing pursuant to subsection 2.1B (or telephonic notice in lieu thereof),
Administrative Agent shall notify each Lender of the proposed borrowing. Each
Lender shall make the amount of its Revolving Loan available to Administrative
Agent not later than 12:00 Noon (New York City time) on the applicable Funding
Date, in same day funds in Dollars, at the Funding and Payment Office. Except as
provided in subsection 3.3B with respect to Revolving Loans used to reimburse
any Issuing Lender for the amount of a drawing under a Letter of Credit issued
by it, upon satisfaction or waiver of the conditions precedent specified in
subsections 4.1 (in the case of Revolving Loans made on the Closing Date) and
4.2 (in the case of all Revolving Loans), Administrative Agent shall make the
proceeds of such Revolving Loans available to Company on the applicable Funding
Date by causing an amount of same day funds in Dollars equal to the proceeds of
all such Revolving Loans received by Administrative Agent from Lenders to be
credited to the account of Company at the Funding and Payment Office.
Unless Administrative Agent shall have been notified by any Lender prior
to the Funding Date for any Revolving Loans that such Lender does not intend to
make available to Administrative Agent the amount of such Lender's Revolving
Loan requested on such Funding Date, Administrative Agent may assume that such
Lender has made such amount available to Administrative Agent on such Funding
Date and Administrative Agent may, in its sole discretion, but shall not be
obligated to, make available to Company a corresponding amount on such Funding
Date. If such corresponding amount is not in fact made available to
Administrative Agent by such Lender, Administrative Agent shall be entitled to
recover such corresponding amount on demand from such Lender together with
interest thereon, for each day from such Funding Date until the date such amount
is paid to Administrative Agent, at the customary rate set by Administrative
Agent for the correction of errors among banks for three Business Days and
thereafter at the Base Rate. If such Lender does not pay such corresponding
amount forthwith upon Administrative Agent's demand therefor, Administrative
Agent shall promptly notify Company and Company shall immediately pay such
corresponding amount to Administrative Agent together with interest thereon, for
each day from such Funding Date until the date such amount is paid to
Administrative Agent, at the rate payable under this Agreement for Base Rate
Loans. Nothing in this subsection 2.1C shall be deemed to relieve any Lender
from its obligation to fulfill its Revolving Loan
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Commitments hereunder or to prejudice any rights that Company may have against
any Lender as a result of any default by such Lender hereunder.
D. The Register.
(i) Administrative Agent shall maintain, at its address referred to
in subsection 10.8, a register for the recordation of the names and
addresses of Lenders and the Revolving Loan Commitments and Revolving
Loans of each Lender from time to time (the "Register"). The Register
shall be available for inspection by Company or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(ii) Administrative Agent shall record in the Register the Revolving
Loan Commitment and the Revolving Loans from time to time of each Lender
and each repayment or prepayment in respect of the principal amount of the
Revolving Loans of each Lender. Any such recordation shall be conclusive
and binding on Company and each Lender, absent manifest error; provided
that failure to make any such recordation, or any error in such
recordation, shall not affect any Lender's Revolving Loan Commitments or
Company's Obligations in respect of any applicable Revolving Loans.
(iii) Each Lender shall record on its internal records (including
the Notes held by such Lender) the amount of each Revolving Loan made by
it and each payment in respect thereof. Any such recordation shall be
conclusive and binding on Company, absent manifest error; provided that
failure to make any such recordation, or any error in such recordation,
shall not affect any Lender's Revolving Loan Commitments or Company's
Obligations in respect of any applicable Revolving Loans; and provided,
further that in the event of any inconsistency between the Register and
any Lender's records, the recordations in the Register shall govern.
(iv) Company, Administrative Agent and Lenders shall deem and treat
the Persons listed as Lenders in the Register as the holders and owners of
the corresponding Revolving Loan Commitments and Revolving Loans listed
therein for all purposes hereof, and no assignment or transfer of any such
Revolving Loan Commitment or Revolving Loan shall be effective, in each
case unless and until an Assignment Agreement effecting the assignment or
transfer thereof shall have been accepted by Administrative Agent and
recorded in the Register as provided in subsection 10.1B(ii). Prior to
such recordation, all amounts owed with respect to the applicable
Revolving Loan Commitment or Revolving Loan shall be owed to the Lender
listed in the Register as the owner thereof, and any request, authority or
consent of any Person who, at the time of making such request or giving
such authority or consent, is listed in the Register as a Lender shall be
conclusive and binding on any subsequent holder, assignee or transferee of
the corresponding Revolving Loan Commitments or Revolving Loans.
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(v) Company hereby designates Fleet to serve as Company's agent
solely for purposes of maintaining the Register as provided in this
subsection 2.1D, and Company hereby agrees that, to the extent Fleet
serves in such capacity, Fleet and its officers, directors, employees,
agents and affiliates shall constitute Indemnitees for all purposes under
subsection 10.3.
E. Notes. Company shall execute and deliver on the Closing Date to each
Lender (or to Administrative Agent for that Lender) a Revolving Note
substantially in the form of Exhibit V annexed hereto to evidence that Lender's
Revolving Loans, in the principal amount of that Lender's Revolving Loan
Commitment and with other appropriate insertions.
2.2 Interest on the Revolving Loans.
A. Rate of Interest. Subject to the provisions of subsections 2.6 and 2.7,
each Revolving Loan shall bear interest on the unpaid principal amount thereof
from the date made through maturity (whether by acceleration or otherwise) at a
rate determined by reference to the Base Rate or the Adjusted Eurodollar Rate.
The applicable basis for determining the rate of interest with respect to any
Revolving Loan shall be selected by Company initially at the time a Notice of
Borrowing is given with respect to such Revolving Loan pursuant to subsection
2.1B. The basis for determining the interest rate with respect to any Revolving
Loan may be changed from time to time pursuant to subsection 2.2D. If on any day
a Revolving Loan is outstanding with respect to which notice has not been
delivered to Administrative Agent in accordance with the terms of this Agreement
specifying the applicable basis for determining the rate of interest, then for
that day that Revolving Loan shall bear interest determined by reference to the
Base Rate. Subject to the provisions of subsections 2.2E and 2.7, the Revolving
Loans shall bear interest through maturity as follows:
(i) if a Base Rate Loan, then at the sum of the Base Rate plus the
Applicable Revolving Base Rate Margin then in effect; or
(ii) if a Eurodollar Rate Loan, then at the sum of the Adjusted
Eurodollar Rate plus the Applicable Revolving Eurodollar Rate Margin then
in effect.
B. Interest Periods. In connection with each Eurodollar Rate Loan, Company
may, pursuant to the applicable Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be, select an interest period (each an
"Interest Period") to be applicable to such Revolving Loan, which Interest
Period shall be, at Company's option, either a one-, two-, three-or six-month
period; provided that:
(i) the initial Interest Period for any Eurodollar Rate Loan shall
commence on the Funding Date in respect of such Revolving Loan, in the
case of a Revolving Loan initially made as a Eurodollar Rate Loan, or on
the date specified
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in the applicable Notice of Conversion/Continuation, in the case of a
Revolving Loan converted to a Eurodollar Rate Loan;
(ii) in the case of immediately successive Interest Periods
applicable to a Eurodollar Rate Loan continued as such pursuant to a
Notice of Conversion/Continuation, each successive Interest Period shall
commence on the day on which the next preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided that, if any Interest Period would
otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iv) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (v) of this subsection 2.2B, end on the
last Business Day of a calendar month;
(v) no Interest Period with respect to any portion of the Revolving
Loans shall extend beyond the Revolving Loan Commitment Termination Date;
(vi) there shall be no more than seven (7) Interest Periods
outstanding at any time under this Agreement and the AXEL Credit
Agreement; and
(vii) in the event Company fails to specify an Interest Period for
any Eurodollar Rate Loan in the applicable Notice of Borrowing or Notice
of Conversion/Continuation, Company shall be deemed to have selected an
Interest Period of one month.
C. Interest Payments. Subject to the provisions of subsection 2.2E,
interest on each Revolving Loan shall be payable in arrears on and to each
Interest Payment Date applicable to that Revolving Loan, upon any prepayment of
that Revolving Loan (to the extent accrued on the amount being prepaid) and at
maturity (including final maturity); provided that in the event any Revolving
Loans that are Base Rate Loans are prepaid pursuant to subsection 2.4A(i),
interest accrued on such Revolving Loans through the date of such prepayment
shall be payable on the next succeeding Interest Payment Date applicable to Base
Rate Loans (or, if earlier, at final maturity).
D. Conversion or Continuation. Subject to the provisions of subsection
2.6, Company shall have the option (i) to convert at any time all or any part of
its outstanding Revolving Loans equal to $1,000,000 and integral multiples of
$100,000 in excess of that amount from Base Rate Loans to Eurodollar Rate Loans
or (ii) to convert at any time all or any part of its outstanding Revolving
Loans equal to $100,000 and integral multiples of
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$100,000 in excess of that amount from Eurodollar Rate Loans to Base Rate Loans
upon the expiration of any Interest Period applicable to a Eurodollar Rate Loan,
to continue all or any portion of such Revolving Loan equal to $1,000,000 and
integral multiples of $100,000 in excess of that amount as a Eurodollar Rate
Loan; provided, however, that a Eurodollar Rate Loan may only be converted into
a Base Rate Loan on the expiration date of an Interest Period applicable
thereto.
Company shall deliver a Notice of Conversion/Continuation to
Administrative Agent no later than 10:00 A.M. (New York City time) at least one
Business Day in advance of the proposed conversion date (in the case of a
conversion to a Base Rate Loan) and at least three Business Days in advance of
the proposed conversion/continuation date (in the case of a conversion to, or a
continuation of, a Eurodollar Rate Loan). A Notice of Conversion/Continuation
shall specify (i) the proposed conversion/continuation date (which shall be a
Business Day), (ii) the amount to be converted/continued, (iii) the nature of
the proposed conversion/continuation, (iv) in the case of a conversion to, or a
continuation of, a Eurodollar Rate Loan, the requested Interest Period, and (v)
in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan,
that no Potential Event of Default or Event of Default has occurred and is
continuing. In lieu of delivering the above-described Notice of
Conversion/Continuation, Company may give Administrative Agent telephonic notice
by the required time of any proposed conversion/continuation under this
subsection 2.2D; provided that such notice shall be promptly confirmed in
writing by delivery of a Notice of Conversion/Continuation to Administrative
Agent on or before the proposed conversion/continuation date. Upon receipt of
written or telephonic notice of any proposed conversion/continuation under this
subsection 2.2D, Administrative Agent shall promptly transmit such notice by
telefacsimile or telephone to each Lender.
Neither Administrative Agent nor any Lender shall incur any liability to
Company in acting upon any telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to act on behalf of Company or for
otherwise acting in good faith under this subsection 2.2D, and upon conversion
or continuation of the applicable basis for determining the interest rate with
respect to any Revolving Loans in accordance with this Agreement pursuant to any
such telephonic notice Company shall have effected a conversion or continuation,
as the case may be, hereunder.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice
of Conversion/Continuation for conversion to, or continuation of, a Eurodollar
Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and
after the related Interest Rate Determination Date, and Company shall be bound
to effect a conversion or continuation in accordance therewith.
E. Default Rate. Upon the occurrence and during the continuation of any
Event of Default, the outstanding principal amount of all Revolving Loans and,
to the extent permitted by applicable law, any interest payments thereon not
paid when due and any fees
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and other amounts then due and payable hereunder, shall thereafter bear interest
(including post-petition interest in any proceeding under the Bankruptcy Code or
other applicable bankruptcy laws) payable upon demand at a rate that is 2% per
annum in excess of the interest rate otherwise payable under this Agreement with
respect to the applicable Revolving Loans (or, in the case of any such fees and
other amounts, at a rate which is 2% per annum in excess of the interest rate
otherwise payable under this Agreement for Base Rate Loans); provided that, in
the case of Eurodollar Rate Loans, upon the expiration of the Interest Period in
effect at the time any such increase in interest rate is effective such
Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall
thereafter bear interest payable upon demand at a rate which is 2% per annum in
excess of the interest rate otherwise payable under this Agreement for Base Rate
Loans. Payment or acceptance of the increased rates of interest provided for in
this subsection 2.2E is not a permitted alternative to timely payment and shall
not constitute a waiver of any Event of Default or otherwise prejudice or limit
any rights or remedies of Administrative Agent or any Lender.
F. Computation of Interest. Interest on the Revolving Loans shall be
computed on the basis of a 360-day year, in each case for the actual number of
days elapsed in the period during which it accrues. In computing interest on any
Revolving Loan, the date of the making of such Revolving Loan or the first day
of an Interest Period applicable to such Revolving Loan or, with respect to a
Base Rate Loan being converted from a Eurodollar Rate Loan, the date of
conversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case may
be, shall be included, and the date of payment of such Revolving Loan or the
expiration date of an Interest Period applicable to such Revolving Loan or, with
respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the date
of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the case
may be, shall be excluded; provided that if a Revolving Loan is repaid on the
same day on which it is made, one day's interest shall be paid on that Revolving
Loan.
2.3 Fees.
A. Commitment Fees. Company agrees to pay to Administrative Agent, for
distribution to each Lender in proportion to that Lender's Pro Rata Share,
commitment fees for the period from and including the Closing Date to and
excluding the Revolving Loan Commitment Termination Date equal to the average of
the daily excess of the Revolving Loan Commitments over the sum of (i) the
aggregate principal amount of outstanding Revolving Loans plus (ii) the Letter
of Credit Usage multiplied by the Applicable Commitment Fee Percentage such
commitment fees to be calculated on the basis of a 360-day year and the actual
number of days elapsed and to be payable quarterly in arrears on March 15, June
15, September 15 and December 15 of each year, commencing on the first such date
to occur after the Closing Date, and on the Revolving Loan Commitment
Termination Date.
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B. Other Fees. Company agrees to pay to Arranger and Administrative Agent
such other fees in the amounts and at the times separately agreed upon between
Company, Arranger and Administrative Agent.
2.4 Prepayments and Reductions in Revolving Loan Commitments; General
Provisions Regarding Payments; Application of Proceeds of Collateral and
Payments Under Subsidiary Guaranty.
A. Prepayments and Unscheduled Reductions in Revolving Loan
Commitments.
(i) Voluntary Prepayments. Company may, upon not less than one
Business Day's prior written or telephonic notice, in the case of Base
Rate Loans, and three Business Days' prior written or telephonic notice,
in the case of Eurodollar Rate Loans, in each case given to Administrative
Agent by 12:00 Noon (New York City time) on the date required and, if
given by telephone, promptly confirmed in writing to Administrative Agent
(which original written or telephonic notice Administrative Agent will
promptly transmit by telefacsimile or telephone to each Lender), at any
time and from time to time prepay any Revolving Loans on any Business Day
in whole or in part in an aggregate minimum amount of $1,000,000 and
integral multiples of $500,000 in excess of that amount. Notice of
prepayment having been given as aforesaid, the principal amount of the
Revolving Loans specified in such notice shall become due and payable on
the prepayment date specified therein. Any such voluntary prepayment shall
be applied as specified in subsection 2.4A(iv).
(ii) Voluntary Reductions of Revolving Loan Commitments. Company
may, upon not less than three Business Days' prior written or telephonic
notice confirmed in writing to Administrative Agent (which original
written or telephonic notice Administrative Agent will promptly transmit
by telefacsimile or telephone to each Lender), at any time and from time
to time terminate in whole or permanently reduce in part, without premium
or penalty, the Revolving Loan Commitments in an amount up to the amount
by which the Revolving Loan Commitments exceed the Total Utilization of
Revolving Loan Commitments at the time of such proposed termination or
reduction; provided that any such partial reduction of the Revolving Loan
Commitments shall be in an aggregate minimum amount of $1,000,000 and
integral multiples of $500,000 in excess of that amount. Company's notice
to Administrative Agent shall designate the date (which shall be a
Business Day) of such termination or reduction and the amount of any
partial reduction, and such termination or reduction of the Revolving Loan
Commitments shall be effective on the date specified in Company's notice
and shall reduce the Revolving Loan Commitment of each Lender
proportionately to its Pro Rata Share. Any such voluntary reduction of the
Revolving Loan Commitments shall be applied as specified in subsection
2.4A(iv).
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(iii) Mandatory Prepayments and Mandatory Reductions of Revolving
Loan Commitments. The AXELs under the AXEL Credit Agreement and the
Revolving Loans shall be prepaid and/or the Revolving Loan Commitments
shall be permanently reduced in the amounts and under the circumstances
set forth below, all such prepayments and/or reductions to be applied as
set forth below or as more specifically provided in subsection 2.4A(iv):
(a) Prepayments and Reductions From Unreinvested Asset Sale
Proceeds. No later than the first Business Day following the date on
which any Net Asset Sale Proceeds become Unreinvested Asset Sale
Proceeds, Company shall prepay the AXELs under the AXEL Credit
Agreement and the Revolving Loans and/or the Revolving Loan
Commitments shall be permanently reduced in an aggregate amount
equal to such Unreinvested Asset Sale Proceeds; provided, further
that, with respect to an Asset Sale of any asset owned by a Foreign
Subsidiary, the Unreinvested Asset Sale Proceeds in respect thereof
shall be applied (i) first, to the extent such Unreinvested Net
Asset Sale Proceeds may be repatriated to the United States without
in the reasonable judgment of the Company resulting in a material
tax liability to Company in relation to the amount of proceeds to be
repatriated, to prepay the AXELs under the AXEL Credit Agreement and
the Revolving Loans and/or permanently reduce the Revolving Loan
Commitments as set forth above in this subsection 2.4A(iii)(a), (ii)
second, to the extent of any remaining portion of such Unreinvested
Asset Sale Proceeds, to finance the general corporate purposes of
such Foreign Subsidiary so long as the aggregate of all such amounts
so applied by all Foreign Subsidiaries with respect to Asset Sales
consummated after the Closing Date does not exceed $5,000,000, and
(iii) third, to the extent of any remaining portion of such
Unreinvested Asset Sale Proceeds, to prepay the AXELs under the AXEL
Credit Agreement and the Revolving Loans and/or reduce the Revolving
Loan Commitments as set forth above in this subsection 2.4A(iii)(a).
Concurrently with any determination by Company that any portion of
any Unreinvested Asset Sale Proceeds of any Foreign Subsidiary will
be applied as described in clause (ii) of the immediately preceding
proviso, Company shall deliver to Agent an Officers' Certificate (w)
certifying that such Unreinvested Asset Sale Proceeds cannot be
repatriated to the United States without resulting in a material tax
liability to Company and the reasons therefor, (y) specifying the
amount of Unreinvested Asset Sale Proceeds to be retained by such
Foreign Subsidiary as described in said clause (ii) and the
cumulative aggregate amount of all such Unreinvested Asset Sale
Proceeds so retained by all Foreign Subsidiaries since the date of
this Agreement and (z) demonstrating the derivation of the
Unreinvested Asset Sale Proceeds of the correlative Asset Sale from
the gross sales price thereof.
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(b) Prepayments and Reductions from Net Insurance/Condemnation
Proceeds. No later than the first Business Day following the date of
receipt by Administrative Agent or by Company or any of its
Subsidiaries of any Net Insurance/Condemnation Proceeds that are
required to be applied to prepay the AXELs under the AXEL Credit
Agreement and the Revolving Loans and/or reduce the Revolving Loan
Commitments pursuant to the provisions of subsection 6.4C or the
Intercreditor Agreement, Company shall prepay the AXELs under the
AXEL Credit Agreement and the Revolving Loans and/or the Revolving
Loan Commitments shall be permanently reduced in an aggregate amount
equal to the amount of such Net Insurance/Condemnation Proceeds.
(c) Prepayments and Reductions Due to Issuance of Debt or
Equity Securities. On the date of receipt by Company or any of its
Subsidiaries of the Cash proceeds (any such proceeds, net of
underwriting discounts and commissions and other reasonable costs
and expenses associated therewith, including reasonable legal fees
and expenses, being "Net Securities Proceeds") from the issuance of
any debt (other than debt permitted by Section 7.1) or equity
Securities of Company or any of its Subsidiaries to any Person other
than Company or any of its Subsidiaries (and excluding any private
issuances of Company Common Stock after the Closing Date to the
extent such funds would not be required to prepay any other
Indebtedness of the Company and its Subsidiaries) after the Closing
Date, Company shall prepay the AXELs under the AXEL Credit Agreement
and the Revolving Loans and/or the Revolving Loan Commitments shall
be permanently reduced in an aggregate amount equal to such Net
Securities Proceeds.
(d) Prepayments and Reductions from Consolidated Excess Cash
Flow. In the event that there shall be Consolidated Excess Cash Flow
for any Fiscal Year (commencing with Fiscal Year 1998), Company
shall, no later than 90 days after the end of such Fiscal Year,
prepay the AXELs under the AXEL Credit Agreement and the Revolving
Loans and/or the Revolving Loan Commitments shall be permanently
reduced in an aggregate amount equal to 75% of such Consolidated
Excess Cash Flow; provided that for any Fiscal Year in which the
Consolidated Leverage Ratio as of the end of any such Fiscal Year is
less than 3.75:1, such percentage of Consolidated Excess Cash Flow
applied to prepay the AXELs under the AXEL Credit Agreement or
reduce Revolving Loan Commitments shall be reduced to 50%.
(e) Calculations of Net Proceeds Amounts; Additional
Prepayments and Reductions Based on Subsequent Calculations.
Concurrently with any prepayment of the AXELs under the AXEL Credit
Agreement and the Revolving Loans and/or reduction of the Revolving
Loan Commitments pursuant to subsections 2.4A(iii)(a)-(d), Company
shall deliver to Administra-
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tive Agent an Officers' Certificate demonstrating the calculation of
the amount (the "Net Proceeds Amount") of the applicable
Unreinvested Asset Sale Proceeds or Net Insurance/Condemnation
Proceeds, the applicable Net Securities Proceeds (as such term is
defined in subsection 2.4A(iii)(c)) or the applicable Consolidated
Excess Cash Flow, as the case may be, that gave rise to such
prepayment and/or reduction. In the event that Company shall
subsequently determine that the actual Net Proceeds Amount was
greater than the amount set forth in such Officers' Certificate,
Company shall promptly make an additional prepayment of the AXELs
under the AXEL Credit Agreement and the Revolving Loans (and/or, if
applicable, the Revolving Loan Commitments shall be permanently
reduced) in an amount equal to the amount of such excess, and
Company shall concurrently therewith deliver to Administrative Agent
an Officers' Certificate demonstrating the derivation of the
additional Net Proceeds Amount resulting in such excess.
(f) Prepayments Due to Reductions or Restrictions of Revolving
Loan Commitments or Due to Insufficient Borrowing Base. Company
shall from time to time prepay the Revolving Loans to the extent
necessary to give effect to the limitations set forth in clauses (i)
and (ii) of the second paragraph of subsection 2.1A.
(iv) Application of Prepayments.
(a) Application of Voluntary Prepayments by Type of Loans and
Order of Maturity. Any voluntary prepayments pursuant to subsection
2.4A(i) shall be applied as specified by Company in the applicable
notice of prepayment.
(b) Application of Mandatory Prepayments by Type of Loans. Any
amount (the "Applied Amount") required to be applied as a mandatory
prepayment of the AXELs under the AXEL Credit Agreement or the
Revolving Loans and/or a reduction of the Revolving Loan Commitments
pursuant to subsections 2.4A(iii)(a)-(e) shall be applied first to
prepay the AXELs under the AXEL Credit Agreement to the full extent
thereof, second, to the extent of any remaining portion of the
Applied Amount, to prepay the Revolving Loans to the full extent
thereof and to further permanently reduce the Revolving Loan
Commitments by the amount of such prepayment, and third, to the
extent of any remaining portion of the Applied Amount, to further
permanently reduce the Revolving Loan Commitments to the full extent
thereof and to cash collateralize any Letters of Credit outstanding
(with any such amounts held in the Collateral Accounts pursuant to
the Intercreditor Agreement). Any prepayments of the Revolving Loans
under subsection 2.4A(iii)(f) shall be applied to reduce the
Revolving Loans.
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(c) Application of Prepayments to Base Rate Loans and
Eurodollar Rate Loans. Considering Revolving Loans being prepaid,
any prepayment thereof shall be applied first to Base Rate Loans, to
the full extent thereof before application to Eurodollar Rate Loans,
in a manner which minimizes the amount of any payments required to
be made by Company pursuant to subsection 2.6D.
B. General Provisions Regarding Payments.
(i) Manner and Time of Payment. All payments by Company of
principal, interest, fees and other Obligations hereunder and under the
Revolving Notes shall be made in Dollars in same day funds, without
defense, setoff or counterclaim, free of any restriction or condition, and
delivered to Administrative Agent not later than 12:00 Noon (New York City
time) on the date due at the Funding and Payment Office for the account of
Lenders; funds received by Administrative Agent after that time on such
due date shall be deemed to have been paid by Company on the next
succeeding Business Day. Company hereby authorizes Administrative Agent to
charge its accounts with Administrative Agent in order to cause timely
payment to be made to Administrative Agent of all principal, interest,
fees and expenses due hereunder (subject to sufficient funds being
available in its accounts for that purpose).
(ii) Application of Payments to Principal and Interest. Except as
provided in subsection 2.2C, all payments in respect of the principal
amount of any Revolving Loan shall include payment of accrued interest on
the principal amount being repaid or prepaid, and all such payments (and,
in any event, any payments in respect of any Revolving Loan on a date when
interest is due and payable with respect to such Loan) shall be applied to
the payment of interest before application to principal.
(iii) Apportionment of Payments. Aggregate principal and interest
payments shall be apportioned among all outstanding Revolving Loans to
which such payments relate, in each case proportionately to Lenders'
respective Pro Rata Shares. Administrative Agent shall promptly distribute
to each Lender, at its primary address set forth below its name on the
appropriate signature page hereof or at such other address as such Lender
may request, its Pro Rata Share of all such payments received by
Administrative Agent and the commitment fees of such Lender when received
by Administrative Agent pursuant to subsection 2.3. Notwithstanding the
foregoing provisions of this subsection 2.4C(iii), if, pursuant to the
provisions of subsection 2.6B, any Notice of Conversion/Continuation is
withdrawn as to any Affected Lender or if any Affected Lender makes Base
Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans,
Administrative Agent shall give effect thereto in apportioning payments
received thereafter.
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(iv) Payments on Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day,
such payment shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the payment of
interest hereunder or of the commitment fees hereunder, as the case may
be.
(v) Notation of Payment. Each Lender agrees that before disposing of
any Note held by it, or any part thereof (other than by granting
participations therein), that Lender will make a notation thereon of all
Revolving Loans evidenced by that Revolving Note and all principal
payments previously made thereon and of the date to which interest thereon
has been paid; provided that the failure to make (or any error in the
making of) a notation of any Revolving Loan made under such Revolving Note
shall not limit or otherwise affect the obligations of Company hereunder
or under such Revolving Note with respect to any Revolving Loan or any
payments of principal or interest on such Revolving Note.
2.5 Use of Proceeds.
A. Revolving Loans. The proceeds of the Revolving Loans shall be applied
by Company (i) in an amount up to $1,000,000 to finance the transactions
contemplated by the Recapitalization Agreement and (ii) for working capital and
general corporate purposes, which may include future Permitted Business
Acquisitions (provided that no more than $25,000,000 may be borrowed for
Permitted Business Acquisitions) and the making of intercompany loans to any of
Company's wholly-owned Subsidiaries, in accordance with subsection 7.1(iv), for
their own working capital and general corporate purposes.
B. Margin Regulations. No portion of the proceeds of any borrowing under
this Agreement shall be used by Company or any of its Subsidiaries in any manner
that might cause the borrowing or the application of such proceeds to violate
Regulation G, Regulation U, Regulation T or Regulation X of the Board of
Governors of the Federal Reserve System or any other regulation of such Board or
to violate the Exchange Act, in each case as in effect on the date or dates of
such borrowing and such use of proceeds.
2.6 Special Provisions Governing Eurodollar Rate Loans.
Notwithstanding any other provision of this Agreement to the contrary, the
following provisions shall govern with respect to Eurodollar Rate Loans as to
the matters covered:
A. Determination of Applicable Interest Rate. As soon as practicable after
10:00 A.M. (New York City time) on each Interest Rate Determination Date,
Administrative Agent shall determine (which determination shall, absent manifest
error, be final, conclusive and binding upon all parties) the interest rate that
shall apply to the Eurodollar Rate Loans for which an interest rate is then
being determined for the applicable Interest Period and
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shall promptly give notice thereof (in writing or by telephone confirmed in
writing) to Company and each Lender.
B. Inability to Determine Applicable Interest Rate. In the event that
Administrative Agent shall have determined (which determination shall be final
and conclusive and binding upon all parties hereto), on any Interest Rate
Determination Date with respect to any Eurodollar Rate Loans, that by reason of
circumstances affecting the Eurodollar market adequate and fair means do not
exist for ascertaining the interest rate applicable to such Eurodollar Rate
Loans on the basis provided for in the definition of Adjusted Eurodollar Rate,
Administrative Agent shall on such date give notice (by telefacsimile or by
telephone confirmed in writing) to Company and each Lender of such
determination, whereupon (i) no Revolving Loans may be made as, or converted to,
Eurodollar Rate Loans until such time as Administrative Agent notifies Company
and Lenders that the circumstances giving rise to such notice no longer exist
and (ii) any Notice of Borrowing or Notice of Conversion/Continuation given by
Company with respect to the Revolving Loans in respect of which such
determination was made shall be deemed to be rescinded by Company.
C. Illegality or Impracticability of Eurodollar Rate Loans. In the event
that on any date any Lender shall have determined (which determination shall be
final and conclusive and binding upon all parties hereto but shall be made only
after consultation with Company and Administrative Agent) that the making,
maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful
as a result of compliance by such Lender in good faith with any law, treaty,
governmental rule, regulation, guideline or order (or would conflict with any
such treaty, governmental rule, regulation, guideline or order not having the
force of law even though the failure to comply therewith would not be unlawful)
or (ii) has become impracticable, or would cause such Lender material hardship,
as a result of contingencies occurring after the date of this Agreement which
materially and adversely affect the Eurodollar market or the position of such
Lender in that market, then, and in any such event, such Lender shall be an
"Affected Lender" and it shall on that day give notice (by telefacsimile or by
telephone confirmed in writing) to Company and Administrative Agent of such
determination (which notice Administrative Agent shall promptly transmit to each
other Lender). Thereafter (a) the obligation of the Affected Lender to make
Revolving Loans as, or to convert Revolving Loans to, Eurodollar Rate Loans
shall be suspended until such notice shall be withdrawn by the Affected Lender,
(b) to the extent such determination by the Affected Lender relates to a
Eurodollar Rate Loan then being requested by Company pursuant to a Notice of
Borrowing or a Notice of Conversion/Continuation, the Affected Lender shall make
such Revolving Loan as (or convert such Revolving Loan to, as the case may be) a
Base Rate Loan, (c) the Affected Lender's obligation to maintain its outstanding
Eurodollar Rate Loans (the "Affected Loans") shall be terminated at the earlier
to occur of the expiration of the Interest Period then in effect with respect to
the Affected Loans or when required by law, and (d) the Affected Loans shall
automatically convert into Base Rate Loans on the date of such termination.
Notwithstanding the foregoing, to the extent a determination by an Affected
Lender as described above relates to a Eurodollar Rate Loan then being requested
by Company
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pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation,
Company shall have the option, subject to the provisions of subsection 2.6D, to
rescind such Notice of Borrowing or Notice of Conversion/Continuation as to all
Lenders by giving notice (by telefacsimile or by telephone confirmed in writing)
to Administrative Agent of such rescission on the date on which the Affected
Lender gives notice of its determination as described above (which notice of
rescission Administrative Agent shall promptly transmit to each other Lender).
Except as provided in the immediately preceding sentence, nothing in this
subsection 2.6C shall affect the obligation of any Lender other than an Affected
Lender to make or maintain Revolving Loans as, or to convert Revolving Loans to,
Eurodollar Rate Loans in accordance with the terms of this Agreement.
D. Compensation For Breakage or Non-Commencement of Interest Periods.
Company shall compensate each Lender, upon written request by that Lender (which
request shall set forth the basis for requesting such amounts), for all
reasonable losses, expenses and liabilities (including any interest paid by that
Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate
Loans and any loss, expense or liability sustained by that Lender in connection
with the liquidation or re-employment of such funds) which that Lender may
sustain: (i) if for any reason (other than a default by that Lender) a borrowing
of any Eurodollar Rate Loan does not occur on a date specified therefor in a
Notice of Borrowing or a telephonic request for borrowing, or a conversion to or
continuation of any Eurodollar Rate Loan does not occur on a date specified
therefor in a Notice of Conversion/Continuation or a telephonic request for
conversion or continuation, (ii) if any prepayment (including any prepayment
pursuant to subsection 2.4A(i)) or other principal payment or any conversion of
any of its Eurodollar Rate Loans occurs on a date prior to the last day of an
Interest Period applicable to that Eurodollar Rate Loan, (iii) if any prepayment
of any of its Eurodollar Rate Loans is not made on any date specified in a
notice of prepayment given by Company, or (iv) as a consequence of any other
default by Company in the repayment of its Eurodollar Rate Loans when required
by the terms of this Agreement.
E. Booking of Eurodollar Rate Loans. Any Lender may make, carry or
transfer Eurodollar Rate Loans at, to, or for the account of any of its branch
offices or the office of an Affiliate of that Lender.
F. Assumptions Concerning Funding of Eurodollar Rate Loans. Calculation of
all amounts payable to a Lender under this subsection 2.6 and under subsection
2.7A shall be made as though that Lender had actually funded each of its
relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit
bearing interest at the rate obtained pursuant to clause (i) of the definition
of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar
Rate Loan and having a maturity comparable to the relevant Interest Period and
through the transfer of such Eurodollar deposit from an offshore office of that
Lender to a domestic office of that Lender in the United States of America;
provided, however, that each Lender may fund each of its Eurodollar Rate Loans
in any
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manner it sees fit and the foregoing assumptions shall be utilized only for the
purposes of calculating amounts payable under this subsection 2.6 and under
subsection 2.7A.
G. Eurodollar Rate Loans After Default. After the occurrence of and during
the continuation of a Potential Event of Default or an Event of Default, (i)
Company may not elect to have a Revolving Loan be made or maintained as, or
converted to, a Eurodollar Rate Loan after the expiration of any Interest Period
then in effect for that Revolving Loan and (ii) subject to the provisions of
subsection 2.6D, any Notice of Borrowing or Notice of Conversion/Continuation
given by Company with respect to a requested borrowing or
conversion/continuation that has not yet occurred shall be deemed to be
rescinded by Company.
2.7 Increased Costs; Taxes; Capital Adequacy.
A. Compensation for Increased Costs and Taxes. Subject to the provisions
of subsection 2.7B (which shall be controlling with respect to the matters
covered thereby and to the extent a Lender is not entitled to payment under the
terms of Section 2.7B, it shall not be entitled to such payment pursuant to this
subsection 2.7A), in the event that any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any law, treaty or governmental rule, regulation
or order, or any change therein or in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a court or
governmental authority, in each case that becomes effective after the date
hereof, or compliance by such Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental
or quasi-governmental authority (whether or not having the force of law):
(i) subjects such Lender (or its applicable lending office) to any
additional Tax (other than any Tax on the overall net income of such
Lender) with respect to this Agreement or any of its obligations hereunder
or any payments to such Lender (or its applicable lending office) of
principal, interest, fees or any other amount payable hereunder;
(ii) imposes, modifies or holds applicable any reserve (including
any marginal, emergency, supplemental, special or other reserve), special
deposit, compulsory loan, FDIC insurance or similar requirement against
assets held by, or deposits or other liabilities in or for the account of,
or advances or loans by, or other credit extended by, or any other
acquisition of funds by, any office of such Lender (other than any such
reserve or other requirements with respect to Eurodollar Rate Loans that
are reflected in the definition of Adjusted Eurodollar Rate); or
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(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting such Lender (or its applicable lending office) or
its obligations hereunder or the Eurodollar market;
and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Revolving Loans hereunder or to reduce
any amount received or receivable by such Lender (or its applicable lending
office) with respect thereto by an amount considered by the Lender to be
material; then, in any such case, Company shall promptly pay to such Lender,
upon receipt of the statement referred to in the next sentence, such additional
amount or amounts (in the form of an increased rate of, or a different method of
calculating, interest or otherwise as such Lender in its sole discretion shall
determine) as may be necessary to compensate such Lender for any such increased
cost or reduction in amounts received or receivable hereunder. Such Lender shall
deliver to Company (with a copy to Administrative Agent) a written statement,
setting forth in reasonable detail the basis for calculating the additional
amounts owed to such Lender under this subsection 2.7A, which statement shall be
conclusive and binding upon all parties hereto absent manifest error.
B. Withholding of Taxes.
(i) Payments to Be Free and Clear. All sums payable by Company under
this Agreement and the other Revolving Loan Documents shall (except to the
extent required by law) be paid free and clear of, and without any
deduction or withholding on account of, any Tax (other than a Tax on the
overall net income of any Lender) imposed, levied, collected, withheld or
assessed by or within the United States of America or any political
subdivision in or of the United States of America or any other
jurisdiction from or to which a payment is made by or on behalf of Company
or by any federation or organization of which the United States of America
or any such jurisdiction is a member at the time of payment.
(ii) Grossing-up of Payments. If Company or any other Person is
required by law to make any deduction or withholding on account of any
such Tax from any sum paid or payable by Company to Administrative Agent
or any Lender under any of the Revolving Loan Documents:
(a) Company shall notify Administrative Agent of any such
requirement or any change in any such requirement as soon as Company
becomes aware of it;
(b) Company shall pay any such Tax before the date on which
penalties attach thereto, such payment to be made (if the liability
to pay is imposed on Company) for its own account or (if that
liability is imposed on Administrative Agent or such Lender, as the
case may be) on behalf of and in the name of Administrative Agent or
such Lender;
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(c) the sum payable by Company in respect of which the
relevant deduction, withholding or payment is required shall be
increased to the extent necessary to ensure that, after the making
of that deduction, withholding or payment, Administrative Agent or
such Lender, as the case may be, receives on the due date a net sum
equal to what it would have received had no such deduction,
withholding or payment been required or made; and
(d) within 30 days after paying any sum from which it is
required by law to make any deduction or withholding, and within 30
days after the due date of payment of any Tax which it is required
by clause (b) above to pay, Company shall deliver to Administrative
Agent evidence satisfactory to the other affected parties of such
deduction, withholding or payment and of the remittance thereof to
the relevant taxing or other authority;
provided that no such additional amount shall be required to be paid to
any Lender under clause (c) above except to the extent that any change
after the date hereof (in the case of each Lender listed on the signature
pages hereof) or after the date of the Assignment Agreement pursuant to
which such Lender became a Lender (in the case of each other Lender) in
any such requirement for a deduction, withholding or payment as is
mentioned therein shall result in an increase in the rate of such
deduction, withholding or payment from that in effect at the date of this
Agreement or at the date of such Assignment Agreement, as the case may be,
in respect of payments to such Lender.
(iii) Evidence of Exemption from U.S. Withholding Tax.
(a) Each Lender that is organized under the laws of any
jurisdiction other than the United States or any state or other
political subdivision thereof (for purposes of this subsection
2.7B(iii), a "Non-US Lender") shall deliver to Administrative Agent
for transmission to Company, on or prior to the Closing Date (in the
case of each Lender listed on the signature pages hereof) or on or
prior to the date of the Assignment Agreement pursuant to which it
becomes a Lender (in the case of each other Lender), and at such
other times as may be necessary in the determination of Company or
Administrative Agent (each in the reasonable exercise of its
discretion), (1) two original copies of Internal Revenue Service
Form 1001 or 4224 (or any successor forms), properly completed and
duly executed by such Lender, together with any other certificate or
statement of exemption required under the Internal Revenue Code or
the regulations issued thereunder to establish that such Lender is
not subject to deduction or withholding of United States federal
income tax with respect to any payments to such Lender of principal,
interest, fees or other amounts payable under any of the Revolving
Loan Documents or (2) if such Lender is not a "bank" or other Person
described in Section 881(c)(3) of the Internal Revenue Code and
cannot deliver either
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Internal Revenue Service Form 1001 or 4224 pursuant to clause (1)
above, a Certificate re Non-Bank Status together with two original
copies of Internal Revenue Service Form W-8 (or any successor form),
properly completed and duly executed by such Lender, together with
any other certificate or statement of exemption required under the
Internal Revenue Code or the regulations issued thereunder to
establish that such Lender is not subject to deduction or
withholding of United States federal income tax with respect to any
payments to such Lender of interest payable under any of the
Revolving Loan Documents.
(b) Each Lender required to deliver any forms, certificates or
other evidence with respect to United States federal income tax
withholding matters pursuant to subsection 2.7B(iii)(a) hereby
agrees, from time to time after the initial delivery by such Lender
of such forms, certificates or other evidence, whenever a lapse in
time or change in circumstances renders such forms, certificates or
other evidence obsolete or inaccurate in any material respect, that
such Lender shall promptly (1) deliver to Administrative Agent for
new original copies of Internal Revenue Service Form 1001 or 4224,
or a Certificate re Non-Bank Status and two original copies of
Internal Revenue Service Form W-8, as the case may be, properly
completed and duly executed by such Lender, together with any other
certificate or statement of exemption required in order to confirm
or establish that such Lender is not subject to deduction or
withholding of United States federal income tax with respect to
payments to such Lender under the Revolving Loan Documents or (2)
notify Administrative Agent and Company of its inability to deliver
any such forms, certificates or other evidence.
(c) Company shall not be required to pay any additional amount
to any Non-US Lender under clause (c) of subsection 2.7B(ii) if such
Lender shall have failed to satisfy the requirements of clause (a)
or (b)(1) of this subsection 2.7B(iii); provided that if such Lender
shall have satisfied the requirements of subsection 2.7B(iii)(a) on
the Closing Date (in the case of each Lender listed on the signature
pages hereof) or on the date of the Assignment Agreement pursuant to
which it became a Lender (in the case of each other Lender), nothing
in this subsection 2.7B(iii)(c) shall relieve Company of its
obligation to pay any additional amounts pursuant to clause (c) of
subsection 2.7B(ii) in the event that, as a result of any change in
any applicable law, treaty or governmental rule, regulation or
order, or any change in the interpretation, administration or
application thereof, such Lender is no longer properly entitled to
deliver forms, certificates or other evidence at a subsequent date
establishing the fact that such Lender is not subject to withholding
as described in subsection 2.7B(iii)(a).
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C. Capital Adequacy Adjustment. If any Lender shall have determined that
the adoption, effectiveness, phase-in or applicability after the date hereof of
any law, rule or regulation (or any provision thereof) regarding capital
adequacy, or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Lender
(or its applicable lending office) with any guideline, request or directive
regarding capital adequacy (whether or not having the force of law) of any such
governmental authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the capital of such Lender or any
corporation controlling such Lender as a consequence of, or with reference to,
such Lender's Revolving Loans or Revolving Loan Commitments or Letters of Credit
or participations therein or other obligations hereunder with respect to the
Revolving Loans or the Letters of Credit to a level below that which such Lender
or such controlling corporation could have achieved but for such adoption,
effectiveness, phase-in, applicability, change or compliance (taking into
consideration the policies of such Lender or such controlling corporation with
regard to capital adequacy) by an amount considered by the Lender to be
material, then from time to time, within five Business Days after receipt by
Company from such Lender of the statement referred to in the next sentence,
Company shall pay to such Lender such additional amount or amounts as will
compensate such Lender or such controlling corporation on an after-tax basis for
such reduction. Such Lender shall deliver to Company (with a copy to Administra-
tive Agent) a written statement, setting forth in reasonable detail the basis of
the calculation of such additional amounts, which statement shall be conclusive
and binding upon all parties hereto absent manifest error.
2.8 Obligation of Lenders and Issuing Lenders to Mitigate.
Each Lender and Issuing Lender agrees that, as promptly as practicable
after the officer of such Lender or Issuing Lender responsible for administering
the Revolving Loans or Letters of Credit of such Lender or Issuing Lender, as
the case may be, becomes aware of the occurrence of an event or the existence of
a condition that would cause such Lender to become an Affected Lender or that
would entitle such Lender or Issuing Lender to receive payments under subsection
2.7 or subsection 3.6, it will, to the extent not inconsistent with the internal
policies of such Lender or Issuing Lender and any applicable legal or regulatory
restrictions, use reasonable efforts (i) to make, issue, fund or maintain the
Revolving Loan Commitments of such Lender or the affected Revolving Loans or
Letters of Credit of such Lender or Issuing Lender through another lending or
letter of credit office of such Lender or Issuing Lender, or (ii) take such
other measures as such Lender or Issuing Lender may deem reasonable, if as a
result thereof the circumstances which would cause such Lender to be an Affected
Lender would cease to exist or the additional amounts which would otherwise be
required to be paid to such Lender or Issuing Lender pursuant to subsection 2.7
or subsection 3.6 would be materially reduced and if, as determined by such
Lender or Issuing Lender in its sole discretion, the making, issuing, funding or
maintaining of such Revolving Loan Commitments or Revolving Loans or Letters of
Credit through such other lending or letter of credit office or in accordance
with such other measures, as the
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case may be, would not otherwise materially adversely affect such Revolving Loan
Commitments or Revolving Loans or Letters of Credit or the interests of such
Lender or Issuing Lender; provided that such Lender or Issuing Lender will not
be obligated to utilize such other lending or letter of credit office pursuant
to this subsection 2.8 unless Company agrees to pay all incremental expenses
incurred by such Lender or Issuing Lender as a result of utilizing such other
lending or letter of credit office as described in clause (i) above. A
certificate as to the amount of any such expenses payable by Company pursuant to
this subsection 2.8 (setting forth in reasonable detail the basis for requesting
such amount) submitted by such Lender or Issuing Lender to Company (with a copy
to Administrative Agent) shall be conclusive absent manifest error.
2.9 Defaulting Lenders.
Anything contained herein to the contrary notwithstanding, in the event
that any Lender (a "Defaulting Lender") defaults (a "Funding Default") in its
obligation to fund any Revolving Loan (a "Defaulted Revolving Loan") in
accordance with subsection 2.1 as a result of the appointment of a receiver or
conservator with respect to such Lender at the direction or request of any
regulatory agency or authority, then (i) during any Default Period (as defined
below) with respect to such Defaulting Lender, such Defaulting Lender shall be
deemed not to be a "Lender" for purposes of voting on any matters (including the
granting of any consents or waivers) with respect to any of the Revolving Loan
Documents, (ii) to the extent permitted by applicable law, until such time as
the Default Excess (as defined below) with respect to such Defaulting Lender
shall have been reduced to zero, (a) any voluntary prepayment of the Revolving
Loans pursuant to subsection 2.4B(i) shall, if Company so directs at the time of
making such voluntary prepayment, be applied to the Revolving Loans of other
Lenders as if such Defaulting Lender had no Revolving Loans outstanding and the
Revolving Loan Exposure of such Defaulting Lender were zero, and (b) any
mandatory prepayment of the Revolving Loans pursuant to subsection 2.4B(iii)
shall, if Company so directs at the time of making such mandatory prepayment, be
applied to the Revolving Loans of other Lenders (but not to the Revolving Loans
of such Defaulting Lender) as if such Defaulting Lender had funded all Defaulted
Revolving Loans of such Defaulting Lender, it being understood and agreed that
Company shall be entitled to retain any portion of any mandatory prepayment of
the Revolving Loans that is not paid to such Defaulting Lender solely as a
result of the operation of the provisions of this clause (b), (iii) such
Defaulting Lender's Revolving Loan Commitment and outstanding Revolving Loans
and such Defaulting Lender's Pro Rata Share of the Letter of Credit Usage shall
be excluded for purposes of calculating the commitment fee payable to Lenders
pursuant to subsection 2.3A in respect of any day during any Default Period with
respect to such Defaulting Lender, and such Defaulting Lender shall not be
entitled to receive any commitment fee pursuant to subsection 2.3A with respect
to such Defaulting Lender's Revolving Loan Commitment in respect of any Default
Period with respect to such Defaulting Lender, and (iv) the Total Utilization of
Revolving Loan Commitments as at any date of determination shall be calculated
as if such Defaulting Lender had funded all Defaulted Revolving Loans of such
Defaulting Lender.
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For purposes of this Agreement, (I) "Default Period" means, with respect
to any Defaulting Lender, the period commencing on the date of the applicable
Funding Default and ending on the earliest of the following dates: (A) the date
on which all Revolving Loan Commitments are cancelled or terminated and/or the
Obligations are declared or become immediately due and payable, (B) the date on
which (1) the Default Excess with respect to such Defaulting Lender shall have
been reduced to zero (whether by the funding by such Defaulting Lender of any
Defaulted Revolving Loans of such Defaulting Lender or by the non-pro rata
application of any voluntary or mandatory prepayments of the Revolving Loans in
accordance with the terms of this subsection 2.9 or by a combination thereof)
and (2) such Defaulting Lender shall have delivered to Company and
Administrative Agent a written reaffirmation of its intention to honor its
obligations under this Agreement with respect to its Revolving Loan Commitment,
and (C) the date on which Company, Administrative Agent and Requisite Lenders
waive all Funding Defaults of such Defaulting Lender in writing, and (II)
"Default Excess" means, with respect to any Defaulting Lender, the excess, if
any, of such Defaulting Lender's Pro Rata Share of the aggregate outstanding
principal amount of Revolving Loans of all Lenders (calculated as if all
Defaulting Lenders (other than such Defaulting Lender) had funded all of their
respective Defaulted Revolving Loans) over the aggregate outstanding principal
amount of Revolving Loans of such Defaulting Lender.
No Revolving Loan Commitment of any Lender shall be increased or
otherwise affected, and, except as otherwise expressly provided in this
subsection 2.9, performance by Company of its obligations under this Agreement
and the other Revolving Loan Documents shall not be excused or otherwise
modified, as a result of any Funding Default or the operation of this subsection
2.9. The rights and remedies against a Defaulting Lender under this subsection
2.9 are in addition to other rights and remedies which Company may have against
such Defaulting Lender with respect to any Funding Default and which
Administrative Agent or any Lender may have against such Defaulting Lender with
respect to any Funding Default.
2.10 Removal or Replacement of a Lender.
A. Anything contained in this Agreement to the contrary notwithstanding,
in the event that:
(i) (a) any Lender (an "Increased-Cost Lender") shall give notice to
Company that such Lender is an Affected Lender or that such Lender is
entitled to receive payments under subsection 2.7 or subsection 3.6, (b)
the circumstances which have caused such Lender to be an Affected Lender
or which entitle such Lender to receive such payments shall remain in
effect, and (c) such Lender shall fail to withdraw such notice within five
Business Days after Company's request for such withdrawal; or
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(ii) (a) any Lender shall become a Defaulting Lender, (b) the
Default Period for such Defaulting Lender shall remain in effect, and (c)
such Defaulting Lender shall fail to cure the default as a result of which
it has become a Defaulting Lender within five Business Days after
Company's request that it cure such default; or
(iii) (a) in connection with any proposed amendment, modification,
termination, waiver or consent with respect to any of the provisions of
this Agreement as contemplated by clauses (i) through (v) of the first
proviso to subsection 10.6A, the consent of Requisite Lenders shall have
been obtained but the consent of one or more of such other Lenders (each a
"Non-Consenting Lender") whose consent is required shall not have been
obtained, and (b) the failure to obtain Non-Consenting Lenders' consents
does not result solely from the exercise of Non-Consenting Lenders' rights
(and the withholding of any required consents by Non-Consenting Lenders)
pursuant to the second proviso to subsection 10.6A;
then, and in each such case, Company shall have the right, at its option, to
remove or replace the applicable Increased-Cost Lender, Defaulting Lender or
Non-Consenting Lender (the "Terminated Lender") to the extent permitted by
subsection 2.10B.
B. Company may, by giving written notice to Administrative Agent and any
Terminated Lender of its election to do so:
(i) elect to (a) terminate the Revolving Loan Commitment, if any, of
such Terminated Lender upon receipt by such Terminated Lender of such
notice and (b) prepay on the date of such termination any outstanding
Revolving Loans made by such Terminated Lender, together with accrued and
unpaid interest thereon and any other amounts payable to such Terminated
Lender hereunder pursuant to subsection 2.6, subsection 2.7 or subsection
3.6 or otherwise; provided that, in the event such Terminated Lender has
any Revolving Loans outstanding at the time of such termination, the
written consent of Administrative Agent and Requisite Lenders (which
consent shall not be unreasonably withheld or delayed) shall be required
in order for Company to make the election set forth in this clause (i); or
(ii) elect to cause such Terminated Lender (and such Terminated
Lender hereby irrevocably agrees) to assign its outstanding Revolving
Loans and its Revolving Loan Commitment, if any, in full at par to one or
more Eligible Assignees (each a "Replacement Lender") in accordance with
the provisions of subsection 10.1B; provided that (a) on the date of such
assignment, Company shall pay any amounts payable to such Terminated
Lender pursuant to subsection 2.6, subsection 2.7 or subsection 3.6 or
otherwise as if it were a prepayment and (b) in the event such Terminated
Lender is a Non-Consenting Lender, each Replacement Lender shall consent,
at the time of such assignment, to each matter in respect of which such
Terminated Lender was a Non-Consenting Lender;
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provided that (X) Company may not make either of the elections set forth in
clauses (i) or (ii) above with respect to any Non-Consenting Lender unless
Company also makes one of such elections with respect to each other Terminated
Lender which is a Non-Consenting Lender and (Y) Company may not make either of
such elections with respect to any Terminated Lender that is an Issuing Lender
unless, prior to the effectiveness of such election, Company shall have caused
each outstanding Letter of Credit issued by such Issuing Lender to be cancelled.
C. Upon the prepayment of all amounts owing to any Terminated Lender and
the termination of such Terminated Lender's Revolving Loan Commitment, if any,
pursuant to clause (i) of subsection 2.10B, (i) Schedule 2.1 shall be deemed
modified to reflect any corresponding changes in the Revolving Loan Commitments
and (ii) such Terminated Lender shall no longer constitute a "Lender" for
purposes of this Agreement; provided that any rights of such Terminated Lender
to indemnification under this Agreement (including under subsections 2.6D, 2.7,
3.6, 10.2 and 10.3) shall survive as to such Terminated Lender.
SECTION 3.
LETTERS OF CREDIT
3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations
Therein.
A. Letters of Credit. In addition to Company requesting that Lenders make
Revolving Loans pursuant to subsection 2.1A, Company may request, in accordance
with the provisions of this subsection 3.1, from time to time during the period
from the Closing Date to but excluding the Revolving Loan Commitment Termination
Date, that one or more Lenders issue Letters of Credit for the account of
Company for the purposes specified in the definitions of Commercial Letters of
Credit and Standby Letters of Credit. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of
Company herein set forth, any one or more Lenders may, but (except as provided
in subsection 3.1B(ii)) shall not be obligated to, issue such Letters of Credit
in accordance with the provisions of this subsection 3.1; provided that Company
shall not request that any Lender issue (and no Lender shall issue):
(i) any Letter of Credit if, after giving effect to such issuance,
the Total Utilization of Revolving Loan Commitments would exceed the
Revolving Loan Commitments then in effect or the Borrowing Base then in
effect;
(ii) any Letter of Credit if, after giving effect to such issuance,
the Letter of Credit Usage would exceed $15,000,000;
(iii) any Standby Letter of Credit having an expiration date later
than the earlier of (a) the date which is 30 days prior to the Revolving
Loan Commitment Termination Date and (b) the date which is not more than
365 days from the date
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of issuance of such Standby Letter of Credit; provided that the
immediately preceding clause (b) shall not prevent any Issuing Lender from
agreeing that a Standby Letter of Credit will automatically be extended
for one or more successive periods not to exceed one year each unless such
Issuing Lender elects not to extend for any such additional period; and
provided, further that such Issuing Lender shall elect not to extend such
Standby Letter of Credit if it has knowledge that an Event of Default has
occurred and is continuing (and has not been waived in accordance with
subsection 10.6) at the time such Issuing Lender must elect whether or not
to allow such extension; or
(iv) any Commercial Letter of Credit having an expiration date (a)
later than the earlier of (X) the date which is 30 days prior to the
Revolving Loan Commitment Termination Date and (Y) the date which is 180
days from the date of issuance of such Commercial Letter of Credit or (b)
that is otherwise unacceptable to the applicable Issuing Lender in its
reasonable discretion.
B. Mechanics of Issuance.
(i) Notice of Issuance. Whenever Company desires the issuance of a
Letter of Credit, it shall deliver to Administrative Agent a Notice of
Issuance of Letter of Credit substantially in the form of Exhibit III
annexed hereto no later than 12:00 Noon (New York City time) at least
three Business Days (in the case of Standby Letters of Credit) or five
Business Days (in the case of Commercial Letters of Credit), or in each
case such shorter period as may be agreed to by the Issuing Lender in any
particular instance, in advance of the proposed date of issuance. The
Notice of Issuance of Letter of Credit shall specify (a) the proposed date
of issuance (which shall be a Business Day), (b) whether the Letter of
Credit is to be a Standby Letter of Credit or a Commercial Letter of
Credit, (c) the face amount of the Letter of Credit, (d) in the case of a
Letter of Credit which Company requests to be denominated in a currency
other than Dollars, the currency in which Company requests such Letter of
Credit to be issued, (e) the expiration date of the Letter of Credit, (f)
the name and address of the beneficiary, (g) either the verbatim text of
the proposed Letter of Credit or the proposed terms and conditions
thereof, including a precise description of any documents to be presented
by the beneficiary which, if presented by the beneficiary prior to the
expiration date of the Letter of Credit, would require the Issuing Lender
to make payment under the Letter of Credit, and (h) that, after giving
effect to the issuance of the Letter of Credit, the Total Utilization of
Revolving Loan Commitments will not exceed the Revolving Loan Commitments
then in effect or the Borrowing Base then in effect; provided that the
Issuing Lender, in its reasonable discretion, may require changes in the
text of the proposed Letter of Credit or any such documents; and provided,
further that no Letter of Credit shall require payment against a
conforming draft to be made thereunder on the same business day (under the
laws of the jurisdiction in which the office of the Issuing Lender to
which such draft is required to be presented is
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located) that such draft is presented if such presentation is made after
10:00 A.M. (in the time zone of such office of the Issuing Lender) on such
business day.
Company shall notify the applicable Issuing Lender (and
Administrative Agent, if Administrative Agent is not such Issuing Lender)
prior to the issuance of any Letter of Credit in the event that any of the
matters to which Company is required to certify in the applicable Notice
of Issuance of Letter of Credit is no longer true and correct as of the
proposed date of issuance of such Letter of Credit, and upon the issuance
of any Letter of Credit Company shall be deemed to have re-certified, as
of the date of such issuance, as to the matters to which Company is
required to certify in the applicable Notice of Issuance of Letter of
Credit.
(ii) Determination of Issuing Lender. Upon receipt by Administrative
Agent of a Notice of Issuance of Letter of Credit pursuant to subsection
3.1B(i) requesting the issuance of a Letter of Credit, in the event
Administrative Agent elects to issue such Letter of Credit, Administrative
Agent shall promptly so notify Company, and Administrative Agent shall be
the Issuing Lender with respect thereto. In the event that Administrative
Agent, in its sole discretion, elects not to issue such Letter of Credit,
Administrative Agent shall promptly so notify Company, whereupon Company
may request any other Lender to issue such Letter of Credit by delivering
to such Lender a copy of the applicable Notice of Issuance of Letter of
Credit. Any Lender so requested to issue such Letter of Credit shall
promptly notify Company and Administrative Agent whether or not, in its
sole discretion, it has elected to issue such Letter of Credit, and any
such Lender which so elects to issue such Letter of Credit shall be the
Issuing Lender with respect thereto. In the event that all other Lenders
shall have declined to issue such Letter of Credit, notwithstanding the
prior election of Administrative Agent not to issue such Letter of Credit,
Administrative Agent shall be obligated to issue such Letter of Credit and
shall be the Issuing Lender with respect thereto, notwithstanding the fact
that the Letter of Credit Usage with respect to such Letter of Credit and
with respect to all other Letters of Credit issued by Administrative
Agent, when aggregated with Administrative Agent's outstanding Revolving
Loans, may exceed Administrative Agent's Revolving Loan Commitment then in
effect; provided that Administrative Agent shall not be obligated to issue
any Letter of Credit denominated in a foreign currency which in the
judgment of Administrative Agent is not readily and freely available.
(iii) Issuance of Letter of Credit. Upon satisfaction or waiver (in
accordance with subsection 10.6) of the conditions set forth in subsection
4.3, the Issuing Lender shall issue the requested Letter of Credit in
accordance with the Issuing Lender's standard operating procedures.
(iv) Notification to Lenders. Upon the issuance of any Letter of
Credit the applicable Issuing Lender shall promptly notify Administrative
Agent and each other Lender of such issuance, which notice shall be
accompanied by a copy of such Letter
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of Credit. Promptly after receipt of such notice (or, if Administrative
Agent is the Issuing Lender, together with such notice), Administrative
Agent shall notify each Lender of the amount of such Lender's respective
participation in such Letter of Credit, determined in accordance with
subsection 3.1C.
(v) Reports to Lenders. Within 15 days after the end of each month
ending after the Closing Date, so long as any Letter of Credit shall have
been outstanding during such month, each Issuing Lender shall deliver to
each other Lender a report setting forth for such month the daily
aggregate amount available to be drawn under the Letters of Credit issued
by such Issuing Lender that were outstanding during such month.
C. Lenders' Purchase of Participations in Letters of Credit. Immediately
upon the issuance of each Letter of Credit, each Lender shall be deemed to, and
hereby agrees to, have irrevocably purchased from the Issuing Lender a
participation in such Letter of Credit and any drawings honored thereunder in an
amount equal to such Lender's Pro Rata Share of the maximum amount which is or
at any time may become available to be drawn thereunder.
3.2 Letter of Credit Fees.
Company agrees to pay the following amounts with respect to Letters of
Credit issued hereunder:
(i) with respect to each Standby Letter of Credit, (a) a fronting
fee, payable directly to the applicable Issuing Lender for its own
account, equal to 0.25% per annum of the daily amount available to be
drawn under such Standby Letter of Credit and (b) a letter of credit fee,
payable to Administrative Agent for the account of Lenders, equal to the
Applicable Revolving Eurodollar Rate Margin in effect with respect to
Eurodollar Rate Loans from time to time multiplied by the daily amount
available to be drawn under such Standby Letter of Credit, each such
fronting fee or letter of credit fee to be payable in arrears on and to
(but excluding) each March 15, June 15, September 15 and December 15 of
each year and computed on the basis of a 360-day year for the actual
number of days elapsed;
(ii) with respect to each Commercial Letter of Credit, (a) a
fronting fee, payable directly to the applicable Issuing Lender for its
own account, equal to 0.25% per annum of the daily amount available to be
drawn under such Commercial Letter of Credit and (b) a letter of credit
fee, payable to Administrative Agent for the account of Lenders, equal to
the Applicable Revolving Eurodollar Rate Margin in effect with respect to
Eurodollar Rate Loans from time to time multiplied by the daily amount
available to be drawn under such Commercial Letter of Credit, each such
fronting fee or letter of credit fee to be payable in arrears on and to
(but
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excluding) each March 15, June 15, September 15 and December 15 of
each year and computed on the basis of a 360-day year for the actual
number of days elapsed; and
(iii) with respect to the issuance, amendment or transfer of each
Letter of Credit and each payment of a drawing made thereunder (without
duplication of the fees payable under clauses (i) and (ii) above),
documentary and processing charges payable directly to the applicable
Issuing Lender for its own account in accordance with such Issuing
Lender's standard schedule for such charges in effect at the time of such
issuance, amendment, transfer or payment, as the case may be.
For purposes of calculating any fees payable under clauses (i) and (ii) of this
subsection 3.2, the daily amount available to be drawn under any Letter of
Credit shall be determined as of the close of business on any date of
determination. Promptly upon receipt by Administrative Agent of any amount
described in clause (i)(b) or (ii)(b) of this subsection 3.2, Administrative
Agent shall distribute to each Lender its Pro Rata Share of such amount.
3.3 Drawings and Reimbursement of Amounts Paid Under Letters of Credit.
A. Responsibility of Issuing Lender With Respect to Drawings. In
determining whether to honor any drawing under any Letter of Credit by the
beneficiary thereof, the Issuing Lender shall be responsible only to examine the
documents delivered under such Letter of Credit with reasonable care so as to
ascertain whether they appear on their face to be in accordance with the terms
and conditions of such Letter of Credit.
B. Reimbursement by Company of Amounts Paid Under Letters of Credit. In
the event an Issuing Lender has determined to honor a drawing under a Letter of
Credit issued by it, such Issuing Lender shall immediately notify Company and
Administrative Agent, and Company shall reimburse such Issuing Lender on or
before the Business Day immediately following the date on which such drawing is
honored (the "Reimbursement Date") in an amount in Dollars (which amount, in the
case of a drawing under a Letter of Credit which is denominated in a currency
other than Dollars, shall be calculated by reference to the applicable Exchange
Rate) and in same day funds equal to the amount of such honored drawing;
provided that, anything contained in this Agreement to the contrary
notwithstanding, (i) unless Company shall have notified Administrative Agent and
such Issuing Lender prior to 10:00 A.M. (New York City time) on the date such
drawing is honored that Company intends to reimburse such Issuing Lender for the
amount of such honored drawing with funds other than the proceeds of Revolving
Loans, Company shall be deemed to have given a timely Notice of Borrowing to
Administrative Agent requesting Lenders to make Revolving Loans that are Base
Rate Loans on the Reimbursement Date in an amount in Dollars (which amount, in
the case of a drawing under a Letter of Credit which is denominated in a
currency other than Dollars, shall be calculated by reference to the applicable
Exchange Rate) equal to the amount of such honored drawing and (ii) subject to
satisfaction or waiver of the conditions specified in subsection 4.2B, Lenders
shall, on the Reimbursement Date, make Revolving Loans that are Base Rate Loans
in the amount of
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such honored drawing, the proceeds of which shall be applied directly by
Administrative Agent to reimburse such Issuing Lender for the amount of such
honored drawing; and provided, further that if for any reason proceeds of
Revolving Loans are not received by such Issuing Lender on the Reimbursement
Date in an amount equal to the amount of such honored drawing, Company shall
reimburse such Issuing Lender, on demand, in an amount in same day funds equal
to the excess of the amount of such honored drawing over the aggregate amount
of such Revolving Loans, if any, which are so received. Nothing in this
subsection 3.3B shall be deemed to relieve any Lender from its obligation to
make Revolving Loans on the terms and conditions set forth in this Agreement,
and Company shall retain any and all rights it may have against any Lender
resulting from the failure of such Lender ato make such Revolving Loans under
this subsection 3.3B.
C. Payment by Lenders of Unreimbursed Amounts Paid Under Letters of
Credit.
(1) Payment by Lenders. In the event that Company shall fail for any
reason to reimburse any Issuing Lender as provided in subsection 3.3B in
an amount (calculated, in the case of a drawing under a Letter of Credit
denominated in a currency other than Dollars, by reference to the
applicable Exchange Rate) equal to the amount of any drawing honored by
such Issuing Lender under a Letter of Credit issued by it, such Issuing
Lender shall promptly notify each other Lender of the unreimbursed amount
of such honored drawing and of such other Lender's respective
participation therein based on such Lender's Pro Rata Share. Each Lender
shall make available tob such Issuing Lender an amount equal to its
respective participation, in Dollars and in same day funds, at the office
of such Issuing Lender specified in such notice, not later than 12:00 Noon
(BNew York City time) on the first business day (under the laws of the
jurisdiction in which such office of such Issuing Lender is located) after
the date notified by such Issuing Lender. In the event that any Lender
fails to make available to such Issuing Lender on such business day the
amount of such Lender's participation in such Letter of Credit as provided
in this subsection 3.3C, such Issuing Lender shall be entitled to recover
such amount on demand from such Lender together with interest thereon at
the rate customarily used by such Issuing Lender for the correction of
ettors among banks for three Business Days and thereafter at the Base
Rate. Nothing in this subsection 3.3C shall be deemed to prejudice the
right of any Lender to recover from any Issuing Lender any amounts made
available by such Lender to such Issuing Lender pursuant to this
subsection 3.3C in the event that it is determined by the final judgment
of a court of competent jurisdiction that the payment with respect to a
Letter of Credit by such Issuing Lender in respect of which payment was
made by such Lender constituted gross negligence or willful misconduct on
the part of such Issuing Lender.
(ii) Distribution to Lenders of Reimbursements Received From
Company. In the event any Issuing Lender shall have been reimbursed by
other Lenders pursuant to subsection 3.3C(i) for all or any portion of any
drawing honored by such Issuing Lender under a Letter of Credit issued by
it, such Issuing Lender shall
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distribute to each other Lender which has paid all amounts payable by it
under subsection 3.3C(i) with respect to such honored drawing such other
Lender's Pro Rata Share of all payments subsequently received by such
Issuing Lender from Company in reimbursement of such honored drawing when
such payments are received. Any such distribution shall be made to a
Lender at its primary address set forth below its name on the appropriate
signature page hereof or at such other address as such Lender may request.
D. Interest on Amounts Paid Under Letters of Credit.
(i) Payment of Interest by Company. Company agrees to pay to each
Issuing Lender, with respect to drawings honored under any Letters of
Credit issued by it, interest on the amount paid by such Issuing Lender in
respect of each such honored drawing from the date such drawing is honored
to but excluding the date such amount is reimbursed by Company (including
any such reimbursement out of the proceeds of Revolving Loans pursuant to
subsection 3.3B) at a rate equal to (a) for the period from the date such
drawing is honored to but excluding the Reimbursement Date, the rate then
in effect under this Agreement with respect to Revolving Loans that are
Base Rate Loans and (b) thereafter, a rate which is 2% per annum in excess
of the rate of interest otherwise payable under this Agreement with
respect to Revolving Loans that are Base Rate Loans. Interest payable
pursuant to this subsection 3.3D(i) shall be computed on the basis of a
360-day year for the actual number of days elapsed in the period during
which it accrues and shall be payable on demand or, if no demand is made,
on the date on which the related drawing under a Letter of Credit is
reimbursed in full.
(ii) Distribution of Interest Payments by Issuing Lender. Promptly
upon receipt by any Issuing Lender of any payment of interest pursuant to
subsection 3.3D(i) with respect to a drawing honored under a Letter of
Credit issued by it, (a) such Issuing Lender shall distribute to each
other Lender, out of the interest received by such Issuing Lender in
respect of the period from the date such drawing is honored to but
excluding the date on which such Issuing Lender is reimbursed for the
amount of such drawing (including any such reimbursement out of the
proceeds of Revolving Loans pursuant to subsection 3.3B), the amount that
such other Lender would have been entitled to receive in respect of the
letter of credit fee that would have been payable in respect of such
Letter of Credit for such period pursuant to subsection 3.2 if no drawing
had been honored under such Letter of Credit, and (b) in the event such
Issuing Lender shall have been reimbursed by other Lenders pursuant to
subsection 3.3C(i) for all or any portion of such honored drawing, such
Issuing Lender shall distribute to each other Lender which has paid all
amounts payable by it under subsection 3.3C(i) with respect to such
honored drawing such other Lender's Pro Rata Share of any interest
received by such Issuing Lender in respect of that portion of such honored
drawing so reimbursed by other Lenders for the period from the date on
which such Issuing Lender was so reimbursed by other
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Lenders to but excluding the date on which such portion of such honored
drawing is reimbursed by Company. Any such distribution shall be made to a
Lender at its primary address set forth below its name on the appropriate
signature page hereof or at such other address as such Lender may request.
3.4 Obligations Absolute.
The obligation of Company to reimburse each Issuing Lender for drawings
honored under the Letters of Credit issued by it and to repay any Revolving
Loans made by Lenders pursuant to subsection 3.3B and the obligations of Lenders
under subsection 3.3C(i) shall be unconditional and irrevocable and shall be
paid strictly in accordance with the terms of this Agreement under all
circumstances including any of the following circumstances:
(i) any lack of validity or enforceability of any Letter of Credit;
(ii) the existence of any claim, set-off, defense or other right
which Company or any Lender may have at any time against a beneficiary or
any transferee of any Letter of Credit (or any Persons for whom any such
transferee may be acting), any Issuing Lender or other Lender or any other
Person or, in the case of a Lender, against Company, whether in connection
with this Agreement, the transactions contemplated herein or any unrelated
transaction (including any underlying transaction between Company or one
of its Subsidiaries and the beneficiary for which any Letter of Credit was
procured);
(iii) any draft or other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any
respect;
(iv) payment by the applicable Issuing Lender under any Letter of
Credit against presentation of a draft or other document which does not
substantially comply with the terms of such Letter of Credit;
(v) any adverse change in the business, operations, properties,
assets, condition (financial or otherwise) or prospects of Company or any
of its Subsidiaries;
(vi) any breach of this Agreement or any other Loan Document by any
party thereto;
(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing; or
(viii) the fact that an Event of Default or a Potential Event of
Default shall have occurred and be continuing;
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provided, in each case, that payment by the applicable Issuing Lender under the
applicable Letter of Credit shall not have constituted gross negligence or
willful misconduct of such Issuing Lender under the circumstances in question
(as determined by a final judgment of a court of competent jurisdiction).
3.5 Indemnification; Nature of Issuing Lenders' Duties.
A. Indemnification. In addition to amounts payable as provided in
subsection 3.6, Company hereby agrees to protect, indemnify, pay and save
harmless each Issuing Lender from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
fees, expenses and disbursements of counsel and allocated costs of internal
counsel) which such Issuing Lender may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit by such Issuing
Lender, other than as a result of (a) the gross negligence or willful misconduct
of such Issuing Lender as determined by a final judgment of a court of competent
jurisdiction or (b) subject to the following clause (ii), the wrongful dishonor
by such Issuing Lender of a proper demand for payment made under any Letter of
Credit issued by it or (ii) the failure of such Issuing Lender to honor a
drawing under any such Letter of Credit as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de facto
government or governmental authority (all such acts or omissions herein called
"Governmental Acts").
B. Nature of Issuing Lenders' Duties. As between Company and any Issuing
Lender, Company assumes all risks of the acts and omissions of, or misuse of the
Letters of Credit issued by such Issuing Lender by, the respective beneficiaries
of such Letters of Credit. In furtherance and not in limitation of the
foregoing, such Issuing Lender shall not be responsible for: (i) the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
any such Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) failure of the beneficiary of
any such Letter of Credit to comply fully with any conditions required in order
to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they be in cipher; (v) errors in
interpretation of technical terms; (vi) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any such
Letter of Credit or of the proceeds thereof; (vii) the misapplication by the
beneficiary of any such Letter of Credit of the proceeds of any drawing under
such Letter of Credit; or (viii) any consequences arising from causes beyond the
control of such Issuing Lender, including any Governmental Acts, and none of the
above shall affect or impair, or prevent the vesting of, any of such Issuing
Lender's rights or powers hereunder.
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In furtherance and extension and not in limitation of the specific
provisions set forth in the first paragraph of this subsection 3.5B, any action
taken or omitted by any Issuing Lender under or in connection with the Letters
of Credit issued by it or any documents and certificates delivered thereunder,
if taken or omitted in good faith, shall not put such Issuing Lender under any
resulting liability to Company.
Notwithstanding anything to the contrary contained in this subsection 3.5,
Company shall retain any and all rights it may have against any Issuing Lender
for any liability arising solely out of the gross negligence or willful
misconduct of such Issuing Lender, as determined by a final judgment of a court
of competent jurisdiction.
3.6 Increased Costs and Taxes Relating to Letters of Credit.
Subject to the provisions of subsection 2.7B (which shall be controlling
with respect to the matters covered thereby and to the extent a Lender is not
entitled to payment under the terms of Section 2.7B, it shall not be entitled to
payment pursuant to this section), in the event that any Issuing Lender or
Lender shall determine (which determination shall, absent manifest error, be
final and conclusive and binding upon all parties hereto) that any law, treaty
or governmental rule, regulation or order, or any change therein or in the
interpretation, administration or application thereof (including the
introduction of any new law, treaty or governmental rule, regulation or order),
or any determination of a court or governmental authority, in each case that
becomes effective after the date hereof, or compliance by any Issuing Lender or
Lender with any guideline, request or directive issued or made after the date
hereof by any central bank or other governmental or quasi-governmental authority
(whether or not having the force of law):
(i) subjects such Issuing Lender or Lender (or its applicable
lending or letter of credit office) to any additional Tax (other than any
Tax on the overall net income of such Issuing Lender or Lender) with
respect to the issuing or maintaining of any Letters of Credit or the
purchasing or maintaining of any participations therein or any other
obligations under this Section 3, whether directly or by such being
imposed on or suffered by any particular Issuing Lender;
(ii) imposes, modifies or holds applicable any reserve (including
any marginal, emergency, supplemental, special or other reserve), special
deposit, compulsory loan, FDIC insurance or similar requirement in respect
of any Letters of Credit issued by any Issuing Lender or participations
therein purchased by any Lender; or
(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting such Issuing Lender or Lender (or its applicable
lending or letter of credit office) regarding this Section 3 or any Letter
of Credit or any participation therein;
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and the result of any of the foregoing is to increase the cost to such Issuing
Lender or Lender of agreeing to issue, issuing or maintaining any Letter of
Credit or agreeing to purchase, purchasing or maintaining any participation
therein or to reduce any amount received or receivable by such Issuing Lender or
Lender (or its applicable lending or letter of credit office) with respect
thereto by an amount considered by such Issuing Lender or Lender to be material;
then, in any case, Company shall promptly pay to such Issuing Lender or Lender,
upon receipt of the statement referred to in the next sentence, such additional
amount or amounts as may be necessary to compensate such Issuing Lender or
Lender for any such increased cost or reduction in amounts received or
receivable hereunder. Such Issuing Lender or Lender shall deliver to Company a
written statement, setting forth in reasonable detail the basis for calculating
the additional amounts owed to such Issuing Lender or Lender under this
subsection 3.6, which statement shall be conclusive and binding upon all parties
hereto absent manifest error.
SECTION 4.
CONDITIONS TO LOANS AND LETTERS OF CREDIT
The obligations of Lenders to make Revolving Loans and the issuance of
Letters of Credit hereunder are subject to the satisfaction of the following
conditions.
4.1 Conditions to Initial Revolving Loans.
The obligations of Lenders to make any Revolving Loans to be made on the
Closing Date are, in addition to the conditions precedent specified in
subsection 4.2, subject to prior or concurrent satisfaction of the following
conditions:
A. Loan Party Documents. On or before the Closing Date, Company shall, and
shall cause each other Loan Party to, deliver to Lenders (or to Administrative
Agent for Lenders with sufficient originally executed copies, where appropriate,
for each Lender and its counsel) the following with respect to Company or such
Loan Party, as the case may be, each, unless otherwise noted, dated the Closing
Date:
(i) Certified copies of the Certificate or Articles of Incorporation
of such Person, together with a good standing certificate from the
Secretary of State of its jurisdiction of incorporation and each other
state in which such Person is qualified as a foreign corporation to do
business and, to the extent generally available, a certificate or other
evidence of good standing as to payment of any applicable franchise or
similar taxes from the appropriate taxing authority of each of such
jurisdictions, each dated a recent date prior to the Closing Date;
(ii) Copies of the Bylaws of such Person, certified as of the
Closing Date by such Person's corporate secretary or an assistant
secretary;
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(iii) Resolutions of the Board of Directors of such Person approving
and authorizing the execution, delivery and performance of the Revolving
Loan Documents and Related Agreements to which it is a party, certified as
of the Closing Date by the corporate secretary or an assistant secretary
of such Person as being in full force and effect without modification or
amendment;
(iv) Signature and incumbency certificates of the officers of such
Person executing the Revolving Loan Documents to which it is a party;
(v) Executed originals of the Revolving Loan Documents to which such
Person is a party; and
(vi) Such other documents as Arranger or Administrative Agent may
reasonably request.
B. No Material Adverse Effect. Since December 31, 1996, no Material
Adverse Effect (in the opinions of Arranger and Administrative Agent) shall have
occurred.
C. Corporate and Capital Structure, Ownership, Management, Etc.
(i) Corporate Structure. The corporate organizational structure of
Company and its Subsidiaries, both before and after giving effect to the
Merger, shall be as set forth on Schedule 4.1C annexed hereto.
(ii) Capital Structure and Ownership. The capital structure and
ownership of Company, both before and after giving effect to the Merger,
shall be as set forth on Schedule 4.1C annexed hereto.
(iii) Management; Employment Agreements. The management structure of
Company after giving effect to the Merger shall be as set forth on
Schedule 4.1C annexed hereto. Arranger and Administrative Agent shall have
received duly executed copies of, and shall be satisfied with the form and
substance of, the Employment Agreements as set forth on Schedule 4.1C
annexed hereto.
D. Proceeds of Debt and Equity Capitalization of Newco and Company.
(i) Debt and Equity Capitalization of Company. On or before the
Closing Date, Newco and Company shall have consummated the transactions
contemplated under the Recapitalization Agreement, and in connection with
such transactions, Company will have, following the Merger of Newco with
and into Company, not less than $75,000,000 of equity financing,
consisting of (i) approximately $7,500,000 in shares of Company retained
by current shareholders, (ii) approximately $750,000 in cash common equity
contributions by certain Management Investors (which contributions will be
financed by Company and will be made following consummation
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of the Merger) and (iii) approximately $67,500,000 in equity financing
from Newco, which equity financing shall have been contributed to Newco
immediately prior to the Merger as follows: (x) an amount not less than
$61,875,000 in cash by GSII, (y) approximately $4,500,000 of Old
Management Shares (valued at the highest cash price offered to public
shareholders in the Acquisition) contributed by a certain Management
Investor in exchange for common stock of Newco which will be converted in
the Merger into shares of Company Common Stock and (z) approximately
$1,125,000 of restricted shares of common stock of Newco granted to a
certain Management Investor which will be converted in the Merger into
shares of Company Common Stock. On or before the Closing Date, Company
shall have issued and sold not less than $110,000,000 in aggregate
principal amount of Senior Subordinated Notes.
(ii) Use of Proceeds by Company. Company shall have provided
evidence satisfactory to Arranger and Administrative Agent that the
proceeds of the debt and equity capitalization of Company described in the
immediately preceding clause (i) have been contributed or irrevocably
committed, prior to the application of the proceeds of any Revolving Loans
made on the Closing Date, to the payment of a portion of the
Recapitalization Financing Requirements.
E. Related Agreements.
(i) Form of Senior Subordinated Note Indenture. The Senior
Subordinated Note Indenture shall be in the form that has been approved by
Arranger and Administrative Agent or that would otherwise have been
permitted to be made pursuant to subsection 7.14B if the Senior
Subordinated Notes were issued and outstanding at the time of any such
change.
(ii) Approval of Certain Related Agreements. The Recapitalization
Agreement, the Certificate of Merger, the Stockholders Agreement, the
Voting Agreement, the Employment Agreements and the Tax Indemnification
Agreement shall each be satisfactory in form and substance to Arranger and
Administrative Agent.
(iii) Related Agreements in Full Force and Effect. Arranger and
Administrative Agent shall each have received a fully executed or
conformed copy of each Related Agreement (including all schedules and
exhibits thereto) and any material documents executed in connection
therewith, and each Related Agreement shall be in full force and effect
and no provision thereof shall have been modified or waived in any respect
determined by Arranger or Administrative Agent to be material, in each
case without the consent of Arranger and Administrative Agent.
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F. Matters Relating to Existing Indebtedness of Company and its
Subsidiaries.
(i) Termination of Existing Credit Agreements and Related Liens;
Existing Letters of Credit. On the Closing Date, Company and its
Subsidiaries shall have (a) repaid in full all Indebtedness outstanding
under the Existing Credit Agreements as set forth on Schedule 4.1F (the
aggregate principal amount of which Indebtedness shall not exceed
$48,000,000), (b) terminated any commitments to lend or make other
extensions of credit thereunder, (c) delivered to Arranger and
Administrative Agent all documents or instruments necessary to release all
Liens securing Indebtedness or other obligations of Company and its
Subsidiaries thereunder, and (d) made arrangements satisfactory to
Arranger and Administrative Agent with respect to the cancellation of any
letters of credit outstanding thereunder or the issuance of Letters of
Credit to support the obligations of Company and its Subsidiaries with
respect thereto.
(ii) Existing Indebtedness to Remain Outstanding. Arranger and
Administrative Agent shall have received an Officers' Certificate of
Company stating that, after giving effect to the transactions described in
this subsection 4.1F, the Indebtedness of Loan Parties (other than
Indebtedness under the Loan Documents and the Senior Subordinated Notes)
shall consist of (a) approximately $6,379,156 in aggregate principal
amount of outstanding Indebtedness described in Part I of Schedule 7.1
annexed hereto and (b) Indebtedness in an aggregate amount not to exceed
$4,643,679 in respect of Capital Leases described in Part II of Schedule
7.1 annexed hereto. The terms and conditions of all such Indebtedness
shall be in form and in substance satisfactory to Arranger, Administrative
Agent and Requisite Lenders.
G. Necessary Governmental Authorizations and Consents; Expiration of
Waiting Periods, Etc. Company shall have obtained all Governmental
Authorizations and all consents of other Persons, in each case that are
necessary or advisable in connection with the Merger, the other transactions
contemplated by the Loan Documents and the Related Agreements, and the continued
operation of the business conducted by Company and its Subsidiaries in
substantially the same manner as conducted prior to the consummation of the
Merger, and each of the foregoing shall be in full force and effect, in each
case other than those the failure to obtain or maintain which, either
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. All applicable waiting periods shall have expired
without any action being taken or threatened by any competent authority which
would restrain, prevent or otherwise impose adverse conditions on the Merger or
the financing thereof. No action, request for stay, petition for review or
rehearing, reconsideration, or appeal with respect to any of the foregoing shall
be pending, and the time for any applicable agency to take action to set aside
its consent on its own motion shall have expired.
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H. Consummation of Merger.
(i) All conditions to the Merger set forth in the Recapitalization
Agreement shall have been satisfied or the fulfillment of any such
conditions shall have been waived with the consent of Arranger,
Administrative Agent and Requisite Lenders;
(ii) the Merger shall have become effective in accordance with the
terms of the Recapitalization Agreement, the Certificate of Merger and the
laws of the State of Delaware;
(iii) Transaction Costs shall not exceed an amount previously agreed
to by Arranger, and Arranger shall have received evidence to its
satisfaction to such effect; and
(iv) Arranger and Administrative Agent shall have received an
Officers' Certificate of Company to the effect set forth in clauses
(i)-(iii) above.
I. Security Interests in Personal and Mixed Property. Collateral Agent
shall have received evidence satisfactory to it that Company and Subsidiary
Guarantors shall have taken or caused to be taken all such actions, executed and
delivered or caused to be executed and delivered all such agreements, documents
and instruments, and made or caused to be made all such filings and recordings
(other than the filing or recording of items described in clauses (iii), (iv)
and (v) below) that may be necessary or, in the opinion of Collateral Agent,
desirable in order to create in favor of Collateral Agent, for the benefit of
Secured Parties, a valid and (upon such filing and recording) perfected First
Priority security interest in the entire personal and mixed property Collateral.
Such actions shall include the following:
(i) Schedules to Collateral Documents. Delivery to Collateral Agent
of accurate and complete schedules to all of the applicable Collateral
Documents.
(ii) Stock Certificates and Instruments. Delivery to Collateral
Agent of (a) certificates (which certificates shall be accompanied by
irrevocable undated stock powers, duly endorsed in blank and otherwise
satisfactory in form and substance to Collateral Agent) representing all
capital stock pledged pursuant to the Company Pledge Agreement and the
Subsidiary Pledge Agreements and (b) all promissory notes or other
instruments (duly endorsed, where appropriate, in a manner satisfactory to
Collateral Agent) evidencing any Collateral;
(iii) Lien Searches and UCC Termination Statements. Delivery to
Arranger and Administrative Agent of (a) the results of a recent search,
by a Person satisfactory to Arranger and Administrative Agent, of all
effective UCC financing statements and fixture filings and all judgment
and tax lien filings which may have
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been made with respect to any personal or mixed property of any Loan
Party, together with copies of all such filings disclosed by such search,
and (b) UCC termination statements duly executed by all applicable Persons
for filing in all applicable jurisdictions as may be necessary to
terminate any effective UCC financing statements or fixture filings
disclosed in such search (other than any such financing statements or
fixture filings in respect of Liens permitted to remain outstanding
pursuant to the terms of this Agreement).
(iv) UCC Financing Statements and Fixture Filings. Delivery to
Collateral Agent of UCC financing statements and, where appropriate,
fixture filings, duly executed by each applicable Loan Party with respect
to all personal and mixed property Collateral of such Loan Party, for
filing in all jurisdictions as may be necessary or, in the reasonable
opinion of Collateral Agent, desirable to perfect the security interests
created in such Collateral pursuant to the Collateral Documents;
(v) Auxiliary Pledge Agreements. Execution and delivery to
Collateral Agent of Auxiliary Pledge Agreements with respect to the stock
of all Foreign Subsidiaries organized under the laws of all jurisdictions
with respect to which Collateral Agent deems an Auxiliary Pledge Agreement
necessary or advisable to perfect or otherwise protect the First Priority
Liens granted to Collateral Agent on behalf of Secured Parties in such
stock, and the taking of all such other actions under the laws of such
jurisdictions as Collateral Agent may deem necessary or advisable to
perfect or otherwise protect such Liens; and
(vi) Opinions of Local Counsel. Delivery to Arranger and
Administrative Agent of (a) an opinion of counsel (which counsel shall be
reasonably satisfactory to Arranger and Administrative Agent) under the
laws of each state in the United States in which any personal or mixed
property Collateral with an aggregate value in excess of $500,000 is
located with respect to the creation and perfection of the security
interests in favor of Collateral Agent in such Collateral and such other
matters governed by the laws of such jurisdiction regarding such security
interests as Arranger and Administrative Agent may reasonably request and
(b) an opinion of counsel (which counsel shall be reasonably satisfactory
to Arranger and Administrative Agent) under the laws of Quebec, Canada and
England as to the perfection of the pledge of stock of Foreign
Subsidiaries organized in those jurisdictions, in each case in form and
substance reasonably satisfactory to Arranger and Administrative Agent.
J. Environmental Reports. Arranger and Administrative Agent shall have
received such reports and other information, in form, scope and substance
satisfactory to Arranger and Administrative Agent, as Arranger and
Administrative Agent may reasonably require regarding environmental matters
relating to Company and its Subsidiaries and the Facilities, which reports shall
include (i) that certain Environmental Assessment dated October 7, 1997,
prepared by Pilko & Associates, Inc. for Confetti Acquisitions, Inc.
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\covering the Facilities located at Anaheim, California, Chester, New York, East
Providence, Rhode Island, Harriman, New York, Louisville, Kentucky, Montreal
(Kirkland), Quebec, Canada and Newburgh, New York, (the "Environmental
Assessment Report"), and (ii) a letter from Pilko & Associates, Inc. in form and
substance reasonably satisfactory to Administrative Agent allowing Arranger,
Administrative Agent, Collateral Agent and the Lenders to rely on the
Environmental Assessment Report to the same extent that Newco and Company may
rely thereon.
K. Financial Statements; Pro Forma Balance Sheet. On or before the Closing
Date, Lenders shall have received from Company (i) audited financial statements
of Company and its Subsidiaries for Fiscal Years ended December 31, 1994, 1995
and 1996, consisting of balance sheets and the related consolidated statements
of income, stockholders' equity and cash flows for such Fiscal Years, (ii)
unaudited financial statements of Company and its Subsidiaries as at September
30, 1997, consisting of a balance sheet and the related consolidated statements
of income, stockholders' equity and cash flows for the nine-month period ending
on such date, all in reasonable detail and certified by the chief financial
officer of Company that they fairly present the financial condition of Company
and its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to changes
resulting from audit and normal year-end adjustments, (iii) pro forma
consolidated balance sheets of Company and its Subsidiaries as of November 30,
1997, prepared in accordance with GAAP and reflecting the consummation of the
Merger, the related financings and the other transactions contemplated by the
Loan Documents and the Related Agreements, which pro forma financial statements
shall be in form and substance satisfactory to Lenders and (iv) pro forma
financial statements (including consolidated balance sheets, statements of
operations, stockholders' equity and cash flows) of Company and its Subsidiaries
for the 10-year period commencing on the Closing Date, which pro forma financial
statements shall be in form and substance satisfactory to Lenders.
L. Solvency Assurances. On the Closing Date, Arranger, Administrative
Agent and Lenders shall have received (i) a letter from Houlihan, Lokey, Howard
& Zukin, dated the Closing Date and addressed to Arranger, Administrative Agent
and Lenders, in form and substance satisfactory to Arranger and Administrative
Agent and with appropriate attachments, and (ii) a Financial Condition
Certificate dated the Closing Date, substantially in the form of Exhibit XI
annexed hereto and with appropriate attachments, in each case demonstrating
that, after giving effect to the consummation of the Merger, the related
financings and the other transactions contemplated by the Loan Documents and the
Related Agreements, Company will be Solvent.
M. Evidence of Insurance. Collateral Agent shall have received a
certificate from Company's insurance broker or other evidence satisfactory to it
that all insurance required to be maintained pursuant to subsection 6.4 is in
full force and effect and that Collateral Agent on behalf of Secured Parties has
been named as additional insured and/or loss payee thereunder to the extent
required under subsection 6.4.
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N. Opinions of Counsel to Loan Parties. Lenders and their respective
counsel shall have received (i) originally executed copies of one or more
favorable written opinions of (a) Wachtell, Lipton, Rosen & Katz, special
counsel for Loan Parties, in form and substance reasonably satisfactory to
Administrative Agent and Arranger and its counsel, dated as of the Closing Date
and setting forth substantially the matters in the opinions designated in
Exhibit VII-A annexed hereto and as to such other matters as Administrative
Agent or Arranger and acting on behalf of Lenders may reasonably request and (b)
Kurzman & Eisenberg counsel for Loan Parties, in form and substance reasonably
satisfactory to Administrative Agent and Arranger and its counsel, dated as of
the Closing Date and setting forth substantially the matters in the opinions
designated in Exhibit VII-B annexed hereto and as to such other matters as
Administrative Agent or Arranger and acting on behalf of Lenders may reasonably
request, and (ii) evidence satisfactory to Arranger and Administrative Agent
that Company has requested such counsel to deliver such opinions to Lenders.
O. Opinions of Arranger and Administrative Agent's Counsel. Lenders shall
have received originally executed copies of one or more favorable written
opinions of O'Melveny & Myers LLP, counsel to Arranger and Administrative Agent,
dated as of the Closing Date, substantially in the form of Exhibit VIII annexed
hereto and as to such other matters as Arranger and Administrative Agent may
reasonably request.
P. Fees. Company shall have paid to Arranger and Administrative Agent, for
distribution (as appropriate) to Arranger, Administrative Agent and Lenders, the
fees payable on the Closing Date referred to in subsection 2.3.
Q. Representations and Warranties; Performance of Agreements. Company
shall have delivered to Arranger and Administrative Agent an Officers'
Certificate, in form and substance satisfactory to Arranger and Administrative
Agent, to the effect that the representations and warranties in Section 5 hereof
are true, correct and complete in all material respects on and as of the Closing
Date to the same extent as though made on and as of that date (or, to the extent
such representations and warranties specifically relate to an earlier date, that
such representations and warranties were true, correct and complete in all
material respects on and as of such earlier date) and that Company shall have
performed in all material respects all agreements and satisfied all conditions
which this Agreement provides shall be performed or satisfied by it on or before
the Closing Date except as otherwise disclosed to and agreed to in writing by
Arranger, Administrative Agent and Requisite Lenders.
R. Completion of Proceedings. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated hereby and all
documents incidental thereto not previously found acceptable by Administrative
Agent, acting on behalf of Lenders, or Arranger and its counsel shall be
satisfactory in form and substance to Administrative Agent and Arranger and such
counsel, and Administrative Agent, Arranger
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and such counsel shall have received all such counterpart originals or certified
copies of such documents as Administrative Agent or Arranger may reasonably
request.
S. Borrowing Base Certificate. Administrative Agent shall have received a
Borrowing Base Certificate dated as of November 30, 1997, in form, scope and
substance satisfactory to Arranger and Administrative Agent.
T. Cash Management System. Administrative Agent shall have received
evidence satisfactory to it that Company and its Subsidiaries have established
and maintain a cash management system in form and substance reasonably
satisfactory to the Administrative Agent and in accordance with subsection 6.11.
U. Collateral Access Agreements. Company and each applicable Subsidiary
Guarantor shall have used its reasonable good faith efforts to obtain, in the
case of any Leasehold Property or any real property in which Company or any of
its Subsidiaries owns or holds a fee interest and which is subject to a mortgage
held by a third-party mortgagee holding inventory or equipment with an aggregate
fair market value exceeding $500,000, a Collateral Access Agreement with respect
thereto, in each case in form and substance reasonably satisfactory to Arranger
and Administrative Agent.
V. AXEL Credit Agreement. Arranger and Administrative Agent shall each
have received a fully executed or conformed copy of the AXEL Credit Agreement
satisfactory in form and substance to Arranger and Administrative Agent. The
AXEL Credit Agreement shall be in full force and effect and the conditions to
advances of the AXELs thereunder shall have been satisfied or waived by the AXEL
Lenders.
4.2 Conditions to All Revolving Loans.
The obligations of Lenders to make Revolving Loans on each Funding Date
are subject to the following further conditions precedent:
A. Administrative Agent shall have received before that Funding Date,
in accordance with the provisions of subsection 2.1B, an originally executed
Notice of Borrowing, in each case signed by the chief executive officer, the
chief financial officer or the treasurer or corporate controller of Company or
by any executive officer of Company designated by any of the above-described
officers on behalf of Company in a writing delivered to Administrative Agent.
B. As of that Funding Date:
(i) The representations and warranties contained herein and in the
other Revolving Loan Documents shall be true, correct and complete in all
material respects on and as of that Funding Date to the same extent as
though made on and as of that date, except to the extent such
representations and warranties specifically
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relate to an earlier date, in which case such representations and
warranties shall have been true, correct and complete in all material
respects on and as of such earlier date;
(ii) No event shall have occurred and be continuing or would result
from the consummation of the borrowing contemplated by such Notice of
Borrowing that would constitute an Event of Default or a Potential Event
of Default;
(iii) Each Loan Party shall have performed in all material respects
all agreements and satisfied all conditions which this Agreement provides
shall be performed or satisfied by it on or before that Funding Date;
(iv) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain any Lender from
making the Revolving Loans to be made by it on that Funding Date;
(v) The making of the Revolving Loans requested on such Funding Date
shall not violate any law including Regulation G, Regulation T, Regulation
U or Regulation X of the Board of Governors of the Federal Reserve System;
and
(vi) There shall not be pending or, to the knowledge of Company,
threatened, any action, suit, proceeding, governmental investigation or
arbitration against or affecting Company or any of its Subsidiaries or any
property of Company or any of its Subsidiaries that has not been disclosed
by Company in writing pursuant to subsection 5.6 or 6.1(x) prior to the
making of the last preceding Revolving Loans (or, in the case of the
initial Revolving Loans, prior to the execution of this Agreement), and
there shall have occurred no development not so disclosed in any such
action, suit, proceeding, governmental investigation or arbitration so
disclosed, that, in either event, in the opinion of Administrative Agent
or of Requisite Lenders, would be expected to have a Material Adverse
Effect; and no injunction or other restraining order shall have been
issued and no hearing to cause an injunction or other restraining order to
be issued shall be pending or noticed with respect to any action, suit or
proceeding seeking to enjoin or otherwise prevent the consummation of, or
to recover any damages or obtain relief as a result of, the transactions
contemplated by this Agreement or the making of Revolving Loans hereunder.
4.3 Conditions to Letters of Credit.
The issuance of any Letter of Credit hereunder (whether or not the
applicable Issuing Lender is obligated to issue such Letter of Credit) is
subject to the following conditions precedent:
A. On or before the date of issuance of the initial Letter of Credit
pursuant to this Agreement, the initial Revolving Loans shall have been
made.
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B. On or before the date of issuance of such Letter of Credit,
Administrative Agent shall have received, in accordance with the
provisions of subsection 3.1B(i), an originally executed Notice of
Issuance of Letter of Credit, in each case signed by the chief executive
officer, the chief financial officer or the treasurer or corporate
controller of Company or by any executive officer of Company designated by
any of the above-described officers on behalf of Company in a writing
delivered to Administrative Agent, together with all other information
specified in subsection 3.1B(i) and such other documents or information as
the applicable Issuing Lender may reasonably require in connection with
the issuance of such Letter of Credit.
C. On the date of issuance of such Letter of Credit, all conditions
precedent described in subsection 4.2B shall be satisfied to the same
extent as if the issuance of such Letter of Credit were the making of a
Revolving Loan and the date of issuance of such Letter of Credit were a
Funding Date.
SECTION 5.
COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Agreement and to make the
Revolving Loans, to induce Issuing Lenders to issue Letters of Credit and to
induce other Lenders to purchase participations therein, Company represents and
warrants to each Lender, on the date of this Agreement, on each Funding Date and
on the date of issuance of each Letter of Credit, that the following statements
are true, correct and complete:
5.1 Organization, Powers, Qualification, Good Standing, Business and
Subsidiaries.
A. Organization and Powers. Each Loan Party is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation as specified in Schedule 5.1 annexed hereto as it
may be supplemented pursuant to subsection 6.1(xvi). Each Loan Party has all
requisite corporate power and authority to own and operate its properties, to
carry on its business as now conducted and as proposed to be conducted, to enter
into the Revolving Loan Documents and Related Agreements to which it is a party
and to carry out the transactions contemplated thereby.
B. Qualification and Good Standing. Each Loan Party is qualified to do
business and in good standing in every jurisdiction where its assets are located
and wherever necessary to carry out its business and operations, except in
jurisdictions where the failure to be so qualified or in good standing has not
had and could not reasonably be expected to have a Material Adverse Effect.
C. Conduct of Business. Company and its Subsidiaries are engaged only in
the businesses permitted to be engaged in pursuant to subsection 7.14.
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D. Subsidiaries. All of the Subsidiaries of Company as of the Closing Date
are identified in Schedule 5.1 annexed hereto, as said Schedule 5.1 may be
supplemented from time to time pursuant to the provisions of subsection
6.1(xvi). The capital stock of each of the Subsidiaries of Company identified in
Schedule 5.1 annexed hereto (as so supplemented) is duly authorized, validly
issued, fully paid and nonassessable and none of such capital stock constitutes
Margin Stock. Each of the Subsidiaries of Company identified in Schedule 5.1
annexed hereto (as so supplemented) is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation set forth therein, has all requisite corporate power and authority
to own and operate its properties and to carry on its business as now conducted
and as proposed to be conducted, and is qualified to do business and in good
standing in every jurisdiction where its assets are located and wherever
necessary to carry out its business and operations, in each case except where
failure to be so qualified or in good standing or a lack of such corporate power
and authority has not had and could not reasonably be expected to have a
Material Adverse Effect. Schedule 5.1 annexed hereto (as so supplemented)
correctly sets forth, as of the Closing Date, the ownership interest of Company
and each of its Subsidiaries in each of the Subsidiaries of Company identified
therein.
5.2 Authorization of Borrowing, etc.
A. Authorization of Borrowing. The execution, delivery and performance of
the Revolving Loan Documents and the Related Agreements have been duly
authorized by all necessary corporate action on the part of each Loan Party that
is a party thereto.
B. No Conflict. The execution, delivery and performance by Loan Parties of
the Revolving Loan Documents and the Related Agreements to which they are
parties and the consummation of the transactions contemplated by the Revolving
Loan Documents and such Related Agreements do not and will not (i) violate any
provision of any law or any governmental rule or regulation applicable to
Company or any of its Subsidiaries, the Certificate or Articles of Incorporation
or Bylaws of Company or any of its Subsidiaries or any order, judgment or decree
of any court or other agency of government binding on Company or any of its
Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any Contractual Obligation of
Company or any of its Subsidiaries, except for any breach or default which could
not reasonably be expected to have a Material Adverse Effect, (iii) result in or
require the creation or imposition of any Lien upon any of the properties or
assets of Company or any of its Subsidiaries (other than any Liens created under
any of the Revolving Loan Documents in favor of Administrative Agent on behalf
of Lenders), or (iv) require any approval of stockholders or any approval or
consent of any Person under any Contractual Obligation of Company or any of its
Subsidiaries, except for such approvals or consents which will be obtained on or
before the Closing Date and disclosed in writing to Lenders and such consents
the failure of which to receive could not reasonably be expected to have a
Material Adverse Effect.
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C. Governmental Consents. The execution, delivery and performance by Loan
Parties of the Revolving Loan Documents and the Related Agreements to which they
are parties and the consummation of the transactions contemplated by the
Revolving Loan Documents and such Related Agreements do not and will not require
any registration with, consent or approval of, or notice to, or other action to,
with or by, any federal, state or other governmental authority or regulatory
body the failure of which to receive could not reasonably be expected to cause a
Material Adverse Effect.
D. Binding Obligation. Each of the Revolving Loan Documents and Related
Agreements has been duly executed and delivered by each Loan Party that is a
party thereto and is the legally valid and binding obligation of such Loan
Party, enforceable against such Loan Party in accordance with its respective
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability.
E. Valid Issuance of Company Common Stock and Senior Subordinated
Notes.
(i) Company Common Stock. The Company Common Stock to be issued in
the Merger on or before the Closing Date, when issued and delivered, will
be duly and validly issued, fully paid and nonassessable. No stockholder
of Company has or will have any preemptive rights to subscribe for any
additional equity Securities of Company. The issuance and sale of such
Company Common Stock, upon such issuance and sale, will either (a) have
been registered or qualified under applicable federal and state securities
laws or (b) be exempt therefrom.
(ii) Senior Subordinated Notes. Company has the corporate power and
authority to issue the Senior Subordinated Notes. The Senior Subordinated
Notes, when issued and paid for, will be the legally valid and binding
obligations of Company, enforceable against Company in accordance with
their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or
limiting creditors' rights generally or by equitable principles relating
to enforceability. The subordination provisions of the Senior Subordinated
Notes will be enforceable against the holders thereof and the Revolving
Loans and all other monetary Obligations hereunder are and will be within
the definition of "Senior Debt" and "Designated Senior Debt" included in
such provisions. The Senior Subordinated Notes, when issued and sold, will
either (a) have been registered or qualified under applicable federal and
state securities laws or (b) be exempt therefrom.
5.3 Financial Condition.
Company has heretofore delivered to Lenders, at Lenders' request, the
following financial statements and information: (i) the audited consolidated
balance sheets of Company and its Subsidiaries as at December 31, 1996 and the
related consolidated
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statements of income, stockholders' equity and cash flows of Company and its
Subsidiaries for the Fiscal Year then ended and (ii) the unaudited consolidated
balance sheets of Company and its Subsidiaries as at September 30, 1997 and the
related unaudited consolidated statements of income, stockholders' equity and
cash flows of Company and its Subsidiaries for the nine-months then ended. All
such statements were prepared in conformity with GAAP and fairly present, in all
material respects, the financial position (on a consolidated basis) of the
entities described in such financial statements as at the respective dates
thereof and the results of operations and cash flows (on a consolidated basis)
of the entities described therein for each of the periods then ended, subject,
in the case of any such unaudited financial statements, to changes resulting
from audit and normal year-end adjustments. Company does not (and will not
following the funding of the initial Revolving Loans) have any Contingent
Obligation, contingent liability or liability for taxes, long-term lease or
unusual forward or long-term commitment that is not reflected in the foregoing
financial statements or the notes thereto and which in any such case is material
in relation to the business, operations, properties, assets, condition
(financial or otherwise) or prospects of Company or any of its Subsidiaries.
5.4 No Material Adverse Change; No Restricted Junior Payments.
Since December 31, 1996, no event or change has occurred that has caused
or evidences, either in any case or in the aggregate, a Material Adverse Effect.
Other than with respect to the Recapitalization Consideration and the repayment
of debt outstanding prior to the effectiveness of the Merger, neither Company
nor any of its Subsidiaries has directly or indirectly declared, ordered, or set
apart any sum or property which has not yet been paid for, any Restricted Junior
Payment or agreed to do so except as permitted by subsection 7.5.
5.5 Title to Properties; Liens; Real Property.
A. Title to Properties; Liens. Except for Permitted Encumbrances and
Liens, Company and its Subsidiaries have (i) good, sufficient and legal title to
(in the case of fee interests in real property), (ii) valid leasehold interests
in (in the case of leasehold interests in real or personal property), or (iii)
good title to (in the case of all other personal property), all of their
respective properties and assets reflected in the financial statements referred
to in subsection 5.3 or in the most recent financial statements delivered
pursuant to subsection 6.1, in each case except for assets disposed of since the
date of such financial statements in the ordinary course of business or as
otherwise permitted under subsection 7.7. All such properties and assets are
free and clear of Liens other than Permitted Encumbrances and other Liens
permitted under this Agreement.
B. Real Property. As of the Closing Date, Schedule 5.5 annexed hereto
contains a true, accurate and complete list of (i) all Fee Properties and (ii)
all leases, subleases or assignments of leases (together with all amendments,
modifications, supplements, renewals or extensions of any thereof) affecting
each Real Property Asset of any Loan Party,
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regardless of whether such Loan Party is the landlord or tenant (whether
directly or as an assignee or successor in interest) under such lease, sublease
or assignment. As of the Closing Date, except as specified in Schedule 5.5
annexed hereto, each agreement listed in clause (ii) of the immediately
preceding sentence is in full force and effect and Company does not have
knowledge of any material default that has occurred and is continuing
thereunder, and each such agreement constitutes the legally valid and binding
obligation of each applicable Loan Party, enforceable against such Loan Party in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles.
5.6 Litigation; Adverse Facts.
Except as set forth in Schedule 5.6 annexed hereto, there are no actions,
suits, proceedings, arbitrations or governmental investigations (whether or not
purportedly on behalf of Company or any of its Subsidiaries) at law or in
equity, or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign (including any Environmental Claims) that are pending or, to the
knowledge of Company, threatened against or affecting Company or any of its
Subsidiaries or any property of Company or any of its Subsidiaries and that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. Neither Company nor any of its Subsidiaries (i) is in
violation of any applicable laws (including Environmental Laws) that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect, or (ii) is subject to or in default with respect to any
final judgments, writs, injunctions, decrees, rules or regulations of any court
or any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect.
5.7 Payment of Taxes.
Except to the extent permitted by subsection 6.3, all material tax returns
and reports of Company and its Subsidiaries required to be filed by any of them
have been timely filed, and all taxes shown on such tax returns to be due and
payable and all assessments, fees and other governmental charges upon Company
and its Subsidiaries and upon their respective properties, assets, income,
businesses and franchises which are due and payable have been paid when due and
payable. Company knows of no proposed material tax assessment against Company or
any of its Subsidiaries which is not being actively contested by Company or such
Subsidiary in good faith and by appropriate proceedings; provided that such
reserves or other appropriate provisions, if any, as shall be required in
conformity with GAAP shall have been made or provided therefor.
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5.8 Performance of Agreements; Materially Adverse Agreements; Material
Contracts.
A. Neither Company nor any of its Subsidiaries is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any of its Contractual Obligations, and no condition
exists that, with the giving of notice or the lapse of time or both, would
constitute such a default, except where the consequences, direct or indirect, of
such default or defaults, if any, would not have a Material Adverse Effect.
B. Neither Company nor any of its Subsidiaries is a party to or is
otherwise subject to any agreements or instruments or any charter or other
internal restrictions which, individually or in the aggregate, could reasonably
be expected to result in a Material Adverse Effect.
C. Schedule 5.8 contains a true, correct and complete list of all the
Material Contracts in effect on the Closing Date. Except as described on
Schedule 5.8, all such Material Contracts are in full force and effect and no
defaults currently exist thereunder other than any such defaults or failure to
be in force and effect which could not reasonably be expected to result in a
Material Adverse Effect.
5.9 Governmental Regulation.
Neither Company nor any of its Subsidiaries is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of 1940 or under any other
federal or state statute or regulation which may limit its ability to incur
Indebtedness or which may otherwise render all or any portion of the Obligations
unenforceable.
5.10 Securities Activities.
A. Neither Company nor any of its Subsidiaries is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying any Margin Stock.
B. Following application of the proceeds of each AXEL under the AXEL
Credit Agreement and the Revolving Loan, not more than 25% of the value of the
assets (either of Company only or of Company and its Subsidiaries on a
consolidated basis) subject to the provisions of subsection 7.2 or 7.7 or
subject to any restriction contained in any agreement or instrument, between
Company and any Lender or any Affiliate of any Lender, relating to Indebtedness
and within the scope of subsection 8.2, will be Margin Stock.
5.11 Employee Benefit Plans.
A. Company, each of its Subsidiaries and each of their respective ERISA
Affiliates are in compliance with all applicable provisions and requirements of
ERISA and
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the regulations and published interpretations thereunder with respect
to each Employee Benefit Plan, and have performed all their obligations under
each Employee Benefit Plan. Each Employee Benefit Plan which is intended to
qualify under Section 401(a) of the Internal Revenue Code is so qualified.
B. No ERISA Events have occurred or are reasonably expected to occur which
could reasonably be expected to result in liabilities to the Company or any of
its Subsidiaries in excess of $1,000,000 in the aggregate.
C. As of the most recent valuation date for any Pension Plan, the excess
of (1) the actuarial present value (determined on the basis of reasonable
assumptions employed by the independent actuary for each Pension Plan for
purposes of Section 412 of the Internal Revenue Code or Section 302 of ERISA) of
benefit liabilities (as defined in Section 4001(a)(16) of ERISA) over (2) the
fair market value of the assets of such Pension Plan, individually or in the
aggregate for all Pension Plans (excluding for purposes of such computation any
Pension Plans with respect to which assets exceed benefit liabilities), does not
exceed $5,000,000.
D. As of the most recent valuation date for each Multiemployer Plan for
which the actuarial report is available, the potential liability of Company, its
Subsidiaries and their respective ERISA Affiliates for a complete withdrawal
from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when
aggregated with such potential liability for a complete withdrawal from all
Multiemployer Plans, based on information available pursuant to Section 4221(e)
of ERISA, does not exceed $5,000,000.
5.12 Certain Fees.
Except as described in the Confidential Information Memorandum, no
broker's or finder's fee or commission will be payable with respect to this
Agreement or any of the transactions contemplated hereby, and Company hereby
indemnifies Lenders against, and agrees that it will hold Lenders harmless from,
any claim, demand or liability for any such broker's or finder's fees alleged to
have been incurred in connection herewith or therewith and any expenses
(including reasonable fees, expenses and disbursements of counsel) arising in
connection with any such claim, demand or liability.
5.13 Environmental Protection.
Except as set forth in Schedule 5.13 annexed hereto:
(i) neither Company nor any of its Subsidiaries nor any of their
respective Facilities or operations are subject to any outstanding written
order, consent decree or settlement agreement with any Person relating to
(a) any Environmental Law, (b) any Environmental Claim, or (c) any
Hazardous Materials Activity;
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(ii) neither Company nor any of its Subsidiaries has received any
letter or request for information under Section 104 of the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. ss.
9604) or any comparable state law;
(iii) there are and, to Company's knowledge, have been no
conditions, occurrences, or Hazardous Materials Activities which could
reasonably be expected to form the basis of an Environmental Claim against
Company or any of its Subsidiaries;
(iv) neither Company nor any of its Subsidiaries nor, to Company's
knowledge, any predecessor of Company or any of its Subsidiaries has filed
any notice under any Environmental Law indicating past or present
treatment of Hazardous Materials at any Facility, and none of Company's or
any of its Subsidiaries' operations involves the generation,
transportation, treatment, storage or disposal of hazardous waste, as
defined under 40 C.F.R. Parts 260-270 or any state equivalent;
(v) compliance with all current or reasonably foreseeable future
requirements pursuant to or under Environmental Laws will not,
individually or in the aggregate, have a reasonable possibility of giving
rise to a Material Adverse Effect.
Notwithstanding anything in this subsection 5.13 to the contrary, no event
or condition has occurred or is occurring with respect to Company or any of its
Subsidiaries relating to any Environmental Law, any Release of Hazardous
Materials, or any Hazardous Materials Activity, including any matter disclosed
on Schedule 5.13 annexed hereto, which individually or in the aggregate has had
or could reasonably be expected to have a Material Adverse Effect.
5.14 Employee Matters.
There is no strike or work stoppage in existence or threatened involving
Company or any of its Subsidiaries that could reasonably be expected to have a
Material Adverse Effect.
5.15 Solvency.
Each Loan Party is and, upon the incurrence of any Obligations by such
Loan Party on any date on which this representation is made, will be, Solvent.
5.16 Matters Relating to Collateral.
A. Creation, Perfection and Priority of Liens. The execution and delivery
of the Collateral Documents by Loan Parties, together with (i) the actions taken
on or prior to the
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date hereof pursuant to subsections 4.1I, 6.8 and 6.9 and (ii) the delivery to
Collateral Agent of any Pledged Collateral not delivered to Collateral Agent at
the time of execution and delivery of the applicable Collateral Document (all of
which Pledged Collateral has been so delivered) are effective to create in favor
of Collateral Agent for the benefit of Secured Parties, as security for the
respective Secured Obligations (as defined in the applicable Collateral Document
in respect of any Collateral), a valid and perfected First Priority Lien on all
of the Collateral, and all filings and other actions necessary or desirable to
perfect and maintain the perfection and First Priority status of such Liens have
been duly made or taken and remain in full force and effect, other than the
filing of any UCC financing statements delivered to Collateral Agent for filing
(but not yet filed) and the periodic filing of UCC continuation statements in
respect of UCC financing statements filed by or on behalf of Collateral Agent.
B. Governmental Authorizations. No authorization, approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for either (i) the pledge or grant by any Loan Party of the
Liens purported to be created in favor of Collateral Agent pursuant to any of
the Collateral Documents or (ii) the exercise by Collateral Agent of any rights
or remedies in respect of any Collateral (whether specifically granted or
created pursuant to any of the Collateral Documents or created or provided for
by applicable law), except for filings or recordings contemplated by subsection
5.16A and except as may be required, in connection with the disposition of any
Pledged Collateral, by laws generally affecting the offering and sale of
securities.
C. Absence of Third-Party Filings. Except such as may have been filed in
favor of Collateral Agent as contemplated by subsection 5.16A, no effective UCC
financing statement, fixture filing or other instrument similar in effect
covering all or any part of the Collateral is on file in any filing or recording
office.
D. Margin Regulations. The pledge of the Pledged Collateral pursuant to
the Collateral Documents does not violate Regulation G, T, U or X of the Board
of Governors of the Federal Reserve System.
E. Information Regarding Collateral. All information supplied to
Collateral Agent by or on behalf of any Loan Party with respect to any of the
Collateral (in each case taken as a whole with respect to any particular
Collateral) is accurate and complete in all material respects.
5.17 Related Agreements.
A. Delivery of Related Agreements. Company has delivered to Lenders
complete and correct copies of each Related Agreement and of all exhibits and
schedules thereto.
B. Warranties of Company. Except to the extent otherwise set forth herein
or in the schedules hereto, each of the representations and warranties given by
Company in the
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Recapitalization Agreement is true and correct in all material respects as of
the date hereof (or as of any earlier date to which such representation and
warranty specifically relates) and will be true and correct in all material
respects as of the Closing Date (or as of such earlier date, as the case may
be), in each case subject to the qualifications set forth in the schedules to
the Recapitalization Agreement.
C. Survival. Notwithstanding anything in the Recapitalization Agreement to
the contrary, the representations and warranties of Company set forth in
subsection 5.17B shall, solely for purposes of this Agreement, survive the
Closing Date for the benefit of Lenders.
5.18 Disclosure.
No representation or warranty of Company or any of its Subsidiaries
contained in the Confidential Information Memorandum or in any Loan Document or
in any other document, certificate or written statement furnished to Lenders by
or on behalf of Company or any of its Subsidiaries for use in connection with
the transactions contemplated by this Agreement contains any untrue statement of
a material fact or omits to state a material fact (known to Company, in the case
of any document not furnished by it) necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances in
which the same were made. Any projections and pro forma financial information
contained in such materials are based upon good faith estimates and assumptions
believed by Company to be reasonable at the time made, it being recognized by
Lenders that such projections as to future events are not to be viewed as facts
and that actual results during the period or periods covered by any such
projections may differ from the projected results. There are no facts known (or
which should upon the reasonable exercise of diligence be known) to Company
(other than matters of a general economic nature) that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect
and that have not been disclosed herein or in such other documents, certificates
and statements furnished to Lenders for use in connection with the transactions
contemplated hereby.
5.19 AXEL Credit Agreement.
A. Delivery of AXEL Credit Agreement. Company has delivered to Lenders
complete and correct copies of the AXEL Credit Agreement and of all exhibits and
schedules thereto.
B. Warranties of Company. Except to the extent otherwise set forth herein
or in the schedule hereto, each of the representations and warranties given by
Company in the AXEL Credit Agreement is true and correct in all material
respects as of the date hereof (or as of any earlier date to which such
representation and warranty specifically relates) and will be true and correct
in all material respects as of the Closing Date (or as of such earlier date, as
the case may be), in each case subject to the qualifications set forth in the
schedules to the AXEL Credit Agreement.
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SECTION 6.
COMPANY'S AFFIRMATIVE COVENANTS
Company covenants and agrees that, so long as any of the Revolving Loan
Commitments hereunder shall remain in effect and until payment in full of all of
the Revolving Loans and other Obligations and the cancellation or expiration of
all Letters of Credit, unless Requisite Lenders shall otherwise give prior
written consent, Company shall perform, and shall cause each of its Subsidiaries
to perform, all covenants in this Section 6.
6.1 Financial Statements and Other Reports.
Company will maintain, and cause each of its Subsidiaries to maintain, a
system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in conformity
with GAAP. Company will deliver to Administrative Agent and Lenders:
(i) Monthly Financials: as soon as available and in any event within
30 days after the end of each month ending after the Closing Date (or
within 45 days after the end of each month which ends a Fiscal Quarter),
the consolidated balance sheets of Company and its Subsidiaries as at the
end of such month and the related consolidated statements of income,
stockholders' equity and cash flows of Company and its Subsidiaries for
such month and for the period from the beginning of the then current
Fiscal Year to the end of such month, setting forth in each case in
comparative form the corresponding figures for the corresponding periods
of the previous Fiscal Year and the corresponding figures from the
Financial Plan for the current Fiscal Year, to the extent prepared on a
monthly basis, all in reasonable detail and certified by the chief
financial officer of Company that they fairly present, in all material
respects, the financial condition of Company and its Subsidiaries as at
the dates indicated and the results of their operations and their cash
flows for the periods indicated, subject to changes resulting from audit
and normal year-end adjustments, for such month and for the period from
the beginning of the then current Fiscal Year to the end of such month;
(ii) Quarterly Financials: as soon as available and in any event
within 45 days after the end of each of first three Fiscal Quarters of
each year, (a) the consolidated balance sheets of Company and its
Subsidiaries as at the end of such Fiscal Quarter and the related
consolidated statements of income, stockholders' equity and cash flows of
Company and its Subsidiaries for such Fiscal Quarter and for the period
from the beginning of the then current Fiscal Year to the end of such
Fiscal Quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding periods of the previous Fiscal
Year and the corresponding figures from the Financial Plan for the current
Fiscal Year, all in reasonable detail and certified by the chief financial
officer of Company that they fairly present, in all material respects, the
financial condition of Company and its
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Subsidiaries as at the dates indicated and the results of their operations
and their cash flows for the periods indicated, subject to changes
resulting from audit and normal year-end adjustments, and (b) a narrative
report describing the operations of Company and its Subsidiaries in the
form of the MD&A, which is prepared by the Company for public filing for
such Fiscal Quarter and for the period from the beginning of the then
current Fiscal Year to the end of such Fiscal Quarter;
(iii) Year-End Financials: as soon as available and in any event
within 90 days after the end of each Fiscal Year, (a) the consolidated
balance sheets of Company and its Subsidiaries as at the end of such
Fiscal Year and the related consolidated statements of income,
stockholders' equity and cash flows of Company and its Subsidiaries for
such Fiscal Year, setting forth in each case in comparative form the
corresponding figures for the previous Fiscal Year and the corresponding
figures from the Financial Plan for the Fiscal Year covered by such
financial statements, all in reasonable detail and certified by the chief
financial officer of Company that they fairly present, in all material
respects, the financial condition of Company and its Subsidiaries as at
the dates indicated and the results of their operations and their cash
flows for the periods indicated, (b) a narrative report describing the
operations of Company and its Subsidiaries in the form prepared for
presentation to senior management for such Fiscal Year, and (c) a report
thereon of independent certified public accountants of recognized national
standing selected by Company and satisfactory to Administrative Agent,
which report shall be unqualified, shall express no doubts about the
ability of Company and its Subsidiaries to continue as a going concern,
and shall state that such consolidated financial statements fairly
present, in all material respects, the consolidated financial position of
Company and its Subsidiaries as at the dates indicated and the results of
their operations and their cash flows for the periods indicated in
conformity with GAAP applied on a basis consistent with prior years
(except as otherwise disclosed in such financial statements) and that the
examination by such accountants in connection with such consolidated
financial statements has been made in accordance with generally accepted
auditing standards;
(iv) Officers' and Compliance Certificates: together with each
delivery of financial statements of Company and its Subsidiaries pursuant
to subdivisions (ii) and (iii) above, (a) an Officers' Certificate of
Company stating that the signers have reviewed the terms of this Agreement
and have made, or caused to be made under their supervision, a review in
reasonable detail of the transactions and condition of Company and its
Subsidiaries during the accounting period covered by such financial
statements and that such review has not disclosed the existence during or
at the end of such accounting period, and that the signers do not have
knowledge of the existence as at the date of such Officers' Certificate,
of any condition or event that constitutes an Event of Default or
Potential Event of Default, or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what
action Company has taken, is taking and proposes to take with respect
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thereto; and (b) a Compliance Certificate demonstrating in reasonable
detail (1) compliance during and at the end of the applicable accounting
periods with the restrictions contained in Section 7, in each case to the
extent compliance with such restrictions is required to be tested at the
end of the applicable accounting period and (2) with respect to any Net
Asset Sale Proceeds received by Company or any of its Subsidiaries during
the second Fiscal Quarter immediately preceding the Fiscal Quarter in
which the applicable accounting period ends, whether or not all or any
portion of such Net Asset Sale Proceeds shall have become Unreinvested
Asset Sale Proceeds;
(v) Reconciliation Statements: if, as a result of any change in
accounting principles and policies from those used in the preparation of
the audited financial statements referred to in subsection 5.3, the
consolidated financial statements of Company and its Subsidiaries
delivered pursuant to subdivisions (ii), (iii) or (xiii) of this
subsection 6.1 will differ in any material respect from the consolidated
financial statements that would have been delivered pursuant to such
subdivisions had no such change in accounting principles and policies been
made, then (a) together with the first delivery of financial statements
pursuant to subdivision (ii), (iii) or (xiii) of this subsection 6.1
following such change, consolidated financial statements of Company and
its Subsidiaries for (y) the current Fiscal Year to the effective date of
such change and (z) the two full Fiscal Years immediately preceding the
Fiscal Year in which such change is made, in each case prepared on a pro
forma basis as if such change had been in effect during such periods, and
(b) together with each delivery of financial statements pursuant to
subdivision (ii), (iii) or (xiii) of this subsection 6.1 following such
change, a written statement of the chief accounting officer or chief
financial officer of Company setting forth the differences (including any
differences that would affect any calculations relating to the financial
covenants set forth in subsection 7.6) which would have resulted if such
financial statements had been prepared without giving effect to such
change;
(vi) Accountants' Certification: together with each delivery of
consolidated financial statements of Company and its Subsidiaries pursuant
to subdivision (iii) above, a written statement by the independent
certified public accountants giving the report thereon (a) stating that
their audit examination has included a review of the terms of this
Agreement and the other Revolving Loan Documents as they relate to
accounting matters, (b) stating whether, in connection with their audit
examination, any condition or event that constitutes an Event of Default
or Potential Event of Default has come to their attention and, if such a
condition or event has come to their attention, specifying the nature and
period of existence thereof; provided that such accountants shall not be
liable by reason of any failure to obtain knowledge of any such Event of
Default or Potential Event of Default that would not be disclosed in the
course of their audit examination, and (c) stating that based on their
audit examination nothing has come to their attention that causes them to
believe either or both that the information contained in the certificates
delivered therewith
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pursuant to subdivision (iv) above is not correct or that the matters set
forth in the Compliance Certificates delivered therewith pursuant to
clause (b) of subdivision (iv) above for the applicable Fiscal Year are
not stated in accordance with the terms of this Agreement;
(vii) Accountants' Reports: promptly upon receipt thereof (unless
restricted by applicable professional standards), copies of all reports
submitted to Company by independent certified public accountants in
connection with each annual, interim or special audit of the financial
statements of Company and its Subsidiaries made by such accountants,
including any comment letter submitted by such accountants to management
in connection with their annual audit;
(viii) SEC Filings and Press Releases: promptly upon their becoming
available, copies of (a) all financial statements, reports, notices and
proxy statements sent or made available generally by Company to its
security holders or by any Subsidiary of Company to its security holders
other than Company or another Subsidiary of Company, (b) all regular and
periodic reports and all registration statements (other than on Form S-8
or a similar form) and prospectuses, if any, filed by Company or any of
its Subsidiaries with any securities exchange or with the Securities and
Exchange Commission or any governmental or private regulatory authority,
and (c) all press releases and other statements made available generally
by Company or any of its Subsidiaries to the public concerning material
developments in the business of Company or any of its Subsidiaries;
(ix) Events of Default, etc.: promptly upon any officer of Company
obtaining knowledge (a) of any condition or event that constitutes an
Event of Default or Potential Event of Default, or becoming aware that any
Lender has given any notice (other than to Administrative Agent) or taken
any other action with respect to a claimed Event of Default or Potential
Event of Default, (b) that any Person has given any notice to Company or
any of its Subsidiaries or taken any other action with respect to a
claimed default or event or condition of the type referred to in
subsection 8.2, (c) of any condition or event that would be required to be
disclosed in a current report filed by Company with the Securities and
Exchange Commission on Form 8-K (Items 1, 2, 4, 5 and 6 of such Form as in
effect on the date hereof) if Company were required to file such reports
under the Exchange Act, or (d) of the occurrence of any event or change
that has caused or evidences, either in any case or in the aggregate, a
Material Adverse Effect, an Officers' Certificate specifying the nature
and period of existence of such condition, event or change, or specifying
the notice given or action taken by any such Person and the nature of such
claimed Event of Default, Potential Event of Default, default, event or
condition, and what action Company has taken, is taking and proposes to
take with respect thereto;
(x) Litigation or Other Proceedings: (a) promptly upon any officer
of Company obtaining knowledge of (X) the institution of, or non-frivolous
threat of,
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any action, suit, proceeding (whether administrative, judicial or
otherwise), governmental investigation or arbitration against or affecting
Company or any of its Subsidiaries or any property of Company or any of
its Subsidiaries (collectively, "Proceedings") not previously disclosed in
writing by Company to Lenders or (Y) any material development in any
Proceeding that, in any case:
(1) if adversely determined, has a reasonable possibility of
giving rise to a Material Adverse Effect; or
(2) seeks to enjoin or otherwise prevent the consummation of,
or to recover any damages or obtain relief as a result of, the
transactions contemplated hereby;
written notice thereof together with such other information as may be
reasonably available to Company to enable Lenders and their counsel to
evaluate such matters; and (b) within twenty days after the end of each
Fiscal Quarter, a schedule of all Proceedings involving an alleged
liability of, or claims against or affecting, Company or any of its
Subsidiaries equal to or greater than $500,000, and promptly after request
by Administrative Agent such other information as may be reasonably
requested by Administrative Agent to enable Administrative Agent and its
counsel to evaluate any of such Proceedings;
(xi) ERISA Events: promptly upon becoming aware of the occurrence of
or forthcoming occurrence of any ERISA Event, a written notice specifying
the nature thereof, what action Company, any of its Subsidiaries or any of
their respective ERISA Affiliates has taken, is taking or proposes to take
with respect thereto and, when known, any action taken or threatened by
the Internal Revenue Service, the Department of Labor or the PBGC with
respect thereto;
(xii) ERISA Notices: with reasonable promptness, copies of (a) each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series)
filed by Company, any of its Subsidiaries or any of their respective ERISA
Affiliates with the Internal Revenue Service with respect to each Pension
Plan; (b) all notices received by Company or any of its Subsidiaries from
a Multiemployer Plan sponsor concerning an ERISA Event; and (c) copies of
such other documents or governmental reports or filings relating to any
Employee Benefit Plan as Administrative Agent shall reasonably request;
(xiii) Financial Plans: as soon as practicable and in any event no
later than 30 days prior to the beginning of each Fiscal Year, a
consolidated plan and financial forecast for such Fiscal Year and each
succeeding Fiscal Year through the Revolving Loan Commitment Termination
Date (the "Financial Plan" for such Fiscal Years), including (a)
forecasted consolidated balance sheets and forecasted consolidated
statements of income and cash flows of Company and its Subsidiaries for
each such
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Fiscal Year, together with pro forma Compliance Certificates for each such
Fiscal Year and an explanation of the assumptions on which such forecasts
are based, (b) forecasted consolidated statements of income and cash flows
of Company and its Subsidiaries for each month of the first such Fiscal
Year, together with an explanation of the assumptions on which such
forecasts are based, and (c) such other information and projections as any
Lender may reasonably request;
(xiv) Insurance: as soon as practicable and in any event by the last
day of each Fiscal Year, a report in form and substance satisfactory to
Administrative Agent outlining all material insurance coverage maintained
as of the date of such report by Company and its Subsidiaries and all
material insurance coverage planned to be maintained by Company and its
Subsidiaries in the immediately succeeding Fiscal Year;
(xv) Board of Directors: with reasonable promptness, written notice
of any change in the Board of Directors of Company;
(xvi) New Subsidiaries: promptly upon any Person becoming a
Subsidiary of Company, a written notice setting forth with respect to such
Person (a) the date on which such Person became a Subsidiary of Company
and (b) all of the data required to be set forth in Schedule 5.1 annexed
hereto with respect to all Subsidiaries of Company (it being understood
that such written notice shall be deemed to supplement Schedule 5.1
annexed hereto for all purposes of this Agreement);
(xvii) Material Contracts: promptly, and in any event within ten
Business Days after any Material Contract of Company or any of its
Subsidiaries is terminated or amended in a manner that is materially
adverse to Company or such Subsidiary, as the case may be, or any new
Material Contract is entered into, a written statement describing such
event with copies of such material amendments or new contracts, and an
explanation of any actions being taken with respect thereto;
(xviii) Borrowing Base Certificate: As soon as available and in any
event within ten Business Days after the last Business Day of each month
ending after the Closing Date, a Borrowing Base Certificate dated as of
the last Business Day of such month, together with any additional
schedules and other information that Administrative Agent may reasonably
request (it being understood that (a) Company, in addition to such monthly
Borrowing Base Certificates, may from time to time deliver to
Administrative Agent and Lenders, on any Business Day after the Closing
Date, a Borrowing Base Certificate dated as of a recent day, together with
any additional schedules and other information that Administrative Agent
may reasonably request, and (b) the most recent Borrowing Base Certificate
described in this subdivision (xix) that is delivered to Administrative
Agent shall be used in calculating the Borrowing Base as of any date of
determination); and
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(xix) Other Information: with reasonable promptness, such other
information and data with respect to Company or any of its Subsidiaries as
from time to time may be reasonably requested by any Lender.
6.2 Corporate Existence, etc.
Except as permitted under subsection 7.7, Company will, and will cause
each of its Subsidiaries to, at all times preserve and keep in full force and
effect its corporate existence and all rights and franchises material to its
business; provided, however that neither Company nor any of its Subsidiaries
shall be required to preserve any such right or franchise if the Board of
Directors of Company or such Subsidiary shall determine that the preservation
thereof is no longer desirable in the conduct of the business of Company or such
Subsidiary, as the case may be, and that the loss thereof is not disadvantageous
in any material respect to Company, such Subsidiary or Lenders.
6.3 Payment of Taxes and Claims; Tax Consolidation.
A. Company will, and will cause each of its Subsidiaries to, pay all
material taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or in respect of any of its income, businesses
or franchises before any penalty accrues thereon, and all claims (including
claims for labor, services, materials and supplies) for sums that have become
due and payable and that by law have or may become a Lien upon any of its
properties or assets, prior to the time when any penalty or fine shall be
incurred with respect thereto; provided that no such charge or claim need be
paid if it is being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted, so long as (1) such reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor and (2) in the case of a charge or claim which has
or may become a Lien against any of the Collateral, such contest proceedings
conclusively operate to stay the sale of any portion of the Collateral to
satisfy such charge or claim.
B. Company will not, nor will it permit any of its Subsidiaries to, file
or consent to the filing of any consolidated income tax return with any Person
(other than Company or any of its Subsidiaries).
6.4 Maintenance of Properties; Insurance; Application of Net
Insurance/Condemnation Proceeds.
A. Maintenance of Properties. Company will, and will cause each of its
Subsidiaries to, maintain or cause to be maintained in good repair, working
order and condition, ordinary wear and tear excepted, all material properties
used or useful in the business of Company and its Subsidiaries (including all
Intellectual Property) and from time to time will make or cause to be made all
appropriate repairs, renewals and replacements
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thereof except where the failure to maintain such properties could not
reasonably be expected in any individual case or in the aggregate to have a
Material Adverse Effect.
B. Insurance. Company will maintain or cause to be maintained, with
financially sound and reputable insurers, such public liability insurance, third
party property damage insurance, business interruption insurance and casualty
insurance with respect to liabilities, losses or damage in respect of the
assets, properties and businesses of Company and its Subsidiaries as may
customarily be carried or maintained under similar circumstances by corporations
of established reputation engaged in similar businesses, in each case in such
amounts (giving effect to self-insurance), with such deductibles, covering such
risks and otherwise on such terms and conditions as shall be customary for
corporations similarly situated in the industry. Without limiting the generality
of the foregoing, Company will maintain or cause to be maintained (i) flood
insurance with respect to each Flood Hazard Property that is located in a
community that participates in the National Flood Insurance Program, in each
case in compliance with any applicable regulations of the Board of Governors of
the Federal Reserve System, and (ii) replacement value casualty insurance on the
Collateral under such policies of insurance, with such insurance companies, in
such amounts, with such deductibles, and covering such risks as are at all times
satisfactory to Administrative Agent in its commercially reasonable judgment.
Each such policy of insurance shall (a) name Collateral Agent for the benefit of
Secured Parties as an additional insured thereunder as its interests may appear
and (b) in the case of each business interruption and casualty insurance policy,
contain a loss payable clause or endorsement, satisfactory in form and substance
to Collateral Agent, that names Collateral Agent for the benefit of Secured
Parties as the loss payee thereunder for any covered loss in excess of
$1,500,000 and provides for at least 30 days prior written notice to
Administrative Agent of any modification or cancellation of such policy.
C. Application of Net Insurance/Condemnation Proceeds.
(i) Business Interruption Insurance. Upon receipt by Company or any
of its Subsidiaries of any business interruption insurance proceeds
constituting Net Insurance/Condemnation Proceeds, (a) so long as no Event
of Default shall have occurred and be continuing, Company or such
Subsidiary may retain and apply such Net Insurance/Condemnation Proceeds
for working capital purposes, and (b) if an Event of Default shall have
occurred and be continuing, Company shall apply an amount equal to such
Net Insurance/Condemnation Proceeds to prepay AXELs under the AXEL Credit
Agreement and the Revolving Loans (and/or the Revolving Loan Commitments
shall be reduced) as provided in subsection 2.4A(iii)(b);
(ii) Casualty Insurance/Condemnation Proceeds. Upon receipt by
Company or any of its Subsidiaries of any Net Insurance/Condemnation
Proceeds other than from business interruption insurance, (a) so long as
no Event of Default shall have occurred and be continuing, Company shall,
or shall cause one or more of its Subsidiaries to, (1) subject to clause
(iv) below, promptly and diligently and in
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any event within six months of receipt apply such Net
Insurance/Condemnation Proceeds to pay or reimburse the costs of
repairing, restoring or replacing the assets in respect of which such Net
Insurance/Condemnation Proceeds were received or (2) to the extent not so
applied or applied pursuant to clause (iv) below within six months of
receipt by Company or any of its Subsidiaries, to prepay the AXELs under
the AXEL Credit Agreement and the Revolving Loans (and/or the Revolving
Loan Commitments shall be reduced) as provided in subsection 2.4A(iii)(b),
and (b) if an Event of Default shall have occurred and be continuing,
Company shall apply an amount equal to such Net Insurance/Condemnation
Proceeds to prepay the AXELs under the AXEL Credit Agreement and the
Revolving Loans (and/or the Revolving Loan Commitments shall be reduced)
as provided in subsection 2.4A(iii)(b).
(iii) Net Insurance/Condemnation Proceeds Received by Collateral
Agent. Upon receipt by Collateral Agent of any Net Insurance/Condemnation
Proceeds as loss payee, such loss proceeds shall be held and applied in
accordance with the terms of the Intercreditor Agreement.
(iv) Reinvestment of Insurance Proceeds. So long as no Event of
Default or Potential Event of Default shall have occurred and be
continuing, Company and its Subsidiaries may reinvest in the business of
Company and its Subsidiaries up to $1,000,000 per year of Net
Insurance/Condemnation Proceeds recovered by Company or any of its
Subsidiaries provided that such funds are reinvested within six months of
receipt by Company or any of its Subsidiaries.
6.5 Inspection Rights; Audits of Inventory and Accounts Receivable; Lender
Meeting.
A. Inspection Rights. Company shall, and shall cause each of its
Subsidiaries to, permit any authorized representatives designated by any Lender
to visit and inspect any of the properties of Company or of any of its
Subsidiaries, to inspect, copy and take extracts from its and their financial
and accounting records, and to discuss its and their affairs, finances and
accounts with its and their officers and independent public accountants
(provided that Company may, if it so chooses, be present at or participate in
any such discussion), all upon reasonable notice and at such reasonable times
during normal business hours and as often as may reasonably be requested.
B. Audits of Inventory and Accounts Receivable. Company shall, and shall
cause each of its Subsidiaries to, permit any authorized representatives
designated by Administrative Agent to conduct audits of all Inventory and
accounts receivable of Loan Parties at any time and from time to time after the
Closing Date, such audit to be in form and substance reasonably acceptable to
Administrative Agent, all upon reasonable notice and at such reasonable times
during normal business hours as may reasonably be requested, provided that so
long as no Event of Default shall exist and be continuing Administrative Agent
may not conduct more than one such audit in any twelve month period.
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C. Lender Meeting. Company will, upon the request of Arranger,
Administrative Agent or Requisite Lenders, participate in a meeting of
Administrative Agent and Lenders once during each Fiscal Year to be held at
Company's corporate offices (or at such other location as may be agreed to by
Company and Administrative Agent) at such time as may be agreed to by Company
and Administrative Agent.
6.6 Compliance with Laws, etc.
Company shall comply, and shall cause each of its Subsidiaries and all
other Persons on or occupying any Facilities to comply, with the requirements of
all applicable laws, rules, regulations and orders of any governmental authority
(including all Environmental Laws), noncompliance with which could reasonably be
expected to cause, individually or in the aggregate, a Material Adverse Effect.
6.7 Environmental Review and Investigation, Disclosure, Etc.; Company's
Actions Regarding Hazardous Materials Activities, Environmental Claims and
Violations of Environmental Laws.
A. Environmental Review and Investigation. Company agrees that
Administrative Agent may, from time to time and in its reasonable discretion,
(i) retain, at Company's expense, an independent professional consultant to
review any environmental audits, investigations, analyses and reports relating
to Hazardous Materials prepared by or for Company and (ii) conduct its own
investigation of any Facility; provided that, in the case of any Facility no
longer owned, leased, operated or used by Company or any of its Subsidiaries,
Company shall only be obligated to use its good faith and reasonable efforts to
obtain permission for Administrative Agent's professional consultant to conduct
an investigation of such Facility. For purposes of conducting such a review
and/or investigation, Company hereby grants to Administrative Agent and its
agents, employees, consultants and contractors the right to enter into or onto
any Facilities currently owned, leased, operated or used by Company or any of
its Subsidiaries and to perform such tests on such property (including taking
samples of soil, groundwater and suspected asbestos-containing materials) as are
reasonably necessary in connection therewith. Any such investigation of any
Facility shall be conducted, unless otherwise agreed to by Company and
Administrative Agent, during normal business hours and, to the extent reasonably
practicable, shall be conducted so as not to interfere with the ongoing
operations at such Facility or to cause any damage or loss to any property at
such Facility. Company and Administrative Agent hereby acknowledge and agree
that any report of any investigation conducted at the request of Administrative
Agent pursuant to this subsection 6.7A will be obtained and shall be used by
Administrative Agent and Lenders for the purposes of Lenders' internal credit
decisions, to monitor and police the Revolving Loans and to protect Lenders'
security interests, if any, created by the Revolving Loan Documents.
Administrative Agent agrees to deliver a copy of any such report to Company with
the understanding that Company acknowledges and agrees that (x) it will
indemnify and hold harmless Administrative Agent and each Lender from any costs,
losses or liabilities relating to
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Company's use of or reliance on such report, (y) neither Administrative Agent
nor any Lender makes any representation or warranty with respect to such
report, and (z) by delivering such report to Company, neither Administrative
Agent nor any Lender is requiring or recommending the implementation of any
suggestions or recommendations contained in such report.
B. Environmental Disclosure. Company will deliver to Administrative Agent
and Lenders:
(i) Environmental Audits and Reports. As soon as practicable
following receipt thereof, copies of all environmental audits,
investigations, analyses and reports of any kind or character, whether
prepared by personnel of Company or any of its Subsidiaries or by
independent consultants, governmental authorities or any other Persons,
with respect to significant environmental matters at any Facility or with
respect to any Environmental Claims;
(ii) Notice of Certain Releases, Remedial Actions, Etc. Promptly
upon the occurrence thereof, written notice describing in reasonable
detail (a) any Release required to be reported by Company or any of its
Subsidiaries to any federal, state or local governmental or regulatory
agency under any applicable Environmental Laws, (b) any remedial action
taken by Company or any of its Subsidiaries or any other Person of which
Company has knowledge in response to (1) any Hazardous Materials
Activities the existence of which has a reasonable possibility of
resulting in one or more Environmental Claims having, individually or in
the aggregate, a Material Adverse Effect, or (2) any Environmental Claims
that, individually or in the aggregate, have a reasonable possibility of
resulting in a Material Adverse Effect, and (c) Company's discovery of any
occurrence or condition on any real property adjoining or in the vicinity
of any Facility that reasonably could be expected to cause such Facility
or any part thereof to be subject to any material restrictions on the
ownership, occupancy, transferability or use thereof under any
Environmental Laws.
(iii) Written Communications Regarding Environmental Claims,
Releases, Etc. As soon as practicable following the sending or receipt
thereof,by Company or any of its Subsidiaries, a copy of any and all
written communications with respect to (a) any Environmental Claims that,
individually or in the aggregate, are reasonably expected to have a
Material Adverse Effect, (b) any Release required to be reported by
Company or any of its Subsidiaries to any federal, state or local
governmental or regulatory agency, and (c) any request made to Company or
any of its Subsidiaries for information from any governmental agency that
suggests such agency is investigating whether Company or any of its
Subsidiaries may be potentially responsible for any Hazardous Materials
Activity.
(iv) Notice of Certain Proposed Actions Having Environmental Impact.
Prompt written notice describing in reasonable detail (a) any proposed
acquisition
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of stock, assets, or property by Company or any of its Subsidiaries that
could reasonably be expected to (1) expose Company or any of its
Subsidiaries to, or result in, Environmental Claims that would have,
individually or in the aggregate, a Material Adverse Effect or (2) result
in Company or any of its Subsidiaries failing to maintain in full force
and effect all material Governmental Authorizations required under any
Environmental Laws for their respective operations and (b) any proposed
action to be taken by Company or any of its Subsidiaries to modify current
operations in a manner that could reasonably be expected to subject
Company or any of its Subsidiaries to any additional obligations or
requirements under any Environmental Laws.
(v) Other Information. With reasonable promptness, such other
documents and information as from time to time may be reasonably requested
by Administrative Agent in relation to any matters disclosed pursuant to
this subsection 6.7.
C. Company's Actions Regarding Hazardous Materials Activities,
Environmental Claims and Violations of Environmental Laws.
(i) Remedial Actions Relating to Hazardous Materials Activities.
Company shall promptly undertake, and shall cause each of its Subsidiaries
promptly to undertake, any and all investigations, studies, sampling,
testing, abatement, cleanup, removal, remediation or other response
actions necessary to remove, remediate, clean up or abate any Hazardous
Materials Activity on, under or about any Facility that is in violation of
any Environmental Laws or that presents a material risk of giving rise to
an Environmental Claim. In the event Company or any of its Subsidiaries
undertakes any such action with respect to any Hazardous Materials,
Company or such Subsidiary shall conduct and complete such action in
compliance with all applicable Environmental Laws and in accordance with
the policies, orders and directives of all federal, state and local
governmental authorities except when, and only to the extent that,
Company's or such Subsidiary's liability with respect to such Hazardous
Materials Activity is being contested in good faith by Company or such
Subsidiary.
(ii) Actions with Respect to Environmental Claims and Violations of
Environmental Laws. Company shall promptly take, and shall cause each of
its Subsidiaries promptly to take, any and all actions necessary to (i)
cure any violation of applicable Environmental Laws by Company or its
Subsidiaries and (ii) make an appropriate response to any Environmental
Claim against Company or any of its Subsidiaries and discharge any
obligations it may have to any Person thereunder.
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6.8 Execution of Subsidiary Guaranty and Personal Property Collateral
Documents by Certain Subsidiaries and Future Subsidiaries.
A. Execution of Subsidiary Guaranty and Personal Property Collateral
Documents. In the event that any Domestic Subsidiary existing on the Closing
Date that has not previously executed the Subsidiary Guaranty hereafter owns or
acquires assets with an aggregate fair market value (without netting such fair
market value against any liability of such Subsidiary) exceeding $500,000, or in
the event that any Person becomes a Material Domestic Subsidiary after the date
hereof, Company will promptly notify Collateral Agent of that fact and cause
such Subsidiary to execute and deliver to Collateral Agent a counterpart of the
Subsidiary Guaranty and a Subsidiary Pledge Agreement and a Subsidiary Security
Agreement and to take all such further actions and execute all such further
documents and instruments (including actions, documents and instruments
comparable to those described in subsection 4.1I) as may be necessary or, in the
opinion of Collateral Agent, desirable to create in favor of Collateral Agent,
for the benefit of Secured Parties, a valid and perfected First Priority Lien on
all of the personal and mixed property assets of such Subsidiary described in
the applicable forms of Collateral Documents.
B. Subsidiary Charter Documents, Legal Opinions, Etc. Company shall
deliver to Collateral Agent, together with such Revolving Loan Documents, (i)
certified copies of such Subsidiary's Certificate or Articles of Incorporation,
together with a good standing certificate from the Secretary of State of the
jurisdiction of its incorporation and each other state in which such Person is
qualified as a foreign corporation to do business and, to the extent generally
available, a certificate or other evidence of good standing as to payment of any
applicable franchise or similar taxes from the appropriate taxing authority of
each of such jurisdictions, each to be dated a recent date prior to their
delivery to Collateral Agent, (ii) a copy of such Subsidiary's Bylaws, certified
by its corporate secretary or an assistant secretary as of a recent date prior
to their delivery to Collateral Agent, (iii) a certificate executed by the
secretary or an assistant secretary of such Subsidiary as to (a) the fact that
the attached resolutions of the Board of Directors of such Subsidiary approving
and authorizing the execution, delivery and performance of such Revolving Loan
Documents are in full force and effect and have not been modified or amended and
(b) the incumbency and signatures of the officers of such Subsidiary executing
such Revolving Loan Documents, and (iv) a favorable opinion of counsel to such
Subsidiary, in form and substance satisfactory to Collateral Agent and its
counsel, as to (a) the due organization and good standing of such Subsidiary,
(b) the due authorization, execution and delivery by such Subsidiary of such
Revolving Loan Documents, (c) the enforceability of such Revolving Loan
Documents against such Subsidiary, (d) such other matters (including matters
relating to the creation and perfection of Liens in any Collateral pursuant to
such Revolving Loan Documents) as Collateral Agent may reasonably request, all
of the foregoing to be satisfactory in form and substance to Administrative
Agent and its counsel.
C. Foreign Subsidiary Loan Documents. In the event that any Foreign
Subsidiary existing on the Closing Date whose shares have not been pledged
pursuant to an
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Auxiliary Pledge Agreement owns or acquires assets with an aggregate fair market
value (without netting such fair market value against any liability of such
Subsidiary) exceeding $1,500,000, or in the event that any person becomes a
Foreign Subsidiary which owns assets with an aggregate fair market value
(without netting such fair market value against any liability of such
Subsidiary) exceeding $1,500,000, Company will promptly notify Collateral Agent
of that fact and shall or cause the applicable subsidiary which owns equity in
such Foreign Subsidiary to execute and deliver to Collateral Agent an Auxiliary
Pledge Agreement in form and substance satisfactory to Collateral Agent; to take
all such further actions and execute such further documents and instruments as
may be necessary or, in the opinion of Collateral Agent reasonably desirable, to
perfect a Lien on the equity interests of such Foreign Subsidiary for the
benefit of Secured Parties and to deliver to Collateral Agent an opinion of
counsel (which counsel shall be reasonably acceptable to Collateral Agent) as to
the enforceability of the Auxiliary Pledge Agreement under the laws of such
Foreign Subsidiary's jurisdiction of organization and such other matters as
Collateral Agent may reasonably request (including as to the perfection of liens
on such equity interests).
D. If at any time JCS Realty acquires any personal property assets
with an aggregate fair market value (without netting such fair market value
against any liability of JCS Realty) in excess of $500,000, Company will
promptly notify Collateral Agent of that fact and cause JCS Realty to execute
and deliver all documents and to take all such further actions as may be
necessary or, in the opinion of Collateral Agent, desirable to create in favor
of Collateral Agent, for the benefit of Secured Parties, a valid and perfected
First Priority Lien on such property in all relevant jurisdictions.
6.9 Conforming Leasehold Interests; Matters Relating to Real Property
Collateral.
A. Conforming Leasehold Interests. If Company or any of its Subsidiaries
acquires any Leasehold Property, Company shall, or shall cause such Subsidiary
to, use its reasonable and good faith efforts (without requiring Company or such
Subsidiary to relinquish any material rights or incur any material obligations
or to expend more than a nominal amount of money over and above the
reimbursement, if required, of the Landlord's reasonable out-of-pocket costs,
including attorneys' fees) to cause such Leasehold Property to be a Conforming
Leasehold Interest.
B. Mortgages, Etc. From and after the Closing Date, in the event that (i)
Company or any Subsidiary Guarantor acquires any fee interest in real property
or any Material Leasehold Property, (ii) with respect to any Material Leasehold
Property or any real property in which Company has a fee interest in on or prior
to the Closing Date, any first priority mortgage existing on or prior to the
Closing Date on such property is removed or (iii) at the time any Person becomes
a Subsidiary Guarantor, such Person owns or holds any fee interest in real
property or any Material Leasehold Property, in all cases excluding any such
Real Property Asset the encumbrancing of which requires the consent of any
applicable lessor or (in the case of clause (iii) above) then-existing senior
lienholder, where Company and its Subsidiaries are unable to obtain such
lessor's or senior lienholder's
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
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<PAGE> 117
consent (any such non-excluded Real Property Asset described in the foregoing
clause (i), (ii) or (iii) being a "Mortgaged Property"), Company or such
Subsidiary Guarantor shall promptly notify Collateral Agent, and shall deliver
upon Collateral Agent's written request, as soon as practicable after such
Person acquires such Mortgaged Property or becomes a Subsidiary Guarantor, as
the case may be, the following:
(i) Mortgage. A fully executed and notarized Mortgage duly recorded
in all appropriate places in all applicable jurisdictions, encumbering the
interest of such Loan Party in such Mortgaged Property;
(ii) Opinions of Counsel. (a) A favorable opinion of counsel to such
Loan Party, in form and substance satisfactory to Collateral Agent and its
counsel, as to the due authorization, execution and delivery by such Loan
Party of such Mortgage and such other matters as Collateral Agent may
reasonably request, and (b) if required by Collateral Agent, an opinion of
counsel (which counsel shall be reasonably satisfactory to Collateral
Agent) in the state in which such Mortgaged Property is located with
respect to the enforceability of such Mortgage and such other matters
(including any matters governed by the laws of such state regarding
personal property security interests in respect of any Collateral) as
Collateral Agent may reasonably request, in each case in form and
substance reasonably satisfactory to Collateral Agent;
(iii) Landlord Consent and Estoppel; Recorded Leasehold Interest. In
the case of a Mortgaged Property consisting of a Leasehold Property, (a)
if such Leasehold Property is holding or will hold inventory or equipment
with an aggregate fair market value exceeding $500,000, a Landlord Consent
and Estoppel provided that Company shall only be required to use
reasonable and good faith efforts to obtain such Landlord Consent and
Estoppel and in no event shall Company be obligated to pay any fee, charge
or other consideration to any landlord in order to obtain such Landlord
Consent and Estoppel, other than, if required, the landlord's reasonable
out-of-pocket costs, including attorneys' fees and (b) if such Leasehold
Property is a Recorded Leasehold Interest, evidence to that effect
(iv) Title Insurance. (a) If reasonably requested by Collateral
Agent, an ALTA mortgagee title insurance policy or an unconditional
commitment therefor (a "Mortgage Policy") issued by the Title Company with
respect to such Mortgaged Property, in an amount satisfactory to
Collateral Agent, insuring fee simple title to, or a valid leasehold
interest in, such Mortgaged Property vested in such Loan Party and
assuring Collateral Agent that such Mortgage creates a valid and
enforceable First Priority mortgage Lien on such Mortgaged Property,
subject only to, if available in the state in which such Mortgaged
Property is located, a standard survey exception and to Permitted
Encumbrances, which Mortgage Policy (1) shall include, if available in the
state in which such Mortgaged Property is located, an endorsement for
mechanics' liens, for future advances under this Agreement and for any
other matters
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
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reasonably requested by Collateral Agent and (2) shall provide for such
affirmative insurance and such reinsurance as Collateral Agent may
reasonably request, all of the foregoing in form and substance reasonably
satisfactory to Collateral Agent; and (b) evidence satisfactory to
Collateral Agent that such Loan Party has (i) delivered to the Title
Company all certificates and affidavits customarily required by the Title
Company in connection with the issuance of the Mortgage Policy and (ii)
paid to the Title Company or to the appropriate governmental authorities
all expenses and premiums of the Title Company in connection with the
issuance of the Mortgage Policy and all recording and stamp taxes
(including mortgage recording and intangible taxes) payable in connection
with recording the Mortgage in the appropriate real estate records;
provided however, that Administrative Agent shall allow for such
reasonable revisions to the applicable mortgage and shall otherwise take
such steps as are reasonable and customary to minimize recording, mortgage
recording, stamp, documentary and intangible taxes, at Company's cost;
(v) Title Report. If no Mortgage Policy is required with respect to
such Mortgaged Property, a title report issued by the Title Company with
respect thereto, dated not more than 30 days prior to the date such
Mortgage is to be recorded and satisfactory in form and substance to
Collateral Agent;
(vi) Copies of Documents Relating to Title Exceptions. Copies of all
recorded documents listed as exceptions to title or otherwise referred to
in the Mortgage Policy or title report delivered pursuant to clause (iv)
or (v) above;
(vii) Matters Relating to Flood Hazard Properties. (a) Evidence,
which may be in the form of a letter from an insurance broker or a
municipal engineer, as to (1) whether such Mortgaged Property is a Flood
Hazard Property and (2) if so, whether the community in which such Flood
Hazard Property is located is participating in the National Flood
Insurance Program, (b) if such Mortgaged Property is a Flood Hazard
Property, such Loan Party's written acknowledgement of receipt of written
notification from Collateral Agent (1) that such Mortgaged Property is a
Flood Hazard Property and (2) as to whether the community in which such
Flood Hazard Property is located is participating in the National Flood
Insurance Program, and (c) in the event such Mortgaged Property is a Flood
Hazard Property that is located in a community that participates in the
National Flood Insurance Program, evidence that Company has obtained flood
insurance in respect of such Flood Hazard Property to the extent required
under the applicable regulations of the Board of Governors of the Federal
Reserve System; and
(viii) Environmental Audit. If required by Collateral Agent, reports
and other information, in form, scope and substance satisfactory to
Collateral Agent and prepared by environmental consultants satisfactory to
Collateral Agent, concerning any environmental hazards or liabilities to
which Company or any of its Subsidiaries may be subject with respect to
such Mortgaged Property.
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C. Real Estate Appraisals. Company shall, and shall cause each of its
Subsidiaries to, permit an independent real estate appraiser satisfactory to
Collateral Agent, upon reasonable notice, to visit and inspect any Additional
Mortgaged Property for the purpose of preparing an appraisal of such Mortgaged
Property satisfying the requirements of any applicable laws and regulations (in
each case to the extent required under such laws and regulations as determined
by Collateral Agent in its discretion).
6.10 Interest Rate Protection.
At all times after the date which is 45 days after the Closing Date,
Company shall maintain in effect one or more Interest Rate Agreements with
respect to the AXELs and the Revolving Loans, each such Interest Rate Agreement
to be for a term of not less than three years from the Closing Date and in form
and substance reasonably satisfactory to Administrative Agent, which Interest
Rate Agreements shall effectively limit the Unadjusted Eurodollar Rate Component
(as hereinafter defined) of the interest costs to Company (i) with respect to an
aggregate notional principal amount of not less than 25% of the aggregate
principal amount of the AXELs outstanding on the Closing Date (based on the
assumption that such notional principal amount was a Eurodollar Rate Loan (as
defined under the AXEL Credit Agreement) with an Interest Period (as defined
under the AXEL Credit Agreement) of three months) to a rate equal to not more
than 9% per annum and (ii) with respect to an aggregate notional principal
amount of not less than 25% of the aggregate principal amount of the AXELs
outstanding on the Closing Date (based on the assumption that such notional
principal amount was a Eurodollar Rate Loan (as defined under the AXEL Credit
Agreement) with an Interest Period (as defined under the AXEL Credit Agreement)
of three months) to a rate equal to not more than 10% per annum. For purposes of
this subsection 6.10, the term "Unadjusted Eurodollar Rate Component" means that
component of the interest costs to Company under the AXEL Credit Agreement in
respect of a Eurodollar Rate Loan that is based upon the rate obtained pursuant
to the definition of Adjusted Eurodollar Rate under the AXEL Credit Agreement
without giving effect to the last paragraph thereof.
6.11 Cash Management Systems.
Company shall establish and thereafter maintain a cash management system
for the Loan Parties in form and substance reasonably satisfactory to the
Arranger and the Administrative Agent. The terms and conditions of such cash
management system shall be as set forth in Schedule 6.11 annexed hereto.
6.12 Trademarks and Patents.
If Company or any of its Subsidiaries acquires any material patents,
trademarks or copyrights, Company shall promptly notify the Collateral Agent of
that fact and, if requested by Administrative Agent, Company shall, or cause the
applicable Subsidiary to, execute and deliver to Collateral Agent supplemental
security agreements and take such other actions
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
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as the Collateral Agent may reasonably request to create in favor of Collateral
Agent, for the benefit of Secured Parties, a valid and perfected First Priority
Lien on such patents, trademarks or copyrights.
SECTION 7.
COMPANY'S NEGATIVE COVENANTS
Company covenants and agrees that, so long as any of the Revolving Loan
Commitments hereunder shall remain in effect and until payment in full of all of
the Revolving Loans and other Obligations and the cancellation or expiration of
all Letters of Credit, unless Requisite Lenders shall otherwise give prior
written consent, Company shall perform, and shall cause each of its Subsidiaries
to perform, all covenants in this Section 7.
7.1 Indebtedness.
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or guaranty, or otherwise become
or remain directly or indirectly liable with respect to, any Indebtedness,
except:
(i) Company may become and remain liable with respect to the
Obligations;
(ii) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations permitted by subsection 7.4 and, upon
any matured obligations actually arising pursuant thereto, the
Indebtedness corresponding to the Contingent Obligations so extinguished;
(iii) Company may become and remain liable with respect to
Indebtedness to any of its wholly-owned Subsidiaries, and any wholly-owned
Subsidiary of Company may become and remain liable with respect to
Indebtedness to Company or any other wholly-owned Subsidiary of Company;
provided that (a) all such intercompany Indebtedness shall be evidenced by
promissory notes subject to a first priority perfected pledge in favor of
Lenders, (b) all such intercompany Indebtedness owed by Company to any of
its Subsidiaries shall be subordinated in right of payment to the payment
in full of the Obligations pursuant to the terms of the applicable
promissory notes or an intercompany subordination agreement, (c) any
payment by any Subsidiary of Company under any guaranty of the Obligations
shall result in a pro tanto reduction of the amount of any intercompany
Indebtedness owed by such Subsidiary to Company or to any of its
Subsidiaries for whose benefit such payment is made, and (d) the aggregate
principal amount of all Indebtedness of all Foreign Subsidiaries to
Company and its Domestic Subsidiaries shall not exceed $2,000,000 at any
time outstanding;
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
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(iv) Company and its Subsidiaries, as applicable, may remain liable
with respect to Indebtedness described in Schedule 7.1 annexed hereto;
(v) Company may become and remain liable with respect to
Indebtedness evidenced by the Senior Subordinated Notes in an amount not
to exceed $110,000,000;
(vi) Company and its Subsidiaries may become and remain liable with
respect to Indebtedness in an aggregate amount not to exceed $5,000,000 at
any time outstanding in respect of (i) purchase money Indebtedness
incurred to finance the purchase price of specific assets and Capital
Leases so long as, upon default, the holder of such Indebtedness may seek
recourse or payment against Company and its Subsidiaries only through the
return or sale of the assets financed thereby and (ii) Indebtedness of a
person which becomes a Subsidiary, provided such Indebtedness is recourse
only to such Subsidiary, and neither Company nor any of its other
Subsidiaries have any obligations in respect thereof;
(vii) Company's Foreign Subsidiaries may become and remain liable
with respect to Indebtedness in an aggregate amount not to exceed
$2,000,000 outstanding at any time under any overdraft facility with a
foreign bank used to fund working capital obligations of such Foreign
Subsidiary;
(viii) Company may become and remain liable for additional unsecured
subordinated Indebtedness with substantially the same terms as the
Subordinated Notes the net proceeds of which are used solely to fund
Permitted Business Acquisitions provided that (a) no Event of Default or
Potential Event of Default shall exist and be continuing at the time of
the incurrence thereof, (b) the aggregate amount of such Indebtedness
shall not exceed $40,000,000 at any time, (c) each dollar of Indebtedness
incurred under this clause (viii) is matched with proceeds of additional
Common Stock of Company either issued in a private issuance after the
Closing Date or transferred to the seller as a portion of the
consideration for such sale, which are invested substantially concurrently
in such Permitted Business Acquisition, at a ratio of not more than 1.33:1
(additional Indebtedness to additional equity without giving effect to any
equity counted under clause (x)(b)(3) of this subsection 7.1), (d) after
giving effect to the Permitted Business Acquisition being financed with
such Indebtedness (and the incurrence of such Indebtedness), the
Consolidated Leverage Ratio on a Pro Forma Basis for the four (4) Fiscal
Quarters most recently completed prior to the date of such incurrence
shall not exceed 5.5 to 1.0 (or such lesser ratio in effect as of the end
of the most recently ended Fiscal Quarter under subsection 7.6C), and (e)
Company shall deliver to Administrative Agent at least 10 days prior to
such incurrence an Officer's Certificate certifying the matters set forth
in clauses (a)-(d) above.
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\
(ix) Company and its Subsidiaries may become and remain liable for
any Indebtedness replacing or refinancing any Indebtedness permitted under
clauses (iv), (vi), (vii) or (xi) of this subsection 7.1 provided that (a)
the principal amount of such Indebtedness does not exceed the principal
amount of the Indebtedness being refinanced or replaced, (b) such
Indebtedness has a final maturity on or later than the final maturity of
the Indebtedness being refinanced or replaced and a weighted average life
to maturity equal to or greater than the weighted average life to maturity
of the Indebtedness being refinanced or replaced, (c) the interest rate
(or, where applicable, interest rate margin) and fees applicable to such
Indebtedness is not higher than those applicable to the Indebtedness being
refinanced or replaced, (d) the covenants, defaults and prepayment
provisions, taken as a whole, are not more burdensome or restrictive on
the Company and its Subsidiaries than those applicable to the Indebtedness
being refinanced or replaced, (e) such Indebtedness is secured only by
Liens permitted under Section 7.2 for the Indebtedness being refinanced or
replaced; (f) such Indebtedness is incurred by Company or the Restricted
Subsidiary who is the obligor on the Indebtedness being refinanced or
replaced and (g) if the Indebtedness being refinanced or replaced is
subordinated to the Obligations, such Indebtedness is subordinated to the
Obligations on terms not less favorable to the Lenders than those
applicable to the Indebtedness being refinanced or replaced;
(x) Company may become and remain liable for (a) AXELs under the
AXEL Credit Agreement in an aggregate principal amount not to exceed
$117,000,000 at any time (reduced by any principal payments actually made
thereon) and (b) additional AXELs under the AXEL Credit Agreement in an
aggregate principal amount not to exceed $10,000,000, provided in the case
of this clause (b) that (1) no Event of Default or Potential Event of
Default shall exist and be continuing at the time of the incurrence of
such AXELs, (2) the net proceeds of such AXELs are used solely to fund
Permitted Business Acquisitions, (3) each dollar of Indebtedness incurred
under this clause (x)(b) is matched with proceeds of additional Common
Stock of Company either issued in a private issuance after the Closing
Date or transferred to the seller as a portion of the consideration for
such sale, which are invested substantially concurrently in such Permitted
Business Acquisition, at a ratio of not less than 3.5:1 (additional equity
to additional AXELs without giving effect to any equity counted under
clause (viii)(c) of this subsection 7.1), (4) after giving effect to the
Permitted Business Acquisition being financed with such Indebtedness (and
the incurrence of such Indebtedness), the Consolidated Leverage Ratio on a
Pro Forma Basis for the four (4) Fiscal Quarters most recently completed
prior to the date of such incurrence shall not exceed 5.5 to 1.0 (or such
lesser ratio in effect as of the end of the most recently ended Fiscal
Quarter under subsection 7.6C), and (5) Company shall deliver to
Administrative Agent at least 10 days prior to such incurrence an
Officer's Certificate certifying the matters set forth in clauses (1)-(4)
above; and
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
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(xi) Company and its Subsidiaries may become and remain liable with
respect to other Indebtedness in an aggregate principal amount not to
exceed $5,000,000 at any time outstanding.
7.2 Liens and Related Matters.
A. Prohibition on Liens. Company shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist any Lien on or with respect to any property or asset of any kind
(including any document or instrument in respect of goods or accounts
receivable) of Company or any of its Subsidiaries, whether now owned or
hereafter acquired, or any income or profits therefrom, or file or permit the
filing of, or permit to remain in effect, any financing statement or other
similar notice of any Lien with respect to any such property, asset, income or
profits under the Uniform Commercial Code of any State or under any similar
recording or notice statute, except:
(i) Permitted Encumbrances;
(ii) Liens granted pursuant to the Collateral Documents securing the
Obligations and obligations of Company and its Subsidiaries under the AXEL
Loan Documents;
(iii) Liens described in Schedule 7.2 annexed hereto;
(iv) Indebtedness incurred under subsection 7.1(vi) may be secured
by Liens on assets acquired or financed through the incurrence of such
Indebtedness or on the assets of the newly acquired Subsidiary, provided
that such Indebtedness was not created in contemplation of the acquisition
of such Subsidiary by Company or one of its Subsidiaries;
(v) Other Liens securing Indebtedness in an aggregate amount not to
exceed $5,000,000 at any time outstanding.
B. Equitable Lien in Favor of Lenders. If Company or any of its
Subsidiaries shall create or assume any Lien upon any of its properties or
assets, whether now owned or hereafter acquired, other than Liens excepted by
the provisions of subsection 7.2A, it shall make or cause to be made effective
provision whereby the Obligations will be secured by such Lien equally and
ratably with any and all other Indebtedness secured thereby as long as any such
Indebtedness shall be so secured; provided that, notwithstanding the foregoing,
this covenant shall not be construed as a consent by Requisite Lenders to the
creation or assumption of any such Lien not permitted by the provisions of
subsection 7.2A.
C. No Further Negative Pledges. Except with respect to specific property
encumbered to secure payment of particular Indebtedness or to be sold pursuant
to an executed agreement with respect to an Asset Sale, neither Company nor any
of its Subsidiaries shall
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
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<PAGE> 124
enter into any agreement (other than the Senior Subordinated Note Indenture or
any other agreement prohibiting only the creation of Liens securing Subordinated
Indebtedness and the AXEL Credit Agreement) prohibiting the creation or
assumption of any Lien upon any of its properties or assets, whether now owned
or hereafter acquired.
D. No Restrictions on Subsidiary Distributions to Company or Other
Subsidiaries. Except as provided herein or in the AXEL Credit Agreement, Company
will not, and will not permit any of its Subsidiaries to, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any such Subsidiary to (i) pay
dividends or make any other distributions on any of such Subsidiary's capital
stock owned by Company or any other Subsidiary of Company, (ii) repay or prepay
any Indebtedness owed by such Subsidiary to Company or any other Subsidiary of
Company, (iii) make loans or advances to Company or any other Subsidiary of
Company, or (iv) transfer any of its property or assets to Company or any other
Subsidiary of Company.
7.3 Investments; Joint Ventures.
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, make or own any Investment in any Person, including any
Joint Venture, except:
(i) Company and its Subsidiaries may make and own Investments in
Cash Equivalents;
(ii) Company and its Subsidiaries may make intercompany loans to the
extent permitted under subsection 7.1(iii);
(iii) Company and its Subsidiaries may make Consolidated Capital
Expenditures permitted by subsection 7.8;
(iv) Company and its Subsidiaries may continue to own the
Investments owned by them and described in Schedule 7.3 annexed hereto;
(v) Company and its wholly owned Domestic Subsidiaries may make and
own investments in other wholly owned Domestic Subsidiaries;
(vi) Company and its wholly owned Domestic Subsidiaries may make and
own Investments in Persons that, as a result of such Investments, become
additional wholly-owned Domestic Subsidiaries, to the extent such
Investments are permitted under subsection 7.7(vi); provided that Company
shall, and shall cause its Subsidiaries to, comply with the requirements
of subsections 6.8 and 6.9 with respect to each such additional Domestic
Subsidiaries;
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
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(vii) Company and its wholly owned Domestic Subsidiaries may make
additional Investments in their respective Foreign Subsidiaries; provided
that (a) the amount of all such Investments constituting equity
Investments does not exceed $3,500,000 in the aggregate for all such
Investments since the Closing Date and (b) the amount of all such
Investments constituting loans or advances does not exceed the amount
permitted under subsection 7.1(iii);
(viii) Company and its Subsidiaries may make and own other
Investments in an aggregate amount not to exceed at any time $7,000,000.
Notwithstanding the foregoing, so long as no Event of Default or Potential Event
of Default shall exist and be continuing, Company and its Subsidiaries may make
and hold investments funded solely with the proceeds of any issuance of Company
Common Stock in a private issuance after the Closing Date.
7.4 Contingent Obligations.
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create or become or remain liable with respect to any
Contingent Obligation, except:
(i) Subsidiaries of Company may become and remain liable with
respect to Contingent Obligations in respect of the Subsidiary Guaranty;
(ii) Company and its Subsidiaries may become and remain liable in
respect of obligations under any Hedge Agreements;
(iii) Company may become and remain liable with respect to
Contingent Obligations in respect of Letters of Credit; Company and its
Domestic Subsidiaries may become and remain liable with respect to
Contingent Obligations in respect of other Commercial Letters of Credit in
an aggregate amount not to exceed at any time $3,000,000 and Contingent
Obligations in respect of other Standby Letters of Credit in an aggregate
amount not to exceed at any time $2,000,000; and Foreign Subsidiaries may
become and remain liable with respect to Contingent Obligations in respect
of other Commercial Letters of Credit obtained in the ordinary course of
business in an aggregate amount not to exceed at any time $2,000,000;
(iv) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations in respect of customary indemnification,
purchase price adjustment and contingent earnout obligations incurred in
connection with Asset Sales or other sales or purchases of assets,
provided that the aggregate amount of all obligations of Company and its
Subsidiaries in respect of purchase price adjustments and contingent
earnouts may not exceed $5,000,000 at any time;
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
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(v) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations under guarantees in the ordinary course
of business of the obligations of suppliers, customers, franchisees and
licensees of Company and its Subsidiaries in an aggregate amount not to
exceed at any time $1,000,000;
(vi) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations in respect of any Indebtedness of
Company or any of its Subsidiaries permitted by subsection 7.1;
(vii) Company and its Subsidiaries, as applicable, may remain liable
with respect to Contingent Obligations described in Schedule 7.4 annexed
hereto; and
(viii) Company and its Subsidiaries may become and remain liable
with respect to other Contingent Obligations; provided that the maximum
aggregate liability, contingent or otherwise, of Company and its
Subsidiaries in respect of all such Contingent Obligations shall at no
time exceed $5,000,000.
7.5 Restricted Junior Payments.
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, declare, order, pay, make or set apart any sum for any
Restricted Junior Payment; provided that so long as no Event of Default or
Potential Event of Default shall then exist and be continuing Company may (i)
make regularly scheduled payments of interest in respect of any Subordinated
Indebtedness in accordance with the terms of, and only to the extent required
by, and subject to the subordination provisions contained in, the indenture or
other agreement pursuant to which such Subordinated Indebtedness was issued, as
such indenture or other agreement may be amended from time to time to the extent
permitted under subsection 7.15B and (ii) repurchase stock and options from
officers, directors and employees in accordance with the terms of the
Stockholders' Agreement in an aggregate amount not to exceed (i) $5,000,000 per
year in the case of any then current or former chief executive officer, (ii)
$2,500,000 per year in the aggregate in the case of all other officers,
directors and employees and (iii) $10,000,000 in the aggregate for all such
Persons after the Closing Date.
7.6 Financial Covenants.
A. Minimum Fixed Charge Coverage Ratio. Company shall not permit the ratio
of (i) Consolidated Adjusted EBITDA to (ii) Consolidated Fixed Charges for any
four-Fiscal Quarter period ending on any of the dates set forth below to be less
than the correlative ratio indicated:
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<TABLE>
<CAPTION>
===============================================
Minimum
Period Fixed Charge
Ending Coverage Ratio
===============================================
<S> <C>
March 31, 1998 1.00:1.00
-----------------------------------------------
June 30, 1998 1.00:1.00
-----------------------------------------------
September 30, 1998 1.00:1.00
-----------------------------------------------
December 31, 1998 1.00:1.00
-----------------------------------------------
March 31, 1999 1.00:1.00
-----------------------------------------------
June 30, 1999 1.00:1.00
-----------------------------------------------
September 30, 1999 1.00:1.00
-----------------------------------------------
December 31, 1999 1.00:1.00
-----------------------------------------------
March 31, 2000 1.10:1.00
-----------------------------------------------
June 30, 2000 1.10:1.00
-----------------------------------------------
September 30, 2000 1.10:1.00
-----------------------------------------------
December 31, 2000 1.10:1.00
-----------------------------------------------
March 31, 2001 1.15:1.00
-----------------------------------------------
June 30, 2001 1.15:1.00
-----------------------------------------------
September 30, 2001 1.15:1.00
-----------------------------------------------
December 31, 2001 1.15:1.00
-----------------------------------------------
March 31, 2002 1.20:1.00
-----------------------------------------------
June 30, 2002 1.20:1.00
-----------------------------------------------
September 30, 2002 1.20:1.00
-----------------------------------------------
December 31, 2002 1.20:1.00
===============================================
</TABLE>
B. Minimum Consolidated Adjusted EBITDA. Company shall not permit
Consolidated Adjusted EBITDA for any four Fiscal Quarter period ending on the
dates set forth below to be less than the correlative amount indicated:
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
120
<PAGE> 128
<TABLE>
<CAPTION>
==============================================
Minimum
Period Consolidated
Ending Adjusted
EBITDA
==============================================
<S> <C>
March 31, 1998 35,000,000
----------------------------------------------
June 30, 1998 36,000,000
----------------------------------------------
September 30, 1998 36,500,000
----------------------------------------------
December 31, 1998 37,500,000
----------------------------------------------
March 31, 1999 38,500,000
----------------------------------------------
June 30, 1999 39,500,000
----------------------------------------------
September 30, 1999 40,000,000
----------------------------------------------
December 31, 1999 40,500,000
----------------------------------------------
March 31, 2000 41,000,000
----------------------------------------------
June 30, 2000 41,500,000
----------------------------------------------
September 30, 2000 42,000,000
----------------------------------------------
December 31, 2000 42,500,000
----------------------------------------------
March 31, 2001 43,125,000
----------------------------------------------
June 30, 2001 43,750,000
----------------------------------------------
September 30, 2001 44,375,000
----------------------------------------------
December 31, 2001 45,000,000
----------------------------------------------
March 31, 2002 45,875,000
----------------------------------------------
June 30, 2002 46,750,000
----------------------------------------------
September 30, 2002 47,625,000
----------------------------------------------
December 31, 2002 48,500,000
==============================================
</TABLE>
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<PAGE> 129
C. Maximum Debt to EBITDA Ratio. Company shall not permit the ratio of (i)
Consolidated Total Debt to (ii) Consolidated Adjusted EBITDA as of the last day
of any four Fiscal Quarter period ending on any of the dates set forth below to
exceed the correlative ratio indicated:
<TABLE>
<CAPTION>
==============================================
Maximum
Period Debt to EBITDA
Ending Ratio
==============================================
<S> <C>
March 31, 1998 6.60:1.00
----------------------------------------------
June 30, 1998 6.40:1.00
----------------------------------------------
September 30, 1998 6.35:1.00
----------------------------------------------
December 31, 1998 6.10:1.00
----------------------------------------------
March 31, 1999 5.90:1.00
----------------------------------------------
June 30, 1999 5.80:1.00
----------------------------------------------
September 30, 1999 5.70:1.00
----------------------------------------------
December 31, 1999 5.50:1.00
----------------------------------------------
March 31, 2000 5.40:1.00
----------------------------------------------
June 30, 2000 5.25:1.00
----------------------------------------------
September 30, 2000 5.10:1.00
----------------------------------------------
December 31, 2000 5.00:1.00
----------------------------------------------
March 31, 2001 4.85:1.00
----------------------------------------------
June 30, 2001 4.70:1.00
----------------------------------------------
September 30, 2001 4.55:1.00
----------------------------------------------
December 31, 2001 4.40:1.00
----------------------------------------------
March 31, 2002 4.20:1.00
----------------------------------------------
June 30, 2002 4.10:1.00
----------------------------------------------
September 30, 2002 3.90:1.00
----------------------------------------------
December 31, 2002 3.70:1.00
==============================================
</TABLE>
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
122
<PAGE> 130
D. Certain Calculations. With respect to calculations of Consolidated
Adjusted EBITDA and Consolidated Fixed Charges for any four-Fiscal Quarter
period including the Closing Date, such calculations shall be made on a pro
forma basis assuming, in each case, that the Closing Date, the Merger, the
repayment of debt to be repaid in connection with the Closing, the issuance and
sale of the Company Common Stock and the related borrowings by Company pursuant
to this Agreement, the AXEL Credit Agreement and the Senior Subordinated Note
Indenture occurred on the first day of the applicable four-Fiscal Quarter period
and assuming further, for purposes of calculation of the pro forma interest
accrued on AXELs and Revolving Loans during such four quarter periods prior to
the Closing Date, that (i) all Revolving Loans outstanding were Eurodollar Rate
Loans and that the applicable reference interest rates were the average
effective Adjusted Eurodollar Rates on the Revolving Loans for the period from
the Closing Date through the date of determination and (ii) all AXELs
outstanding were Eurodollar Rate Loans (as defined in the AXEL Credit Agreement)
and that the applicable reference interest rates were the average effective
Adjusted Eurodollar Rates (as defined in the AXEL Credit Agreement) on the AXELs
for the period from the Closing Date through the date of determination, all such
calculations to be in form and substance satisfactory to Arranger and
Administrative Agent. In addition, during the first three Fiscal Quarters of
Fiscal Year 1998, in calculating Consolidated Fixed Charges for any such period,
such calculation shall be made using actual Consolidated Capital Expenditures
paid in Cash from the beginning of Fiscal Year 1998 and annualized.
With respect to any period during which new Subsidiaries, assets or
businesses are acquired pursuant to subsection 7.7(vi), for purposes of
determining compliance with the financial covenants set forth in this subsection
7.6, calculations of Consolidated Adjusted EBITDA and Consolidated Fixed Charges
shall exclude non-recurring restructuring charges associated with such
transactions, one time costs associated with financing raised and equity issued
pursuant to subsections 7.1 (viii) and 7.1(x) and the costs associated with the
realization of cost savings described in the next sentence, provided that such
exclusion shall not apply with respect to any non recurring restructuring
charges and charges in connection with cost savings to the extent they are paid
in cash but only in the period in which they are paid in cash. Consolidated
Adjusted EBITDA and Consolidated Fixed Charges shall also be calculated with
respect to such periods and such Subsidiaries, assets or businesses on a pro
forma basis (including (without duplication for amounts otherwise included in
Consolidated Adjusted EBITDA) pro forma adjustments for cost savings which have
actually occurred (annualizing such cost savings) and arise out of events which
are directly attributable to a specific transaction, are factually supportable
and are expected to have a continuing impact, including, without limitation,
cost savings resulting from head count reductions, closure of facilities and
similar restructuring charges, which pro forma adjustments shall be certified in
an Officers Certificate of the Company) using the historical financial
statements of all entities or assets so acquired or to be acquired and the
consolidated financial statements of Company and its Subsidiaries which shall be
reformulated (i) as if such acquisition, and any acquisitions which have been
consummated during such four quarter period, and any Indebtedness or other
liabilities incurred in connection with
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
123
<PAGE> 131
any such acquisition had been consummated or incurred at the beginning of such
four quarter period (and assuming that such Indebtedness bears interest during
any portion of the applicable measurement period prior to the relevant
acquisition at the weighted average of the interest rates applicable to such
Indebtedness during the period in which it is actually outstanding), and (ii)
otherwise in conformity with certain procedures to be agreed upon between
Administrative Agent and Company, all such calculations to be in form and
substance satisfactory to Administrative Agent.
In addition, in calculating compliance with Subsection 7.6A, discontinued
operations will be given pro forma effect as follows:
(1) Consolidated Adjusted EBITDA attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of on or prior to the calculation date, shall be
excluded, and
(2) Consolidated Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of on or prior to the calculation date, shall be excluded,
but only to the extent that the obligations giving rise to such
Consolidated Fixed Charges will not be obligations of the Company or
any of its Subsidiaries following the Calculation Date.
7.7 Restriction on Fundamental Changes; Asset Sales and Acquisitions.
Company shall not, and shall not permit any of its Subsidiaries to, alter
the corporate, capital or legal structure of Company or any of its Subsidiaries,
or enter into any transaction of merger or consolidation, or liquidate, wind-up
or dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
lease or sub-lease (as lessor or sublessor), transfer or otherwise dispose of,
in one transaction or a series of transactions, all or any part of its business,
property or assets, whether now owned or hereafter acquired, or acquire by
purchase or otherwise all or substantially all the business, property or fixed
assets of, or stock or other evidence of beneficial ownership of, any Person or
any division or line of business of any Person, except:
(i) any Subsidiary of Company may be merged with or into Company or
any wholly-owned Subsidiary Guarantor, or be liquidated, wound up or
dissolved, or all or any part of its business, property or assets may be
conveyed, sold, leased, transferred or otherwise disposed of, in one
transaction or a series of transactions, to Company or any wholly-owned
Subsidiary Guarantor; provided that, in the case of such a merger, Company
or such wholly-owned Subsidiary Guarantor shall be the continuing or
surviving corporation;
(ii) Company and its Subsidiaries may make Consolidated Capital
Expenditures permitted under subsection 7.8;
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
124
<PAGE> 132
(iii) Company and its Subsidiaries may dispose of obsolete, worn out
or surplus property in the ordinary course of business and any assets
acquired in connection with the acquisition of another Person or a
division or line of business of such Person which the Company reasonably
determines are surplus assets;
(iv) Company and its Subsidiaries may sell or otherwise dispose of
assets in transactions that do not constitute Asset Sales; provided that
the consideration received for such assets shall be in an amount at least
equal to the fair market value thereof;
(v) subject to subsection 7.12, Company and its Subsidiaries may (x)
sell the Chester, New York, Melbourne, Australia and Montreal, Quebec real
estate and (y) make other Asset Sales of assets having a fair market value
not in excess of $1,000,000 per year; provided that (1) the consideration
received for such assets shall be in an amount at least equal to the fair
market value thereof; (2) the consideration received shall be at least 85%
cash; and (3) no later than the first Business Day following the date of
receipt by Company or any of its Subsidiaries of any Net Asset Sale
Proceeds of such Asset Sale, Company shall deliver to Agent an Officers'
Certificate, satisfactory in form and substance to Administrative Agent,
demonstrating the derivation of the Net Asset Sale Proceeds of such Asset
Sale from the gross sales price received in connection therewith; and
(vi) Company and its Subsidiaries may acquire all or substantially
all the business, property or fixed assets of, or stock or other evidence
of beneficial ownership of, any Person or any division or line of business
of any Person that is in the same line of business as Company and its
Subsidiaries ("Permitted Business Acquisitions"); provided that the
aggregate consideration paid in respect of all such Permitted Business
Acquisitions does not exceed $10,000,000 in the aggregate (excluding
common stock of Company transferred to the seller as part of the
consideration for a Permitted Business Acquisition). Notwithstanding the
foregoing, expenditures on Permitted Business Acquisitions in an aggregate
amount in excess of $10,000,000 will be permitted; provided that, (a) any
amounts in excess of $25,000,000 (excluding common stock of Company
transferred to the seller as part of the consideration for a Permitted
Business Acquisition) are funded solely from the proceeds of the
incurrence of additional subordinated debt in accordance with subsection
7.1(viii), the proceeds of the incurrence of additional AXELs under
subsection 7.1(x) and/or the proceeds of an issuance of additional Company
Common Stock in a private issuance after the Closing Date, (b) Company
shall give Administrative Agent at least 10 days' notice of the proposed
transaction, and copies of the definitive documentation relating thereto,
(c) Company shall deliver an Officer's Certificate to Administrative Agent
and Lenders in form and substance reasonably satisfactory to
Administrative Agent, together with the related financial statements,
demonstrating in reasonable detail that, after giving effect to such
acquisition (including any Indebtedness incurred or assumed therein) the
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
125
<PAGE> 133
Consolidated Leverage Ratio, determined on a Pro Forma Basis for the most
recently completed four-Fiscal Quarter period, shall be not more than
5.50:1.00 (or such lesser Consolidated Leverage Ratio as may be required
pursuant to subsection 7.6C at the time of such acquisition).
7.8 Consolidated Capital Expenditures.
Company shall not, and shall not permit its Subsidiaries to, make or incur
Consolidated Capital Expenditures, in any Fiscal Year ending on a date set forth
below (or any four quarter period ending on any date set forth below on or prior
to December 31, 1998), in an aggregate amount in excess of the corresponding
amount (the "Maximum Consolidated Capital Expenditures Amount") set forth below
opposite such date; provided that the Maximum Consolidated Capital Expenditures
Amount for any Fiscal Year, commencing with Fiscal Year 1999, shall be increased
by an amount equal to the excess, if any, (but in no event more than 50% of the
Maximum Consolidated Capital Expenditures Amount for the previous Fiscal Year
(or, in the case of Fiscal Year 1999, for the four Fiscal Quarter period ending
as of December 31, 1998) of the Maximum Consolidated Capital Expenditures Amount
(as adjusted in accordance with this proviso) over the actual amount of
Consolidated Capital Expenditure for the previous Fiscal Year (or, in the case
of Fiscal Year 1999, for the four Fiscal Quarter period ending as of December
31, 1998):
<TABLE>
<CAPTION>
==============================================
Period Maximum
Ending Consolidated Capital
Expenditures
==============================================
<S> <C>
March 31, 1998 7,500,000
----------------------------------------------
June 30, 1998 8,250,000
----------------------------------------------
September 30, 1998 7,250,000
----------------------------------------------
December 31, 1998 7,000,000
----------------------------------------------
December 31, 1999 10,000,000
----------------------------------------------
December 31, 2000 10,500,000
----------------------------------------------
December 31, 2001 10,500,000
----------------------------------------------
December 31, 2002 11,000,000
==============================================
</TABLE>
Notwithstanding the foregoing, the Company and its Subsidiaries may fund
Consolidated Capital Expenditures in excess of the foregoing limits from any
proceeds of an additional issuance of Company common stock in a private issuance
after the Closing Date.
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
126
<PAGE> 134
7.9 Sales and Lease-Backs.
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, become or remain liable as lessee or as a guarantor or
other surety with respect to any lease, whether an Operating Lease or a Capital
Lease, of any property (whether real, personal or mixed), whether now owned or
hereafter acquired, (i) which Company or any of its Subsidiaries has sold or
transferred or is to sell or transfer to any other Person (other than Company or
any of its Subsidiaries) or (ii) which Company or any of its Subsidiaries
intends to use for substantially the same purpose as any other property which
has been or is to be sold or transferred by Company or any of its Subsidiaries
to any Person (other than Company or any of its Subsidiaries) in connection with
such lease.
7.10 Transactions with Shareholders and Affiliates.
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction (including
the purchase, sale, lease or exchange of any property or the rendering of any
service) with any holder of 10% or more of any class of equity Securities of
Company or with any Affiliate of Company or of any such holder, on terms that
are less favorable to Company or that Subsidiary, as the case may be, than those
that might be obtained at the time from Persons who are not such a holder or
Affiliate; provided that the foregoing restriction shall not apply to (i) any
transaction between Company and any of its wholly owned Subsidiaries or between
any of its wholly owned Subsidiaries, (ii) any transaction between Company or
any of its wholly owned Subsidiaries and Goldman, Sachs & Co., GSCP or GSII or
any Affiliate of any of them, (iii) reasonable and customary fees paid to
members of the Boards of Directors of Company and its Subsidiaries or (iv) any
transactions described on Schedule 7.10.
7.11 Disposal of Subsidiary Stock.
Except for any sale of 100% of the capital stock or other equity
Securities of any of its Subsidiaries in compliance with the provisions of
subsection 7.7(v), Company shall not:
(i) directly or indirectly sell, assign, pledge or otherwise
encumber or dispose of any shares of capital stock or other equity
Securities of any of its Subsidiaries, except to qualify directors if
required by applicable law; or
(ii) permit any of its Subsidiaries directly or indirectly to sell,
assign, pledge or otherwise encumber or dispose of any shares of capital
stock or other equity Securities of any of its Subsidiaries (including
such Subsidiary), except to Company, another Subsidiary of Company, or to
qualify directors if required by applicable law.
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
127
<PAGE> 135
7.12 Conduct of Business.
From and after the Closing Date, Company shall not, and shall not permit
any of its Subsidiaries to, engage in any business other than (i) the businesses
engaged in by Company and its Subsidiaries on the Closing Date and similar or
related businesses and (ii) such other lines of business as may be consented to
by Requisite Lenders.
7.13 Amendments or Waivers of Certain Related Agreements; Amendments of
Documents Relating to Subordinated Indebtedness.
A. Amendments or Waivers of Certain Related Agreements. Neither Company
nor any of its Subsidiaries will agree to any material amendment to, or waive
any of its material rights under, any Related Agreement (other than any Related
Agreement evidencing or governing any Subordinated Indebtedness) after the
Closing Date without in each case obtaining the prior written consent of
Requisite Lenders to such amendment or waiver.
B. Amendments of Documents Relating to Subordinated Indebtedness. Company
shall not, and shall not permit any of its Subsidiaries to, amend or otherwise
change the terms of any Subordinated Indebtedness, or make any payment
consistent with an amendment thereof or change thereto, if the effect of such
amendment or change is to increase the interest rate on such Subordinated
Indebtedness, change (to earlier dates) any dates upon which payments of
principal or interest are due thereon, change any event of default or condition
to an event of default with respect thereto (other than to eliminate any such
event of default or increase any grace period related thereto), change the
redemption, prepayment or defeasance provisions thereof, change the
subordination provisions of such Subordinated Indebtedness (or of any guaranty
thereof), or change any collateral therefor (other than to release such
collateral), or if the effect of such amendment or change, together with all
other amendments or changes made, is to increase materially the obligations of
the obligor thereunder or to confer any additional rights on the holders of such
Subordinated Indebtedness (or a trustee or other representative on their behalf)
which would be adverse to Company or Lenders.
7.14 Fiscal Year
Company shall not change its Fiscal Year-end from December 31.
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
128
<PAGE> 136
SECTION 8.
EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default") shall
occur:
8.1 Failure to Make Payments When Due.
Failure by Company to pay any installment of principal of any Revolving
Loan when due, whether at stated maturity, by acceleration, by notice of
voluntary prepayment, by mandatory prepayment or otherwise; failure by Company
to pay when due any amount payable to an Issuing Lender in reimbursement of any
drawing under a Letter of Credit; or failure by Company to pay any interest on
any Revolving Loan or any fee or any other amount due under this Agreement
within three days after the date due; or
8.2 Default in Other Agreements.
(i) Failure of Company or any of its Subsidiaries to pay when due any
principal of or interest on or any other amount payable in respect of one or
more items of Indebtedness (other than Indebtedness referred to in subsection
8.1) or Contingent Obligations with an aggregate principal amount of $5,000,000
or more, in each case beyond the end of any grace period provided therefor; or
(ii) breach or default by Company or any of its Subsidiaries with respect to any
other material term of (a) one or more items of Indebtedness or Contingent
Obligations in the individual or aggregate principal amounts referred to in
clause (i) above or (b) any loan agreement (including the AXEL Credit
Agreement), mortgage, indenture or other agreement relating to such item(s) of
Indebtedness or Contingent Obligation(s), if the effect of such breach or
default is to cause, or to permit the holder or holders of that Indebtedness or
Contingent Obligation(s) (or a trustee on behalf of such holder or holders) to
cause, that Indebtedness or Contingent Obligation(s) to become or be declared
due and payable prior to its stated maturity or the stated maturity of any
underlying obligation, as the case may be (upon the giving or receiving of
notice, lapse of time, both, or otherwise); or
8.3 Breach of Certain Covenants.
Failure of Company to perform or comply with any term or condition
contained in subsection 2.5 or 6.2 or Section 7 of this Agreement; or
8.4 Breach of Warranty.
Any representation, warranty, certification or other statement made by
Company or any of its Subsidiaries in any Loan Document or in any statement or
certificate at any time given by Company or any of its Subsidiaries in writing
pursuant hereto or thereto or in connection herewith or therewith shall be false
in any material respect on the date as of which made; or
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
129
<PAGE> 137
8.5 Other Defaults Under Revolving Loan Documents.
Any Loan Party shall default in the performance of or compliance with any
term contained in this Agreement or any of the other Revolving Loan Documents,
other than any such term referred to in any other subsection of this Section 8,
and such default shall not have been remedied or waived within 30 days after the
earlier of (i) an executive officer of Company or such Loan Party becoming aware
of such default or (ii) receipt by Company and such Loan Party of notice from
Administrative Agent or any Lender of such default; or
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc.
(i) A court having jurisdiction in the premises shall enter a decree or
order for relief in respect of Company or any of its Subsidiaries in an
involuntary case under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect, which decree
or order is not stayed; or any other similar relief shall be granted under any
applicable federal or state law; or (ii) an involuntary case shall be commenced
against Company or any of its Subsidiaries under the Bankruptcy Code or under
any other applicable bankruptcy, insolvency or similar law now or hereafter in
effect; or a decree or order of a court having jurisdiction in the premises for
the appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over Company or any of its Subsidiaries, or
over all or a substantial part of its property, shall have been entered; or
there shall have occurred the involuntary appointment of an interim receiver,
trustee or other custodian of Company or any of its Subsidiaries for all or a
substantial part of its property; or a warrant of attachment, execution or
similar process shall have been issued against any substantial part of the
property of Company or any of its Subsidiaries, and any such event described in
this clause (ii) shall continue for 60 days unless dismissed, bonded or
discharged; or
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc.
(i) Company or any of its Subsidiaries shall have an order for relief
entered with respect to it or commence a voluntary case under the Bankruptcy
Code or under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case, or to the conversion of an involuntary case to a voluntary
case, under any such law, or shall consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a substantial
part of its property; or Company or any of its Subsidiaries shall make any
assignment for the benefit of creditors; or (ii) Company or any of its
Subsidiaries shall be unable, or shall fail generally, or shall admit in writing
its inability, to pay its debts as such debts become due; or the Board of
Directors of Company or any of its Subsidiaries (or any committee thereof) shall
adopt any resolution or otherwise authorize any action to approve any of the
actions referred to in clause (i) above or this clause (ii); or
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
130
<PAGE> 138
8.8 Judgments and Attachments.
Any money judgment, writ or warrant of attachment or similar process
involving in the aggregate at any time an amount in excess of $5,000,000 (in
either case not adequately covered by insurance as to which a solvent and
unaffiliated insurance company has acknowledged coverage) shall be entered or
filed against Company or any of its Subsidiaries or any of their respective
assets and shall remain undischarged, unvacated, unbonded or unstayed for a
period of 60 days (or in any event later than five days prior to the date of any
proposed sale thereunder); or
8.9 Dissolution.
Any order, judgment or decree shall be entered against Company or any of
its Subsidiaries decreeing the dissolution or split up of Company or that
Subsidiary and such order shall remain undischarged or unstayed for a period in
excess of 30 days; or
8.10 Employee Benefit Plans.
There shall occur one or more ERISA Events which individually or in the
aggregate results in or might reasonably be expected to result in liability of
Company or any of its Subsidiaries in excess of $5,000,000 during the term of
this Agreement; or the excess of (1) the actuarial present value (determined on
the basis of reasonable assumptions employed by the independent actuary for each
Pension Plan for purposes of Section 412 of the Internal Revenue Code or Section
302 of ERISA) of benefit liabilities (as defined in Section 4001(a)(16) of
ERISA) over (2) the fair market value of the assets of such Pension Plan,
individually or in the aggregate for all Pension Plans (excluding for purposes
of such computation any Pension Plans with respect to which assets exceed
benefit liabilities), exceeds $7,500,000; or
8.11 Change in Control.
If (i) prior to a Qualified Public Offering GSII together with any
Affiliates of GSII shall cease to beneficially own and control 51% or more of
the combined voting power of all Securities of the Company, (ii) following
consummation of a Qualified Public Offering any Person or any two or more
Persons acting in concert shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission under the
Exchange Act), directly or indirectly, of Securities of Company (or other
Securities convertible into such Securities) representing more of the combined
voting power of all Securities of Company than is owned by GSII and its
Affiliates at such time, or (iii) a "Change of Control" as defined in the Senior
Subordinated Notes Indenture occurs; or
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
131
<PAGE> 139
8.12 Invalidity of Subsidiary Guaranty; Failure of Security; Repudiation of
Obligations.
At any time after the execution and delivery thereof, (i) the Subsidiary
Guaranty for any reason, other than the satisfaction in full of all Obligations,
shall cease to be in full force and effect (other than in accordance with its
terms) or shall be declared to be null and void, (ii) any Collateral Document
shall cease to be in full force and effect (other than by reason of a release of
Collateral thereunder in accordance with the terms hereof or thereof, the
satisfaction in full of the Obligations or any other termination of such
Collateral Document in accordance with the terms hereof or thereof) or shall be
declared null and void, or Administrative Agent shall not have or shall cease to
have a valid and perfected First Priority Lien in any Collateral purported to be
covered thereby, in each case for any reason other than the failure of
Administrative Agent or any Lender to take any action within its control, or
(iii) any Loan Party shall contest the validity or enforceability of any Loan
Document in writing or deny in writing that it has any further liability,
including with respect to future advances by Lenders, under any Loan Document to
which it is a party; or
8.13 Failure to Consummate Merger.
The Merger shall not be consummated in accordance with this Agreement and
the applicable Related Agreements concurrently with the making of the initial
Revolving Loans, or the Merger shall be unwound, reversed or otherwise rescinded
in whole or in part for any reason; or
8.14 Amendment of Certain Documents of Company.
Company shall agree to any material amendment to, or waive any of its
material rights under, or otherwise change any material terms of, any of the
Recapitalization Documents, in each case as in effect on the Closing Date, in a
manner adverse to Company or any of its Subsidiaries or to Lenders without the
prior written consent of Administrative Agent and Requisite Lenders;
THEN (i) upon the occurrence of any Event of Default described in subsection 8.6
or 8.7, each of (a) the unpaid principal amount of and accrued interest on the
Revolving Loans, (b) an amount equal to the maximum amount that may at any time
be drawn under all Letters of Credit then outstanding (whether or not any
beneficiary under any such Letter of Credit shall have presented, or shall be
entitled at such time to present, the drafts or other documents or certificates
required to draw under such Letter of Credit), and (c) all other Obligations
shall automatically become immediately due and payable, without presentment,
demand, protest or other requirements of any kind, all of which are hereby
expressly waived by Company, and the obligation of each Lender to make any
Revolving Loan, the obligation of Administrative Agent to issue any Letter of
Credit and the right of any Lender to issue any Letter of Credit hereunder shall
thereupon terminate, and (ii) upon the occurrence and during the continuation of
any other Event of Default, Administrative Agent shall, upon the written request
or with the written consent of Requisite Lenders, by
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
132
<PAGE> 140
written notice to Company, declare all or any portion of the amounts described
in clauses (a) through (c) above to be, and the same shall forthwith become,
immediately due and payable, and the obligation of each Lender to make any
Revolving Loan, the obligation of Administrative Agent to issue any Letter of
Credit and the right of any Lender to issue any Letter of Credit hereunder shall
thereupon terminate; provided that the foregoing shall not affect in any way the
obligations of Lenders under subsection 3.3C(i).
Any amounts described in clause (b) above, when received by Administrative
Agent, shall be held by Collateral Agent pursuant to the terms of the
Intercreditor Agreement and shall be applied as therein provided.
Notwithstanding anything contained in the second preceding paragraph, if
at any time within 60 days after an acceleration of the Revolving Loans pursuant
to clause (ii) of such paragraph Company shall pay all arrears of interest and
all payments on account of principal which shall have become due otherwise than
as a result of such acceleration (with interest on principal and, to the extent
permitted by law, on overdue interest, at the rates specified in this Agreement)
and all Events of Default and Potential Events of Default (other than
non-payment of the principal of and accrued interest on the Revolving Loans, in
each case which is due and payable solely by virtue of acceleration) shall be
remedied or waived pursuant to subsection 10.6, then Requisite Lenders, by
written notice to Company, may at their option rescind and annul such
acceleration and its consequences; but such action shall not affect any
subsequent Event of Default or Potential Event of Default or impair any right
consequent thereon. The provisions of this paragraph are intended merely to bind
Lenders to a decision which may be made at the election of Requisite Lenders and
are not intended, directly or indirectly, to benefit Company, and such
provisions shall not at any time be construed so as to grant Company the right
to require Lenders to rescind or annul any acceleration hereunder or to preclude
Administrative Agent or Lenders from exercising any of the rights or remedies
available to them under any of the Revolving Loan Documents, even if the
conditions set forth in this paragraph are met.
SECTION 9.
AGENTS
9.1 Appointment.
A. Appointment of Agents. GSCP is hereby appointed Arranger and
Syndication Agent hereunder, and each Lender hereby authorizes Arranger and
Syndication Agent to act as its agent in accordance with the terms of this
Agreement and the other Revolving Loan Documents. Fleet is hereby appointed
Administrative Agent hereunder and under the other Revolving Loan Documents and
each Lender hereby authorizes Administrative Agent to act as its agent in
accordance with the terms of this Agreement and the other Revolving Loan
Documents. Fleet is also being appointed Collateral Agent under the
Intercreditor Agreement and each Lender hereby authorizes Collateral Agent to
act as its agent
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in accordance with the terms of the Intercreditor Agreement and the other
Revolving Loan Documents. Each Agent hereby agrees to act upon the express
conditions contained in this Agreement and the other Revolving Loan Documents,
as applicable. The provisions of this Section 9 are solely for the benefit of
Agents and Lenders and Company shall have no rights as a third party beneficiary
of any of the provisions thereof. In performing its functions and duties under
this Agreement, each Agent shall act solely as an agent of Lenders and does not
assume and shall not be deemed to have assumed any obligation towards or
relationship of agency or trust with or for Company or any of its Subsidiaries.
Each of Arranger and Syndication Agent, without consent of or notice to any
party hereto, may assign any and all of its rights or obligations hereunder to
any of its Affiliates. As of the Closing Date, all obligations of Arranger and
Syndication Agent hereunder shall terminate.
B. Appointment of Supplemental Collateral Agents. It is the purpose of
this Agreement and the other Revolving Loan Documents that there shall be no
violation of any law of any jurisdiction denying or restricting the right of
banking corporations or associations to transact business as agent or trustee in
such jurisdiction. It is recognized that in case of litigation under this
Agreement or any of the other Revolving Loan Documents, and in particular in
case of the enforcement of any of the Revolving Loan Documents, or in case
Administrative Agent deems that by reason of any present or future law of any
jurisdiction it may not exercise any of the rights, powers or remedies granted
herein or in any of the other Revolving Loan Documents or take any other action
which may be desirable or necessary in connection therewith, it may be necessary
that Administrative Agent appoint an additional individual or institution as a
separate trustee, co-trustee, collateral agent or collateral co-agent (any such
additional individual or institution being referred to herein individually as a
"Supplemental Collateral Agent" and collectively as "Supplemental Collateral
Agents").
In the event that Administrative Agent appoints a Supplemental Collateral
Agent with respect to any Collateral, (i) each and every right, power, privilege
or duty expressed or intended by this Agreement or any of the other Revolving
Loan Documents to be exercised by or vested in or conveyed to Administrative
Agent with respect to such Collateral shall be exercisable by and vest in such
Supplemental Collateral Agent to the extent, and only to the extent, necessary
to enable such Supplemental Collateral Agent to exercise such rights, powers and
privileges with respect to such Collateral and to perform such duties with
respect to such Collateral, and every covenant and obligation contained in the
Revolving Loan Documents and necessary to the exercise or performance thereof by
such Supplemental Collateral Agent shall run to and be enforceable by either
Agent or such Supplemental Collateral Agent, and (ii) the provisions of this
Section 9 and of subsections 10.2 and 10.3 that refer to Administrative Agent
shall inure to the benefit of such Supplemental Collateral Agent and all
references therein to Administrative Agent shall be deemed to be references to
Administrative Agent and/or such Supplemental Collateral Agent, as the context
may require.
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Should any instrument in writing from Company or any other Loan Party be
required by any Supplemental Collateral Agent so appointed by Administrative
Agent for more fully and certainly vesting in and confirming to him or it such
rights, powers, privileges and duties, Company shall, or shall cause such Loan
Party to, execute, acknowledge and deliver any and all such instruments promptly
upon request by Administrative Agent. In case any Supplemental Collateral Agent,
or a successor thereto, shall die, become incapable of acting, resign or be
removed, all the rights, powers, privileges and duties of such Supplemental
Collateral Agent, to the extent permitted by law, shall vest in and be exercised
by Administrative Agent until the appointment of a new Supplemental Collateral
Agent.
9.2 Powers and Duties; General Immunity.
A. Powers; Duties Specified. Each Lender irrevocably authorizes each Agent
to take such action on such Lender's behalf and to exercise such powers, rights
and remedies hereunder and under the other Revolving Loan Documents as are
specifically delegated or granted to such Agent by the terms hereof and thereof,
together with such powers, rights and remedies as are reasonably incidental
thereto. Each Agent shall have only those duties and responsibilities that are
expressly specified in this Agreement and the other Revolving Loan Documents.
Each Agent may exercise such powers, rights and remedies and perform such duties
by or through its agents or employees. No Agent shall have, by reason of this
Agreement or any of the other Revolving Loan Documents, a fiduciary relationship
in respect of any Lender; and nothing in this Agreement or any of the other
Revolving Loan Documents, expressed or implied, is intended to or shall be so
construed as to impose upon any Agent any obligations in respect of this
Agreement or any of the other Revolving Loan Documents except as expressly set
forth herein or therein.
B. No Responsibility for Certain Matters. No Agent shall be responsible to
any Lender for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any other
Loan Document or for any representations, warranties, recitals or statements
made herein or therein or made in any written or oral statements or in any
financial or other statements, instruments, reports or certificates or any other
documents furnished or made by any of Agent to Lenders or by or on behalf of
Company to any Agent or any Lender in connection with the Revolving Loan
Documents and the transactions contemplated thereby or for the financial
condition or business affairs of Company or any other Person liable for the
payment of any Obligations, nor shall any Agent be required to ascertain or
inquire as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained in any of the Revolving Loan
Documents or as to the use of the proceeds of the Revolving Loans or as to the
existence or possible existence of any Event of Default or Potential Event of
Default. Anything contained in this Agreement to the contrary notwithstanding,
Administrative Agent shall not have any liability arising from confirmations of
the amount of outstanding Revolving Loans or the Letter of Credit Usage or the
component amounts thereof.
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C. Exculpatory Provisions. None of Agents nor any of their respective
officers, partners, directors, employees or agents shall be liable to Lenders
for any action taken or omitted by any Agent under or in connection with any of
the Revolving Loan Documents except to the extent caused by such Agent's gross
negligence or willful misconduct. Each Agent shall be entitled to refrain from
any act or the taking of any action (including the failure to take an action) in
connection with this Agreement or any of the other Revolving Loan Documents or
from the exercise of any power, discretion or authority vested in it hereunder
or thereunder unless and until such Agent shall have received instructions in
respect thereof from Requisite Lenders (or such other Lenders as may be required
to give such instructions under subsection 10.6) and, upon receipt of such
instructions from Requisite Lenders (or such other Lenders, as the case may be),
such Agent shall be entitled to act or (where so instructed) refrain from
acting, or to exercise such power, discretion or authority, in accordance with
such instructions. Without prejudice to the generality of the foregoing, (i)
each Agent shall be entitled to rely, and shall be fully protected in relying,
upon any communication, instrument or document believed by it to be genuine and
correct and to have been signed or sent by the proper person or persons, and
shall be entitled to rely and shall be protected in relying on opinions and
judgments of attorneys (who may be attorneys for Company and its Subsidiaries),
accountants, experts and other professional advisors selected by it; and (ii) no
Lender shall have any right of action whatsoever against any Agent as a result
of such Agent acting or (where so instructed) refraining from acting under this
Agreement or any of the other Revolving Loan Documents in accordance with the
instructions of Requisite Lenders (or such other Lenders as may be required to
give such instructions under subsection 10.6).
D. Agent Entitled to Act as Lender. The agency hereby created shall in no
way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, any Agent in its individual capacity as a Lender hereunder.
With respect to its participation in the Revolving Loans and the Letters of
Credit, each Agent shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not performing the duties and
functions delegated to it hereunder, and the term "Lender" or "Lenders" or any
similar term shall, unless the context clearly otherwise indicates, include each
Agent in its individual capacity. Any Agent and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of banking, trust,
financial advisory or other business with Company or any of its Affiliates as if
it were not performing the duties specified herein, and may accept fees and
other consideration from Company for services in connection with this Agreement
and otherwise without having to account for the same to Lenders.
9.3 Representations and Warranties; No Responsibility For Appraisal of
Creditworthiness.
Each Lender represents and warrants that it has made its own independent
investigation of the financial condition and affairs of Company and its
Subsidiaries in connection with the making of the Revolving Loans and the
issuance of Letters of Credit
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hereunder and that it has made and shall continue to make its own appraisal of
the creditworthiness of Company and its Subsidiaries. No Agent shall have any
duty or responsibility, either initially or on a continuing basis, to make any
such investigation or any such appraisal on behalf of Lenders or to provide any
Lender with any credit or other information with respect thereto, whether coming
into its possession before the making of the Revolving Loans or at any time or
times thereafter, and no Agent shall have any responsibility with respect to the
accuracy of or the completeness of any information provided to Lenders.
9.4 Right to Indemnity.
Each Lender, in proportion to its Pro Rata Share, severally agrees to
indemnify each Agent, to the extent that such Agent shall not have been
reimbursed by Company, for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including counsel fees and disbursements) or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against such
Agent in exercising its powers, rights and remedies or performing its duties
hereunder or under the other Revolving Loan Documents or otherwise in its
capacity as such Agent in any way relating to or arising out of this Agreement
or the other Revolving Loan Documents; provided that no Lender shall be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from such
Agent's gross negligence or willful misconduct and provided further that any
such indemnification of the Collateral Agent shall be on the terms described in
section 6(c) of the Intercreditor Agreement. If any indemnity furnished to any
Agent for any purpose shall, in the opinion of such Agent, be insufficient or
become impaired, such Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished.
9.5 Successor Agent.
Successor Administrative Agent. Administrative Agent may resign at any
time by giving 30 days' prior written notice thereof to Lenders and Company, and
Administrative Agent may be removed at any time with or without cause by an
instrument or concurrent instruments in writing delivered to Company and
Administrative Agent and signed by Requisite Lenders. Upon any such notice of
resignation or any such removal, Requisite Lenders shall have the right, upon
five Business Days' notice to Company, to appoint a successor Administrative
Agent. If no successor Administrative Agent shall have been so appointed by
Requisite Lenders and shall have accepted such appointment within 30 days after
the notice of the intent of the Administrative Agent to resign, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor Administrative Agent, that successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring or removed Administrative
Agent and the retiring or removed Administrative Agent
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shall be discharged from its duties and obligations under this Agreement. After
any retiring or removed Administrative Agent's resignation or removal hereunder
as Administrative Agent, the provisions of this Section 9 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement.
9.6 Collateral Documents and Guaranties.
Each Lender hereby further authorizes Administrative Agent, on behalf of
and for the benefit of Lenders, to enter into the Intercreditor Agreement and to
appoint the Collateral Agent thereunder as agent for and representative of
Lenders. Under the terms of the Intercreditor Agreement the Collateral Agent is
authorized to enter into each Collateral Document as secured party and to be the
agent for and representative of Secured Parties under the Subsidiary Guaranty,
and each Lender agrees to be bound by the terms of the Intercreditor Agreement,
each Collateral Document and the Subsidiary Guaranty. Administrative Agent shall
not enter into or consent to any material amendment, modification or termination
of the Intercreditor Agreement without the prior consent of Requisite Lenders.
Each Lender acknowledges that under the terms of the Intercreditor Agreement
without further written consent or authorization from Lenders, Collateral Agent
may execute any documents or instruments necessary to (a) release any Lien
encumbering any item of Collateral that is the subject of a sale or other
disposition of assets permitted by this Agreement or to which Requisite Lenders
have otherwise consented or (b) release any Subsidiary Guarantor from the
Subsidiary Guaranty if all of the capital stock of such Subsidiary Guarantor is
sold to any Person (other than an Affiliate of Company) pursuant to a sale or
other disposition permitted hereunder or to which Requisite Lenders or Lenders
(as applicable) have otherwise consented. Anything contained in any of the
Revolving Loan Documents to the contrary notwithstanding, Company,
Administrative Agent and each Lender hereby agree that (X) no Lender shall have
any right individually to realize upon any of the Collateral under any
Collateral Document or to enforce the Subsidiary Guaranty, it being understood
and agreed that all powers, rights and remedies under the Collateral Documents
and the Subsidiary Guaranty may be exercised solely by Collateral Agent for the
benefit of Secured Parties in accordance with the terms thereof, and (Y) in the
event of a foreclosure by Collateral Agent on any of the Collateral pursuant to
a public or private sale, Collateral Agent or any Secured Party may be the
purchaser of any or all of such Collateral at any such sale and Collateral
Agent, as agent for and representative of Secured Parties (but not any Secured
Party or Secured Parties in its or their respective individual capacities unless
Requisite Lenders shall otherwise agree in writing) shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply any of the Obligations as a credit on account of the purchase price for
any collateral payable by Collateral Agent at such sale. The Lenders each
further acknowledge and agree that pursuant to the Intercreditor Agreement and
the Collateral Documents, Collateral Agent will act as the fonde de pouvoir
(holder of the power of attorney) of the holders from time to time of Notes
issued pursuant hereto to the extent necessary or desirable for the purposes of
creating, maintaining or enforcing any Liens or guarantees created or
established under any
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Collateral Documents contemplated hereby to be executed under the laws of the
Province of Quebec, Canada including, without limiting the generality of the
foregoing, entering into any such Collateral Documents and exercising all or
any of the rights, powers, trusts or duties conferred upon the Collateral Agent
therein and in the Intercreditor Agreement and each holder of Notes by
receiving and holding same accepts and confirms the appointment of the
collateral Agent as fonde de pouvoir (holder of the power of attorney) of such
holder for such purposes.
SECTION 10.
MISCELLANEOUS
10.1 Assignments and Participations in Loans and Letters of Credit.
A. General. Subject to subsection 10.1B, each Lender shall have the right
at any time to (i) sell, assign or transfer to any Eligible Assignee, or (ii)
sell participations to any Person in, all or any part of its Revolving Loan
Commitments or any Revolving Loan or Revolving Loans made by it or its Letters
of Credit or participations therein or any other interest herein or in any other
Obligations owed to it; provided that no such sale, assignment, transfer or
participation shall, without the consent of Company, require Company to file a
registration statement with the Securities and Exchange Commission or apply to
qualify such sale, assignment, transfer or participation under the securities
laws of any state; provided, further that no such sale, assignment or transfer
described in clause (i) above shall be effective unless and until an Assignment
Agreement effecting such sale, assignment or transfer shall have been accepted
by Administrative Agent and recorded in the Register as provided in subsection
10.1B(ii); provided, further that no such sale, assignment, transfer or
participation of any Letter of Credit or any participation therein may be made
separately from a sale, assignment, transfer or participation of a corresponding
interest in the Revolving Loan Commitment and the Revolving Loans of the Lender
effecting such sale, assignment, transfer or participation. Except as otherwise
provided in this subsection 10.1, no Lender shall, as between Company and such
Lender, be relieved of any of its obligations hereunder as a result of any sale,
assignment or transfer of, or any granting of participations in, all or any part
of its Revolving Loan Commitments or the Revolving Loans, the Letters of Credit
or participations therein, or the other Obligations owed to such Lender.
B. Assignments.
(i) Amounts and Terms of Assignments. Each Revolving Loan
Commitment, Revolving Loan, Letter of Credit or participation therein, or
other Obligation may (a) be assigned in any amount to another Lender, or
to a Related Fund or an Affiliate of the assigning Lender or another
Lender, with the giving of notice to Company, Administrative Agent and
Syndication Agent or (b) be assigned in an aggregate amount of not less
than $5,000,000 (or such lesser amount as shall
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constitute the aggregate amount of the Revolving Loan Commitments,
Revolving Loans, Letters of Credit and participations therein, and other
Obligations of the assigning Lender) to any other Eligible Assignee with
the giving of notice to Company and with the consent of Administrative
Agent and Syndication Agent (which consent shall not be unreasonably
withheld or delayed). To the extent of any such assignment in accordance
with either clause (a) or (b) above, the assigning Lender shall be
relieved of its obligations with respect to its Revolving Loan
Commitments, Revolving Loans, Letters of Credit or participations therein,
or other Obligations or the portion thereof so assigned. The parties to
each such assignment shall execute and deliver to Administrative Agent,
for its acceptance and recording in the Register, an Assignment Agreement,
together with a processing and recordation fee of $500, if such assignment
is to another Lender or an Affiliate or Related Fund of the assigning
Lender, or $2000, if such assignment is to any other Eligible Assignee,
and such forms, certificates or other evidence, if any, with respect to
United States federal income tax withholding matters as the assignee under
such Assignment Agreement may be required to deliver to Administrative
Agent pursuant to subsection 2.7B(iii)(a). Upon such execution, delivery,
acceptance and recordation, from and after the effective date specified in
such Assignment Agreement, (y) the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment Agreement, shall have the
rights and obligations of a Lender hereunder and (z) the assigning Lender
thereunder shall, to the extent that rights and obligations hereunder have
been assigned by it pursuant to such Assignment Agreement, relinquish its
rights (other than any rights which survive the termination of this
Agreement under subsection 10.9B) and be released from its obligations
under this Agreement (and, in the case of an Assignment Agreement covering
all or the remaining portion of an assigning Lender's rights and
obligations under this Agreement, such Lender shall cease to be a party
hereto; provided that, anything contained in any of the Revolving Loan
Documents to the contrary notwithstanding, if such Lender is the Issuing
Lender with respect to any outstanding Letters of Credit such Lender shall
continue to have all rights and obligations of an Issuing Lender with
respect to such Letters of Credit until the cancellation or expiration of
such Letters of Credit and the reimbursement of any amounts drawn
thereunder). The Revolving Loan Commitments hereunder shall be modified to
reflect the Revolving Loan Commitment of such assignee and any remaining
Revolving Loan Commitment of such assigning Lender and, if any such
assignment occurs after the issuance of the Revolving Notes hereunder, the
assigning Lender shall, upon the effectiveness of such assignment or as
promptly thereafter as practicable, surrender its applicable Revolving
Notes to Administrative Agent for cancellation, and thereupon new
Revolving Notes shall be issued to the assignee and/or to the assigning
Lender, substantially in the form of Exhibit V annexed hereto, as the case
may be, with appropriate insertions, to reflect the new Revolving Loan
Commitments of the assignee and/or the assigning Lender.
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(ii) Acceptance by Administrative Agent; Recordation in Register.
Upon its receipt of an Assignment Agreement executed by an assigning
Lender and an assignee representing that it is an Eligible Assignee,
together with the processing and recordation fee referred to in subsection
10.1B(i) and any forms, certificates or other evidence with respect to
United States federal income tax withholding matters that such assignee
may be required to deliver to Administrative Agent pursuant to subsection
2.7B(iii)(a), Administrative Agent shall, if Administrative Agent has
consented to the assignment evidenced thereby (to the extent such consent
is required pursuant to subsection 10.1B(i)), (a) accept such Assignment
Agreement by executing a counterpart thereof as provided therein (which
acceptance shall evidence any required consent of Administrative Agent to
such assignment), (b) record the information contained therein in the
Register, and (c) give prompt notice thereof to Company. Administrative
Agent shall maintain a copy of each Assignment Agreement delivered to and
accepted by it as provided in this subsection 10.1B(ii).
C. Participations. The holder of any participation, other than an
Affiliate of the Lender granting such participation, shall not be entitled to
require such Lender to take or omit to take any action hereunder except action
directly affecting (i) the extension of the regularly scheduled maturity of any
portion of the principal amount of or interest on any Revolving Loan allocated
to such participation or (ii) a reduction of the principal amount of or the rate
of interest payable on any Revolving Loan allocated to such participation, and
all amounts payable by Company hereunder (including amounts payable to such
Lender pursuant to subsections 2.6D, 2.7 and 3.6) shall be determined as if such
Lender had not sold such participation. Company and each Lender hereby
acknowledge and agree that, solely for purposes of subsections 10.4 and 10.5,
(a) any participation will give rise to a direct obligation of Company to the
participant and (b) the participant shall be considered to be a "Lender".
D. Assignments to Federal Reserve Banks. In addition to the assignments
and participations permitted under the foregoing provisions of this subsection
10.1, any Lender may assign and pledge all or any portion of its Revolving
Loans, the other Obligations owed to such Lender, and its Revolving Notes to any
Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any operating circular
issued by such Federal Reserve Bank; provided that (i) no Lender shall, as
between Company and such Lender, be relieved of any of its obligations hereunder
as a result of any such assignment and pledge and (ii) in no event shall such
Federal Reserve Bank be considered to be a "Lender" or be entitled to require
the assigning Lender to take or omit to take any action hereunder.
E. Information. Each Lender may furnish any information concerning Company
and its Subsidiaries in the possession of that Lender from time to time to
assignees and participants (including prospective assignees and participants),
subject to subsection 10.19.
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F. Representations of Lenders. Each Lender listed on the signature pages
hereof hereby represents and warrants (i) that it is an Eligible Assignee
described in clause (A) of the definition thereof; (ii) that it has experience
and expertise in the making of or investing in loans such as the Revolving
Loans; and (iii) that it will make its Revolving Loans for its own account in
the ordinary course of its business and without a view to distribution of such
Revolving Loans within the meaning of the Securities Act or the Exchange Act or
other federal securities laws (it being understood that, subject to the
provisions of this subsection 10.1, the disposition of such Revolving Loans or
any interests therein shall at all times remain within its exclusive control).
Each Lender that becomes a party hereto pursuant to an Assignment Agreement
shall be deemed to agree that the representations and warranties of such Lender
contained in Section 2(c) of such Assignment Agreement are incorporated herein
by this reference.
10.2 Expenses.
Whether or not the transactions contemplated hereby shall be consummated,
Company agrees to pay promptly (i) all the actual and reasonable costs and
expenses of preparation of the Revolving Loan Documents and any consents,
amendments, waivers or other modifications thereto; (ii) all the costs of
furnishing all opinions by counsel for Company (including any opinions requested
by Lenders as to any legal matters arising hereunder) and of Company's
performance of and compliance with all agreements and conditions on its part to
be performed or complied with under this Agreement and the other Revolving Loan
Documents including with respect to confirming compliance with environmental,
insurance and solvency requirements; (iii) the reasonable fees, expenses and
disbursements of counsel to Arranger and counsel to Administrative Agent (in
each case including allocated costs of internal counsel) in connection with the
negotiation, preparation, execution and administration of the Revolving Loan
Documents and any consents, amendments, waivers or other modifications thereto
and any other documents or matters requested by Company; (iv) all the actual
costs and reasonable expenses of creating and perfecting Liens in favor of
Collateral Agent on behalf of Secured Parties pursuant to any Collateral
Document, including filing and recording fees, expenses and taxes, stamp or
documentary taxes, search fees, title insurance premiums, and reasonable fees,
expenses and disbursements of counsel to Arranger and counsel to Administrative
Agent and of counsel providing any opinions that Arranger, Administrative Agent
or Requisite Lenders may request in respect of the Collateral Documents or the
Liens created pursuant thereto; (v) all the actual costs and reasonable expenses
(including the reasonable fees, expenses and disbursements of any auditors,
accountants or appraisers and any environmental or other consultants, advisors
and agents employed or retained by Administrative Agent or Arranger and its
counsel) of obtaining and reviewing any appraisals provided for under subsection
4.1L or 6.9C, any environmental audits or reports provided for under subsection
4.1M or 6.9B(viii) and any audits or reports provided for under subsection 4.1K
or 6.5B with respect to Inventory and accounts receivable of Company and its
Subsidiaries; (vi) all the actual costs and reasonable expenses (including the
reasonable fees, expenses and disbursements of any consultants, advisors and
agents employed or retained by Administrative Agent and
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its counsel) in connection with the custody or preservation of any of the
Collateral; (vii) all other actual and reasonable costs and expenses incurred by
Syndication Agent, Arranger or Administrative Agent in connection with the
syndication of the Revolving Loan Commitments and the negotiation, preparation
and execution of the Revolving Loan Documents and any consents, amendments,
waivers or other modifications thereto and the transactions contemplated
thereby; and (viii) after the occurrence of an Event of Default, all costs and
expenses, including reasonable attorneys' fees (including allocated costs of
internal counsel) and costs of settlement, incurred by Arranger, Administrative
Agent and Lenders in enforcing any Obligations of or in collecting any payments
due from any Loan Party hereunder or under the other Revolving Loan Documents by
reason of such Event of Default (including in connection with the sale of,
collection from, or other realization upon any of the Collateral or the
enforcement of the Subsidiary Guaranty) or in connection with any refinancing or
restructuring of the credit arrangements provided under this Agreement in the
nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings.
10.3 Indemnity.
In addition to the payment of expenses pursuant to subsection 10.2,
whether or not the transactions contemplated hereby shall be consummated,
Company agrees to defend (subject to Indemnitees' selection of counsel),
indemnify, pay and hold harmless Agents and Lenders, and the officers, partners,
directors, employees, agents and affiliates of any of Agents and Lenders
(collectively called the "Indemnitees"), from and against any and all
Indemnified Liabilities (as hereinafter defined); provided that Company shall
not have any obligation to any Indemnitee hereunder with respect to any
Indemnified Liabilities to the extent such Indemnified Liabilities arise solely
from the gross negligence or willful misconduct of that Indemnitee as determined
by a final, non-appealable judgment of a court of competent jurisdiction.
As used herein, "Indemnified Liabilities" means, collectively, any and all
liabilities, obligations, losses, damages (including natural resource damages),
penalties, actions, judgments, suits, claims (including Environmental Claims),
costs (including the costs of any investigation, study, sampling, testing,
abatement, cleanup, removal, remediation or other response action necessary to
remove, remediate, clean up or abate any Hazardous Materials Activity), expenses
and disbursements of any kind or nature whatsoever (including the reasonable
fees and disbursements of counsel for Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened by
any Person, whether or not any such Indemnitee shall be designated as a party or
a potential party thereto, and any fees or expenses incurred by Indemnitees in
enforcing this indemnity), whether direct, indirect or consequential and whether
based on any federal, state or foreign laws, statutes, rules or regulations
(including securities and commercial laws, statutes, rules or regulations and
Environmental Laws), on common law or equitable cause or on contract or
otherwise, that may be imposed on, incurred by, or asserted against any such
Indemnitee, in any manner relating to or arising out of (i) this Agreement or
the other Revolving Loan Documents or the Related Agreements or the transactions
contemplated hereby or thereby
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(including Lenders' agreement to make the Revolving Loans hereunder or the use
or intended use of the proceeds thereof or the issuance of Letters of Credit
hereunder or the use or intended use of any thereof, or any enforcement of any
of the Revolving Loan Documents (including any sale of, collection from, or
other realization upon any of the Collateral or the enforcement of the
Subsidiary Guaranty)), (ii) the statements contained in the commitment letter
delivered by any Lender to Company with respect thereto, or (iii) any
Environmental Claim or any Hazardous Materials Activity relating to or arising
from, directly or indirectly, any past or present activity, operation, land
ownership, or practice of Company or any of its Subsidiaries.
To the extent that the undertakings to defend, indemnify, pay and hold
harmless set forth in this subsection 10.3 may be unenforceable in whole or in
part because they are violative of any law or public policy, Company shall
contribute the maximum portion that it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all Indemnified Liabilities
incurred by Indemnitees or any of them.
10.4 Set-Off; Security Interest in Deposit Accounts.
In addition to any rights now or hereafter granted under applicable law
and not by way of limitation of any such rights, upon the occurrence of any
Event of Default each Lender is hereby authorized by Company at any time or from
time to time, subject to the consent of Administrative Agent, without notice to
Company or to any other Person (other than Administrative Agent), any such
notice being hereby expressly waived, to set off and to appropriate and to apply
any and all deposits (general or special, including Indebtedness evidenced by
certificates of deposit, whether matured or unmatured, but not including trust
accounts) and any other Indebtedness at any time held or owing by that Lender to
or for the credit or the account of Company against and on account of the
obligations and liabilities of Company to that Lender under this Agreement, the
Letters of Credit and participations therein and the other Revolving Loan
Documents, including all claims of any nature or description arising out of or
connected with this Agreement, the Letters of Credit and participations therein
or any other Revolving Loan Document, irrespective of whether or not (i) that
Lender shall have made any demand hereunder or (ii) the principal of or the
interest on the Revolving Loans or any amounts in respect of the Letters of
Credit or any other amounts due hereunder shall have become due and payable
pursuant to Section 8 and although said obligations and liabilities, or any of
them, may be contingent or unmatured. Company hereby further grants to
Collateral Agent and each Lender a security interest in all deposits and
accounts maintained with Administrative Agent or such Lender as security for the
Obligations.
10.5 Ratable Sharing.
Lenders hereby agree among themselves that if any of them shall, whether
by voluntary payment (other than a voluntary prepayment of Revolving Loans made
and applied in accordance with the terms of this Agreement), by realization upon
security,
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through the exercise of any right of set-off or banker's lien, by counterclaim
or cross action or by the enforcement of any right under the Revolving Loan
Documents or otherwise, or as adequate protection of a deposit treated as cash
collateral under the Bankruptcy Code, receive payment or reduction of a
proportion of the aggregate amount of principal, interest, amounts payable in
respect of Letters of Credit, fees and other amounts then due and owing to that
Lender hereunder or under the other Revolving Loan Documents (collectively, the
"Aggregate Amounts Due" to such Lender) which is greater than the proportion
received by any other Lender in respect of the Aggregate Amounts Due to such
other Lender, then the Lender receiving such proportionately greater payment
shall (i) notify Administrative Agent and each other Lender of the receipt of
such payment and (ii) apply a portion of such payment to purchase participations
(which it shall be deemed to have purchased from each seller of a participation
simultaneously upon the receipt by such seller of its portion of such payment)
in the Aggregate Amounts Due to the other Lenders so that all such recoveries of
Aggregate Amounts Due shall be shared by all Lenders in proportion to the
Aggregate Amounts Due to them; provided that if all or part of such
proportionately greater payment received by such purchasing Lender is thereafter
recovered from such Lender upon the bankruptcy or reorganization of Company or
otherwise, those purchases shall be rescinded and the purchase prices paid for
such participations shall be returned to such purchasing Lender ratably to the
extent of such recovery, but without interest. Company expressly consents to the
foregoing arrangement and agrees that any holder of a participation so purchased
may exercise any and all rights of banker's lien, set-off or counterclaim with
respect to any and all monies owing by Company to that holder with respect
thereto as fully as if that holder were owed the amount of the participation
held by that holder.
10.6 Amendments and Waivers.
A. No amendment, modification, termination or waiver of any provision of
the Revolving Loan Documents, or consent to any departure by the Company
therefrom, shall in any event be effective without the written concurrence of
Requisite Lenders; provided that no such amendment, modification, termination,
waiver or consent shall, without the consent of each Lender (with Obligations
directly affected in the case of the following clause (i)): (i) extend the
scheduled final maturity of any Revolving Loan or Revolving Note, or extend the
stated expiration date of any Letter of Credit beyond the Revolving Loan
Commitment Termination Date, or reduce the rate of interest on any Revolving
Loan (other than any waiver of any increase in the interest rate applicable to
any Revolving Loan pursuant to subsection 2.2E) or any commitment fees or letter
of credit fees payable hereunder, or extend the time for payment of any such
interest or fees, or reduce the principal amount of any Revolving Loan or any
reimbursement obligation in respect of any Letter of Credit, (ii) amend, modify,
terminate or waive any provision of this subsection 10.6, (iii) reduce the
percentage specified in the definition of "Requisite Lenders" (it being
understood that, with the consent of Requisite Lenders, additional extensions of
credit pursuant to this Agreement may be included in the determination of
"Requisite Lenders" on substantially the same basis as the Revolving Loan
Commitments and the Revolving Loans are included on the Closing Date), (iv)
consent to the assignment or transfer by the
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<PAGE> 153
Company of any of its rights and obligations under this Agreement or (v)
release all or substantially all the Liens granted pursuant to the Collateral
Documents (including Liens on real property) or to release any Subsidiary from
the Subsidiary Guaranty if such release would constitute a release of all or
substantially all of the Collateral; provided, further that no such amendment,
modification, termination or waiver shall (1) increase the Revolving Loan
Commitments of any Lender over the amount thereof then in effect without the
consent of such Lender (it being understood that no amendment, modification or
waiver of any condition precedent, covenant, Potential Event of Default or Event
of Default shall constitute an increase in the Revolving Loan Commitment of any
Lender, and that no increase in the available portion of any Revolving Loan
Commitment of any Lender shall constitute an increase in such Revolving Loan
Commitment of such Lender); (2) amend, modify, terminate or waive any obligation
of Lenders relating to the purchase of participations in Letters of Credit as
provided in subsection 3.1C without the written concurrence of Administrative
Agent and of each Issuing Lender which has a Letter of Credit then outstanding
or which has not been reimbursed for a drawing under a Letter of Credit issued
it; or (3) amend, modify, terminate or waive any provision of Section 9 as the
same applies to any Agent, or any other provision of this Agreement as the same
applies to the rights or obligations of any Agent, in each case without the
consent of such Agent.
B. Administrative Agent may, but shall have no obligation to, with the
concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of that Lender. Any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it was given. No
notice to or demand on the Company in any case shall entitle Company to any
other or further notice or demand in similar or other circumstances. Any
amendment, modification, termination, waiver or consent effected in accordance
with this subsection 10.6 shall be binding upon each Lender at the time
outstanding, each future Lender and, if signed by Company, the Company.
10.7 Independence of Covenants.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another covenant shall not avoid the occurrence of an Event
of Default or Potential Event of Default if such action is taken or condition
exists.
10.8 Notices.
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served, telexed or sent by telefacsimile or United States mail
or courier service and shall be deemed to have been given when delivered in
person or by courier service, upon receipt of telefacsimile or telex, or three
Business Days after depositing it in the United States mail with postage prepaid
and properly addressed; provided that notices to Arranger, Syndication
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<PAGE> 154
Agent or Administrative Agent shall not be effective until received. For the
purposes hereof, the address of each party hereto shall be as set forth under
such party's name on the signature pages hereof or (i) as to Company and
Administrative Agent, such other address as shall be designated by such Person
in a written notice delivered to the other parties hereto and (ii) as to each
other party, such other address as shall be designated by such party in a
written notice delivered to Administrative Agent and Company.
10.9 Survival of Representations, Warranties and Agreements.
A. All representations, warranties and agreements made herein shall
survive the execution and delivery of this Agreement and the making of the
Revolving Loans and the issuance of the Letters of Credit hereunder.
B. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of Company set forth in subsections 2.6D, 2.7, 3.5A,
3.6, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in subsections
9.2C, 9.4 and 10.5 shall survive the payment of the Revolving Loans, the
cancellation or expiration of the Letters of Credit and the reimbursement of any
amounts drawn thereunder, and the termination of this Agreement.
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of Administrative Agent or any Lender in
the exercise of any power, right or privilege hereunder or under any other
Revolving Loan Document shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other power, right or privilege. All
rights and remedies existing under this Agreement and the other Revolving Loan
Documents are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
10.11 Marshalling; Payments Set Aside.
Neither Administrative Agent nor any Lender shall be under any obligation
to marshal any assets in favor of Company or any other party or against or in
payment of any or all of the Obligations. To the extent that Company makes a
payment or payments to Administrative Agent or Lenders (or to Administrative
Agent for the benefit of Lenders), or Administrative Agent or Lenders enforce
any security interests or exercise their rights of setoff, and such payment or
payments or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, any other state or federal law, common law or any equitable
cause, then, to the extent of such recovery, the obligation or part thereof
originally intended to be satisfied, and all Liens, rights and remedies therefor
or related thereto, shall be revived and continued in full
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<PAGE> 155
force and effect as if such payment or payments had not been made or such
enforcement or setoff had not occurred.
10.12 Severability.
In case any provision in or obligation under this Agreement or the
Revolving Notes shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
10.13 Obligations Several; Independent Nature of Lenders' Rights.
The obligations of Lenders hereunder are several and no Lender shall be
responsible for the obligations or Revolving Loan Commitments of any other
Lender hereunder. Nothing contained herein or in any other Loan Document, and no
action taken by Lenders pursuant hereto or thereto, shall be deemed to
constitute Lenders as a partnership, an association, a joint venture or any
other kind of entity. The amounts payable at any time hereunder to each Lender
shall be a separate and independent debt, and each Lender shall be entitled to
protect and enforce its rights arising out of this Agreement and it shall not be
necessary for any other Lender to be joined as an additional party in any
proceeding for such purpose.
10.14 Headings.
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
10.15 Applicable Law.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES.
10.16 Successors and Assigns.
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of Lenders (it being understood that
Lenders' rights of assignment are subject to subsection 10.1). Neither Company's
rights or obligations hereunder nor any interest
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therein may be assigned or delegated by Company without the prior written
consent of all Lenders.
10.17 Consent to Jurisdiction and Service of Process.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS
THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND
DELIVERING THIS AGREEMENT, COMPANY, FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO COMPANY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
SUBSECTION 10.8;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST COMPANY IN
THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.17 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402
OR OTHERWISE.
10.18 Waiver of Jury Trial.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER REVOLVING LOAN DOCUMENTS OR
ANY DEALINGS BETWEEN THEM RELATING
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TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER
RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to
be all-encompassing of any and all disputes that may be filed in any court and
that relate to the subject matter of this transaction, including contract
claims, tort claims, breach of duty claims and all other common law and
statutory claims. Each party hereto acknowledges that this waiver is a material
inducement to enter into a business relationship, that each has already relied
on this waiver in entering into this Agreement, and that each will continue to
rely on this waiver in their related future dealings. Each party hereto further
warrants and represents that it has reviewed this waiver with its legal counsel
and that it knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN
WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 10.18 AND EXECUTED BY EACH OF
THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER
REVOLVING LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE
OBLIGATIONS MADE HEREUNDER. In the event of litigation, this Agreement may be
filed as a written consent to a trial by the court.
10.19 Confidentiality.
Each Lender shall hold all non-public information obtained pursuant to the
requirements of this Agreement in accordance with such Lender's customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices (and any Lender without such
customary procedures agrees to keep such information confidential), it being
understood and agreed by Company that in any event a Lender may make disclosures
to Affiliates or Related Funds of such Lender or disclosures reasonably required
by any bona fide assignee, transferee or participant in connection with the
contemplated assignment or transfer by such Lender of any Revolving Loans or any
participations therein (so long as such Persons agree in advance in writing to
keep such information confidential) or disclosures required or requested by any
governmental agency or representative thereof or pursuant to legal process;
provided that, unless specifically prohibited by applicable law or court order,
each Lender shall notify Company of any request by any governmental agency or
representative thereof (other than any such request in connection with any
examination of the financial condition of such Lender by such governmental
agency) for disclosure of any such non-public information prior to disclosure of
such information; and provided, further that in no event shall any Lender be
obligated or required to return any materials furnished by Company or any of its
Subsidiaries.
10.20 Counterparts; Effectiveness.
This Agreement and any amendments, waivers, consents or supplements hereto
or in connection herewith may be executed in any number of counterparts and by
different
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
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parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document. This Agreement
shall become effective upon the execution of a counterpart hereof by each of the
parties hereto and receipt by Company and Administrative Agent of written or
telephonic authorization of delivery thereof.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
COMPANY:
AMSCAN HOLDINGS, INC.
By: /s/ Gerald C. Rittenberg
------------------------------
Name: Gerald C. Rittenberg
Title: Chief Executive Officer
Notice Address:
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
Attention: James M. Harrison
Telecopy: (914) 345-2056
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
S-1
<PAGE> 160
AGENTS AND LENDERS:
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Arranger and Syndication Agent
By: /s/
------------------------
Authorized Signatory
Notice Address:
Goldman Sachs Credit Partners L.P.
16th Floor
85 Broad Street
New York, New York 10004
Attention: Stephen King (Credit)
Telecopy: (212) 902-2417
With a copy to:
Goldman Sachs Credit Partners L.P.
27th Floor
85 Broad Street
New York, New York 10004
Attention: Kathy King (Operations)
Telecopy: (212) 902-3757
REVOLVING LOAN CREDIT AGREEMENT
S-2
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FLEET NATIONAL BANK,
individually and as Administrative Agent
By: /s/ Robert H. Dial
------------------------
Name: Robert H. Dial
Title: Director
Notice Address:
Fleet National Bank
One Federal Street, 5th Floor
Mail Stop MAOFD05P
Boston, Massachusetts 02110
Attention: John Mann
Telecopy: (617) 346-4682
with a copy to:
Fleet National Bank
One Federal Street, 3rd Floor
Mail Stop MAOFD03C
Boston, Massachusetts 02110
Attention: Steve Curran
Telecopy: (617) 346-5093
REVOLVING LOAN CREDIT AGREEMENT EXECUTION
S-3
<PAGE> 162
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Murry K. Stegelmann
-----------------------
Name: Murry K. Stegelmann
Title: Duly Authorized Signatory
Notice Address:
GE Capital
201 High Ridge Road
Stamford, CT 06927-5200
Attention: Joseph Badini,
Associate
Telecopy: (203) 316-7978
With a copy to:
GE Capital
201 High Ridge Road
Stamford, CT 06927-5200
Attention: Janet K. Williams,
Senior Vice President
Telecopy: (203) 316-7978
REVOLVING LOAN CREDIT AGREEMENT
S-4
<PAGE> 163
SOUTHERN PACIFIC BANK
By: /s/ Charles Martorano
----------------------------
Name: Charles Martorano
Title: Senior Vice President
Notice Address:
Southern Pacific Bank
12300 Wilshire Blvd.
Los Angeles, CA 90025
Attention: Chris Kelleher
Telecopy: (310) 207-4067
With a copy to:
Southern Pacific Bank
12300 Wilshire Blvd.
Los Angeles, CA 90025
Attention: Chuck Martorano
Telecopy: (310) 207-4067
REVOLVING LOAN CREDIT AGREEMENT
S-5
<PAGE> 164
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ Perry Vavoules
------------------------
Name: Perry Vavoules
Title: Senior Vice President
Notice Address:
Transamerica Business Credit Corporation
555 Theodore Fremd Avenue, Suite C-301
Rye, New York 10580
Attention: Ron Walker (Credit)
Telecopy: (914) 921-0110
With a copy to:
Transamerica Business Credit Corporation
555 Theodore Fremd Avenue, Suite C-301
Rye, New York 10580
Attention: Maria Bellizzi (Operations)
Telecopy: (914) 925-7248
REVOLVING LOAN CREDIT AGREEMENT
S-6
<PAGE> 1
Exhibit 10.3
================================================================================
AXEL CREDIT AGREEMENT
DATED AS OF DECEMBER 19, 1997
AMONG
AMSCAN HOLDINGS, INC.,
AS BORROWER,
THE LENDERS LISTED HEREIN,
AS LENDERS,
GOLDMAN SACHS CREDIT PARTNERS L.P.,
AS ARRANGER AND SYNDICATION AGENT,
AND
FLEET NATIONAL BANK,
AS ADMINISTRATIVE AGENT
================================================================================
AXEL CREDIT AGREEMENT EXECUTION
<PAGE> 2
AMSCAN HOLDINGS, INC.
AXEL CREDIT AGREEMENT
TABLE OF CONTENTS
Page
----
SECTION 1.
DEFINITIONS.............................. 3
1.1 Certain Defined Terms.................................... 3
1.2 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement............................. 36
1.3 Other Definitional Provisions and Rules of Construction.. 36
SECTION 2.
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS............... 37
2.1 Commitments; Making of Loans; the Register; Notes........ 37
2.2 Interest on the Loans.................................... 40
2.3 Fees..................................................... 44
2.4 Repayments, Prepayments; General Provisions Regarding
Payments; Application of Proceeds of Collateral and
Payments Under Subsidiary Guaranty....................... 44
2.5 Use of Proceeds.......................................... 49
2.6 Special Provisions Governing Eurodollar Rate AXELs....... 50
2.7 Increased Costs; Taxes; Capital Adequacy................. 52
2.8 Obligation of Lenders to Mitigate........................ 56
2.9 Removal or Replacement of a Lender....................... 57
SECTION 3.
CONDITIONS TO AXELs.......................... 58
3.1 Certain Conditions to AXELs.............................. 58
3.2 Additional Conditions to AXELs........................... 66
SECTION 4.
COMPANY'S REPRESENTATIONS AND WARRANTIES................ 68
4.1 Organization, Powers, Qualification, Good Standing,
Business and Subsidiaries................................ 68
4.2 Authorization of Borrowing, etc.......................... 69
4.3 Financial Condition...................................... 70
4.4 No Material Adverse Change; No Restricted Payments....... 71
4.5 Title to Properties; Liens; Real Property................ 71
4.6 Litigation; Adverse Facts................................ 71
4.7 Payment of Taxes......................................... 72
AXEL CREDIT AGREEMENT EXECUTION
(i)
<PAGE> 3
Page
----
4.8 Performance of Agreements; Materially Adverse
Agreements; Material Contracts........................... 72
4.9 Governmental Regulation.................................. 73
4.10 Securities Activities.................................... 73
4.11 Employee Benefit Plans................................... 73
4.12 Certain Fees............................................. 74
4.13 Environmental Protection................................. 74
4.14 Employee Matters......................................... 75
4.15 Solvency................................................. 75
4.16 Matters Relating to Collateral........................... 75
4.17 Related Agreements....................................... 76
4.18 Disclosure............................................... 76
SECTION 5.
COMPANY'S AFFIRMATIVE COVENANTS.................... 77
5.1 Financial Statements and Other Reports................... 77
5.2 Corporate Existence, etc................................. 83
5.3 Payment of Taxes and Claims; Tax Consolidation........... 83
5.4 Maintenance of Properties; Insurance; Application of Net
Insurance/Condemnation Proceeds.......................... 84
5.5 Inspection Rights; Lender Meeting........................ 85
5.6 Compliance with Laws, etc................................ 86
5.7 Environmental Review and Investigation, Disclosure,
Etc.; Company's Actions Regarding Hazardous Materials
Activities, Environmental Claims and Violations of
Environmental Laws....................................... 86
5.8 Execution of Subsidiary Guaranty and Personal Property
Collateral Documents by Certain Subsidiaries and Future
Subsidiaries ............................................ 89
5.9 Conforming Leasehold Interests; Matters Relating to
Real Property Collateral................................. 90
5.10 Interest Rate Protection................................. 93
5.11 Cash Management System................................... 93
SECTION 6.
COMPANY'S NEGATIVE COVENANTS...................... 94
6.1 Indebtedness and Issuance of Disqualified Stock ......... 94
6.2 Liens and Related Matters ............................... 96
6.3 Restricted Payments ..................................... 97
6.4 Dividends and Other Payment Restrictions Affecting
Subsidiaries ............................................ 99
6.5 Restrictions on Fundamental Changes; Asset Sales.........100
6.6 Transactions with Affiliates.............................101
6.7 Asset Sales..............................................102
AXEL CREDIT AGREEMENT EXECUTION
(ii)
<PAGE> 4
Page
----
SECTION 7.
EVENTS OF DEFAULT...........................103
7.1 Failure to Make Payments When Due........................103
7.2 Default in Other Agreements..............................104
7.3 Breach of Certain Covenants..............................104
7.5 Other Defaults under AXEL Loan Documents.................104
7.6 Judgments................................................104
7.7 Bankruptcy; Appointment of Custodian.....................105
7.8 Invalidity of Subsidiary Guaranty........................105
7.9 Change in Control........................................106
8.1 Appointment..............................................107
8.2 Powers and Duties; General Immunity......................108
8.3 Representations and Warranties; No Responsibility For
Appraisal of Creditworthiness............................110
8.4 Right to Indemnity.......................................110
8.5 Successor Administrative Agent...........................110
8.6 Collateral Documents and Guaranties......................111
SECTION 9.
MISCELLANEOUS.............................112
9.1 Assignments and Participations in AXELs..................112
9.2 Expenses.................................................115
9.3 Indemnity................................................116
9.4 Set-Off; Security Interest in Deposit Accounts...........117
9.5 Ratable Sharing..........................................117
9.6 Amendments and Waivers...................................118
9.7 Independence of Covenants................................119
9.8 Notices..................................................119
9.9 Survival of Representations, Warranties and Agreements...119
9.10 Failure or Indulgence Not Waiver; Remedies Cumulative....120
9.11 Marshalling; Payments Set Aside..........................120
9.12 Severability.............................................120
9.13 Obligations Several; Independent Nature of Lenders'
Rights...................................................120
9.14 Headings.................................................121
9.15 Applicable Law...........................................121
9.16 Successors and Assigns...................................121
9.17 Consent to Jurisdiction and Service of Process...........121
9.18 Waiver of Jury Trial.....................................122
9.19 Confidentiality..........................................123
9.20 Counterparts; Effectiveness..............................123
Signature pages S-1
AXEL CREDIT AGREEMENT EXECUTION
(iii)
<PAGE> 5
EXHIBITS
I FORM OF NOTICE OF BORROWING
II FORM OF NOTICE OF CONVERSION/CONTINUATION
III FORM OF AXEL NOTE
IV FORM OF COMPLIANCE CERTIFICATE
V-A FORM OF OPINION OF WACHTELL, LIPTON ROSEN & KATZ
V-B FORM OF OPINION OF KURZMAN & EISENBERG
VI FORM OF OPINION OF O'MELVENY & MYERS LLP
VII FORM OF ASSIGNMENT AGREEMENT
VIII FORM OF CERTIFICATE RE NON-BANK STATUS
IX FORM OF FINANCIAL CONDITION CERTIFICATE
X FORM OF COMPANY PLEDGE AGREEMENT
XI FORM OF COMPANY SECURITY AGREEMENT
XII FORM OF SUBSIDIARY GUARANTY
XIII FORM OF SUBSIDIARY PLEDGE AGREEMENT
XIV FORM OF SUBSIDIARY SECURITY AGREEMENT
XV FORM OF MORTGAGE
XVI FORM OF COLLATERAL ACCESS AGREEMENT
AXEL CREDIT AGREEMENT EXECUTION
(iv)
<PAGE> 6
SCHEDULES
2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES
3.1C CORPORATE AND CAPITAL STRUCTURE; OWNERSHIP; MANAGEMENT
3.1F INDEBTEDNESS TO BE REPAID UNDER EXISTING CREDIT AGREEMENTS
4.1 SUBSIDIARIES OF COMPANY
4.5 REAL PROPERTY
4.6 LITIGATION
4.8 MATERIAL CONTRACTS
4.13 ENVIRONMENTAL MATTERS
5.11 CASH MANAGEMENT SYSTEM
6.1 CERTAIN EXISTING INDEBTEDNESS
AXEL CREDIT AGREEMENT EXECUTION
(v)
<PAGE> 7
AMSCAN HOLDINGS, INC.
AXEL CREDIT AGREEMENT
This AXEL CREDIT AGREEMENT is dated as of December 19, 1997 and entered
into by and among AMSCAN HOLDINGS, INC., a Delaware corporation ("Company"),
GOLDMAN SACHS CREDIT PARTNERS L.P., ("GSCP") as arranger (in such capacity,
"Arranger"), and as syndication agent (in such capacity, "Syndication Agent"),
THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each, including
GSCP and Fleet (as hereinafter defined), individually referred to herein as a
"Lender" and collectively as "Lenders"), and FLEET NATIONAL BANK ("Fleet"), as
administrative agent for Lenders (in such capacity, "Administrative Agent").
R E C I T A L S
WHEREAS, GSII (this and other capitalized terms used in these recitals
without definition being used as defined in subsection 1.1) has formed Confetti
Acquisition, Inc., a Delaware corporation ("Newco") for the purpose of entering
into a series of recapitalization transactions pursuant to the Recapitalization
Agreement;
WHEREAS, on or before the Closing Date, Newco and Company shall have
consummated the transactions contemplated under the Recapitalization Agreement,
and in connection with such transactions, Company will have, following the
Merger of Newco with and into Company, not less than $75,000,000 of equity
financing, consisting of (i) approximately $7,500,000 in shares of Company
retained by current shareholders, (ii) approximately $750,000 in cash common
equity contributions by certain Management Investors (which contributions will
be financed by Company and will be made following consummation of the Merger)
and (iii) approximately $67,500,000 in equity financing from Newco, which equity
financing shall have been contributed to Newco immediately prior to the Merger
as follows: (x) an amount not less than $61,875,000 in cash by GSII, (y)
approximately $4,500,000 of Old Management Shares (valued at the highest cash
price offered to public shareholders in the Acquisition) contributed by a
certain Management Investor in exchange for common stock of Newco which will be
converted in the Merger into shares of Company Common Stock and (z)
approximately $1,125,000 of restricted shares of common stock of Newco granted
to a certain Management Investor which will be converted in the Merger into
shares of Company Common Stock;
<PAGE> 8
WHEREAS, pursuant to the Recapitalization Agreement, on the Closing Date,
Newco will be merged with and into Company, with Company being the surviving
corporation in such merger;
WHEREAS, on or before the Closing Date, Company will issue and sell not
less than $110,000,000 in aggregate principal amount of Senior Subordinated
Notes;
WHEREAS, on the date hereof Company has entered into a separate Revolving
Credit Agreement (such credit agreement as amended, supplemented, refinanced,
renewed or extended or otherwise modified from time to time the "Revolving
Credit Agreement" with Fleet National Bank as administrative agent, (the
"Revolving Credit Facility Agent"), Goldman Sachs Credit Partners L.P. as
arranger and syndication agent and the financial institutions named therein as
lenders (the "Revolving Credit Lenders") pursuant to which Revolving Credit
Lenders have agreed to extend certain credit facilities to Company the proceeds
of which will be used (i) together with the proceeds of the AXELs made
hereunder, the issuance and sale of the Senior Subordinated Notes and the equity
financing described above to fund the Recapitalization Financing Requirements
and (ii) to provide financing for working capital, completion of Permitted
Business Acquisitions and other general corporate purposes of Company and its
Subsidiaries;
WHEREAS, Lenders have agreed to extend certain credit facilities to
Company pursuant to the terms and conditions of this Agreement, the proceeds of
which will be used together with the proceeds of the Revolving Loan facility
under the Revolving Credit Agreement and the issuance and sale of the Senior
Subordinated Notes and the equity financing described above, to fund the
Recapitalization Financing Requirements;
WHEREAS, on the date hereof, the Administrative Agent and the Revolving
Credit Facility Agent, have entered into an Intercreditor Agreement pursuant to
which the Administrative Agent and the Revolving Credit Facility Agent have
appointed Fleet to serve as collateral agent and representative (in such
capacity, the "Collateral Agent") for the Lenders, the Revolving Credit Lenders,
the Administrative Agent, the Revolving Credit Facility Agent and the other
agents under this Agreement and the Revolving Credit Agreement (collectively,
the "Secured Parties") and agreed to the terms on which Collateral, the benefits
of guarantees and the proceeds thereof will be shared between the credit
facilities;
WHEREAS, Company desires to secure all of the Obligations hereunder and
under the other Loan Documents by granting to Collateral Agent, on behalf of
Secured Parties, a first priority Lien on substantially all of its real,
personal and mixed property, including a pledge of all of the capital stock of
each of its Domestic Subsidiaries and 66% of the capital stock of each of its
Foreign Subsidiaries; and
WHEREAS, all of the Domestic Subsidiaries of Company have agreed to
guarantee the Obligations hereunder and under the other Loan Documents and to
secure their
AXEL CREDIT AGREEMENT EXECUTION
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<PAGE> 9
guaranties by granting to Collateral Agent, on behalf of Secured Parties, a
first priority Lien on substantially all of their respective personal and mixed
property, including a pledge of all of the capital stock of each of their
respective Domestic Subsidiaries and 66% of the capital stock of each of their
respective Foreign Subsidiaries:
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Company, Lenders and Agents agree as
follows:
SECTION 1.
DEFINITIONS
1.1 Certain Defined Terms.
The following terms used in this Agreement shall have the following
meanings:
"Acquired Debt" means, with respect to any specified Person, (i)
indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Restricted Subsidiary of such specified Person, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Adjusted Eurodollar Rate" means, for any Interest Rate
Determination Date with respect to an Interest Period for a Eurodollar
Rate AXEL, the interest rate per annum (rounded upward, if necessary, to
the nearest 1/32 of one percent) as determined on the basis of the offered
rates for deposits in U.S. dollars, for a period of time comparable to
such Interest Period which appears on the Telerate Page 3750 as of 11:00
a.m. (New York time) two Business Days before the first day of such
Interest Period; provided, however, that if the rate described above does
not appear on the Telerate System on any applicable interest determination
date, the Adjusted Eurodollar Rate shall be the rate (rounded upward as
described above, if necessary for deposits in U.S. dollars for a period
substantially equal to the interest period on the Reuters Page "LIBO" or
such other page as may replace the LIBO page on that service for the
purpose of displaying such rates), as of 11:00 a.m. (London time) two
Business Days before the first day of such Interest Period.
If both the Telerate and Reuters system are unavailable, then the
rate for that date will be determined on the basis of the offered rates
for deposits in U.S. dollars for a period of time comparable to such
Interest Period which are offered by four major banks in the London
interbank market at approximately 11:00 a.m. (New York time) two Business
Days before the first day of such Interest Period as selected by the
Administrative Agent. The principal London office of each of the four
major
AXEL CREDIT AGREEMENT EXECUTION
3
<PAGE> 10
London banks will be requested to provide a quotation of its U.S. dollar
deposit offered rate. If at least two such quotations are provided, the
rate for that date will be the arithmetic mean of the quotations. If fewer
than two quotations are provided as requested, the rate for the date will
be determined on the basis of the rates quoted for loans in U.S. dollars
to leading European banks for a period of time comparable to such Interest
Period offered by major banks in New York City at approximately 11:00 a.m.
(New York time) two Business Days before the first day of such Interest
Period. In the event that Administrative Agent is unable to obtain any
such quotation as provided above, it will be deemed that the Adjusted
Eurodollar Rate for such Interest Rate cannot be determined.
In the event that the Board of Governors of the Federal Reserve
System shall impose a Eurodollar Rate Reserve Percentage with respect to
Eurocurrency Liabilities, the Adjusted Eurodollar Rate for an Interest
Period shall be equal to the amount determined above for such Interest
Period divided by a percentage equal to 100% minus the Eurodollar Rate
Reserve Percentage for such Interest Period.
"Administrative Agent" has the meaning assigned to that term in the
introduction to this Agreement and also means and includes any successor
Administrative Agent appointed pursuant to subsection 8.5A.
"Affected Lender" has the meaning assigned to that term in
subsection 2.6C.
"Affiliate", of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling", "controlled by" and "under common control with"), as used
with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of
voting securities, by agreement or otherwise; provided that beneficial
ownership of 10% or more of the voting securities of a Person shall be
deemed to be control.
"Affiliate Transaction" has the meaning assigned to that term in
subsection 6.6.
"Agent" means, individually, each of Arranger, Syndication Agent,
Collateral Agent and Administrative Agent and "Agents" means Arranger,
Syndication Agent, Collateral Agent and Administrative Agent,
collectively.
"Agreement" means this AXEL Credit Agreement dated as of December
19, 1997, as it may be amended, supplemented or otherwise modified from
time to time.
AXEL CREDIT AGREEMENT EXECUTION
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<PAGE> 11
"Arranger" has the meaning assigned to that term in the introduction
to this Agreement.
"Asset Sale" means the sale by Company or any of its Subsidiaries to
any Person other than Company or any of its wholly-owned Subsidiaries of
(i) any of the stock of any of Company's Subsidiaries, (ii) substantially
all of the assets of any division or line of business of Company or any of
its Subsidiaries, or (iii) any other assets (whether tangible or
intangible) of Company or any of its Subsidiaries (other than (a)
inventory sold in the ordinary course of business (b) sales of Cash
Equivalents (as defined in the Revolving Credit Agreement) for the fair
market value thereof, and (c) any such other assets to the extent that the
aggregate value of such assets sold in any single transaction or related
series of transactions is equal to $500,000 or less).
"Assignment Agreement" means an Assignment Agreement in
substantially the form of Exhibit VII annexed hereto.
"Auxiliary Pledge Agreement" means each pledge agreement or similar
instrument governed by the laws of a country other than the United States,
executed on the Closing Date pursuant to subsection 3.1I(vii) or from time
to time thereafter in accordance with subsection 5.8 by Company or any
Domestic Subsidiary that owns capital stock of one or more Foreign
Subsidiaries organized in such country, in form and substance satisfactory
to Collateral Agent, as such Auxiliary Pledge Agreement may be amended,
supplemented or otherwise modified from time to time, and "Auxiliary
Pledge Agreements" means all such pledge agreements or instruments,
collectively.
"AXEL(TM)" or "AXELs(TM)" means a loan made by a Lender to Company
as an amortization extended loan pursuant to subsection 2.1A. The term
AXEL is a registered trademark of Goldman, Sachs & Co.
"AXEL Commitment" means a commitment of a Lender to make an AXEL as
set forth in subsection 2.1A, and "AXEL Commitments" means such
commitments of all Lenders in the aggregate.
"AXEL Exposure" means, with respect to any Lender as of any date of
determination (i) prior to the funding of the AXELs, that Lender's AXEL
Commitment and (ii) after the funding of the AXELs, the outstanding
principal amount of the AXEL of that Lender.
"AXEL Loan Documents" means this Agreement, the AXEL Notes, the
Subsidiary Guaranty, the Collateral Documents any Hedging Agreements with
Lenders, and the Intercreditor Agreement.
AXEL CREDIT AGREEMENT EXECUTION
5
<PAGE> 12
"AXEL Notes" means (i) the promissory notes of Company issued
pursuant to subsection 2.1E on the Closing Date and (ii) any promissory
notes issued by Company pursuant to the last sentence of subsection
9.1B(i) in connection with assignments of the AXELs of any Lenders, in
each case substantially in the form of Exhibit III annexed hereto, as they
may be amended, supplemented or otherwise modified from time to time.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"Bankruptcy Law" means title 11, U.S. Code or any similar Federal or
state law for the relief of debtors.
"Base Rate" means, at any time, the higher of (x) the Prime Rate or
(y) the rate which is 1/2 of 1% in excess of the Federal Funds Effective
Rate.
"Base Rate AXELs" means AXELs bearing interest at rates determined
by reference to the Base Rate as provided in subsection 2.2A.
"Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the State of New York or is a
day on which banking institutions located in such state are authorized or
required by law or other governmental action to close.
"Capital Lease", means, at any time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participation, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership,
partnership interests (whether of general or limited) and (iv) any other
interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the
issuing Person (but excluding customary employee incentive or bonus
arrangements, and customary earn-out provisions granted in connection with
acquisition transactions and providing for aggregate payouts not in excess
of $5,000,000 per year).
"Cash" means money, currency or a credit balance in a Deposit
Account.
"Cash Equivalents" means, (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof, (iii) certificates of
deposit and eurodollar time
AXEL CREDIT AGREEMENT EXECUTION
6
<PAGE> 13
deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding one year and overnight
bank deposits, in each case with any domestic bank having capital and
surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" (or
the equivalent rating under a substantially similar ratings system if
Keefe Bank Watch Ratings are no longer published) or better, (iv)
repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the
qualifications specified in clause (iii) above and (v) commercial paper
having the highest rating obtainable from Moody's Investors Service, Inc.
or Standard & Poor's Corporation (or in their absence, an equivalent
rating from another nationally recognized securities rating agency) and in
each case maturing within one year after the date of acquisition.
"Certificate of Merger" means the Certificate of Merger dated as of
December 19, 1997 for the Merger of Newco with and into Company, as in
effect on the Closing Date.
"Certificate re Non-Bank Status" means a certificate substantially
in the form of Exhibit VIII annexed hereto delivered by a Lender to
Administrative Agent pursuant to subsection 2.7B(iii).
"Closing Date" means the date on or before December 19, 1997, on
which the AXELs are made.
"Collateral" means, collectively, all of the real, personal and
mixed property (including capital stock) in which Liens are purported to
be granted pursuant to the Collateral Documents as security for the
Obligations.
"Collateral Access Agreement" means any landlord waiver, mortgagee
waiver, bailee letter or any similar acknowledgement or agreement of any
landlord in respect of any Leased Property, or mortgagee in respect of any
real property, in which Company or any of its Subsidiaries owns or holds a
fee interest and which is subject to a mortgage, held by such mortgagee,
in either case where any Collateral is located, or any warehouseman or
processor in possession of any Inventory of any Loan Party, substantially
in the form of Exhibit XVI annexed hereto with such changes thereto as may
be agreed to by Collateral Agent in the reasonable exercise of its
discretion.
"Collateral Accounts" has the meaning assigned to that term in the
Intercreditor Agreement.
"Collateral Agent" has the meaning assigned to that term in the
introduction to this Agreement.
AXEL CREDIT AGREEMENT EXECUTION
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<PAGE> 14
"Collateral Documents" means the Company Pledge Agreement, the
Company Security Agreement, the Subsidiary Pledge Agreements, the
Subsidiary Security Agreements, the Mortgages, the Auxiliary Pledge
Agreements and all other instruments or documents delivered by any Loan
Party pursuant to this Agreement or any of the other Loan Documents in
order to grant to Collateral Agent, on behalf of Secured Parties, a Lien
on any real, personal or mixed property of that Loan Party as security for
the Obligations.
"Company" means Company as the surviving corporation in the Merger.
"Company Common Stock" means the shares of common stock of Company
par value $0.10 per share.
"Company Pledge Agreement" means the Company Pledge Agreement
executed and delivered by Company on the Closing Date, substantially in
the form of Exhibit X annexed hereto, as such Company Pledge Agreement may
thereafter be amended, supplemented or otherwise modified from time to
time.
"Company Security Agreement" means the Company Security Agreement
executed and delivered by Company on the Closing Date, substantially in
the form of
Exhibit XI annexed hereto, as such Company Security Agreement may
thereafter be amended, supplemented or otherwise modified from time to
time.
"Compliance Certificate" means a certificate substantially in the
form of Exhibit IV annexed hereto delivered to Administrative Agent and
Lenders by Company pursuant to subsection 5.1(iv).
"Confidential Information Memorandum" means that certain
Confidential Information Memorandum prepared by GSCP relating to the AXELs
and Revolving Loans dated November 1997.
"Conforming Leasehold Interest" means any Recorded Leasehold
Interest as to which the lessor has agreed in writing for the benefit of
Collateral Agent (which writing has been delivered to Collateral Agent),
whether under the terms of the applicable lease, under the terms of a
Landlord Consent and Estoppel, or otherwise, to the matters described in
the definition of "Landlord Consent and Estoppel," which interest, if a
sub-leasehold or sub-sub-leasehold interest, is not subject to any
contrary restrictions contained in a superior lease or sublease.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus
(i) an amount equal to any extraordinary loss plus any net loss realized
in connection with an Asset Sale (to the extent such losses were deducted
in computing such Consolidated Net Income), plus (ii) provision for taxes
based on income or profits of such Person and
AXEL CREDIT AGREEMENT EXECUTION
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<PAGE> 15
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income, plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and
whether or not capitalized (including, without limitation, amortization of
original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Leases, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash operating expenses that were paid
in a prior period) and other non-cash charges of prepaid cash operating
expenses that were paid in a prior period) and other non-cash charges of
such Person and its Restricted Subsidiaries for such period to the extent
that such depreciation, amortization and other non-cash charges were
deducted in computing such Consolidated Net Income, minus (v) cash outlays
that were made by such Person or any of its Restricted Subsidiaries during
such period in respect of any item that was reflected as a non-cash charge
in a prior period, provided that such non-cash charge was added to
Consolidated Net Income in determining Consolidated Cash Flow for such
prior period.
"Consolidated Excess Cash Flow" has the meaning assigned to that
term under the Revolving Credit Agreement as in effect as of the date
hereof.
"Consolidated Fixed Charges" means with respect to any Person for
any period, the sum of (i) the consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Leases, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations) and
(ii) the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period, and (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by
such Person or one of its Restricted Subsidiaries or secured by a Lien on
assets of such Person or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon) and (iv) the product of (a) all
cash dividend payments (and non-cash dividend payments in the case of a
Person that is a Restricted Subsidiary) paid to any Person other than
Company or a Restricted Subsidiary on any series of Preferred Stock of
such Person, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined annual
federal, state and local statutory tax rate of such Person
AXEL CREDIT AGREEMENT EXECUTION
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<PAGE> 16
paying the dividend, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Consolidated Leverage Ratio" has the meaning assigned to that term
in the Revolving Credit Agreement as of the date hereof.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) the Net Income (but not loss) for
such period of any Person that is not a Restricted Subsidiary or that is
accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Restricted Subsidiary thereof, (ii) the
Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by
that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has
not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the
date of such acquisition shall be excluded, (iv) the cumulative effect of
a change in accounting principles shall be excluded and (v) the Net Income
of any Unrestricted Subsidiary shall be excluded, whether or not
distributed to Company or one of its Restricted Subsidiaries.
"Contractual Obligation", as applied to any Person, means any
provision of any Security issued by that Person or of any material
indenture, mortgage, deed of trust, contract, undertaking, agreement or
other instrument to which that Person is a party or by which it or any of
its properties is bound or to which it or any of its properties is
subject.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement, futures contract, option contract, synthetic cap or other
similar agreement or arrangement to which Company or any of its
Subsidiaries is a party.
"Deposit Account" means a demand, time, savings, passbook or like
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate
of deposit.
"Disqualified Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible or for which it
is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant
AXEL CREDIT AGREEMENT EXECUTION
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<PAGE> 17
to a sinking fund obligation or otherwise, or redeemable at the option of
the holder thereof, in whole or in part, on or prior to the date on which
the AXELs mature.
"Dollars" and the sign "$" mean the lawful money of the United
States of America.
"Domestic Subsidiary" means a Subsidiary of Company that is
organized under the laws of a state of the United States or the District
of Columbia.
"Eligible Assignee" means (A) (i) a commercial bank organized under
the laws of the United States or any state thereof; (ii) a savings and
loan association or savings bank organized under the laws of the United
States or any state thereof; (iii) a commercial bank organized under the
laws of any other country or a political subdivision thereof; provided
that (x) such bank is acting through a branch or agency located in the
United States or (y) such bank is organized under the laws of a country
that is a member of the Organization for Economic Cooperation and
Development or a political subdivision of such country; and (iv) any other
entity which is an "accredited investor" (as defined in Regulation D under
the Securities Act) which extends credit or buys loans as one of its
businesses including insurance companies, mutual funds and lease financing
companies; and (B) any Lender, and any Related Fund or any Affiliate of
any Lender; provided that no Loan Party or any Subsidiary of any Loan
Party shall be an Eligible Assignee.
"Employee Benefit Plan" means any "employee benefit plan" as defined
in Section 3(3) of ERISA which is or was maintained or contributed to by
Company, any of its Subsidiaries or any of their respective ERISA
Affiliates.
"Employment Agreements" means, collectively, the employment
agreements and stock and option agreements between the Company and certain
employees of the Company as set forth on Schedule 3.1C annexed hereto, in
certain cases providing for the exclusive employment of such Persons by
Company, in the form provided to Arranger and Administrative Agent
pursuant to subsection 3.1C on or prior to the Closing Date.
"Environmental Claim" means any investigation, notice, notice of
violation, claim, action, suit, proceeding, demand, abatement order or
other order or directive (conditional or otherwise), by any governmental
authority or any other Person, arising (i) pursuant to or in connection
with any actual or alleged violation of any Environmental Law, (ii) in
connection with any Hazardous Materials or any actual or alleged Hazardous
Materials Activity, or (iii) in connection with any actual or alleged
damage, injury, threat or harm to natural resources or the environment.
"Environmental Laws" means any and all current or future statutes,
ordinances, orders, rules, regulations, guidance documents, judgments,
Governmental
AXEL CREDIT AGREEMENT EXECUTION
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Authorizations, or any other requirements of governmental authorities
relating to (i) environmental matters, including those relating to any
Hazardous Materials Activity, (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials, or (iii) occupational
safety and health, industrial hygiene, land use or the protection of
human, plant or animal health or welfare, in any manner applicable to
Company or any of its Subsidiaries or any Facility, including the
Comprehensive Environmental Response, Compensation, and Liability Act (42
U.S.C. ss. 9601 et seq.), the Hazardous Materials Transportation Act (49
U.S.C. ss. 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. ss. 6901 et seq.), the Federal Water Pollution Control Act (33
U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.),
the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq.), the Federal
Insecticide, Fungicide and Rodenticide Act (7 U.S.C. ss.136 et seq.), the
Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.), the Oil
Pollution Act (33 U.S.C. ss. 2701 et seq) and the Emergency Planning and
Community Right-to-Know Act (42 U.S.C. ss. 11001 et seq.), each as amended
or supplemented, any analogous present or future state or local statutes
or laws, and any regulations promulgated pursuant to any of the foregoing.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security
that is convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor thereto.
"ERISA Affiliate" means, as applied to any Person, (i) any
corporation which is a member of a controlled group of corporations within
the meaning of Section 414(b) of the Internal Revenue Code of which that
Person is a member; (ii) any trade or business (whether or not
incorporated) which is a member of a group of trades or businesses under
common control within the meaning of Section 414(c) of the Internal
Revenue Code of which that Person is a member; and (iii) any member of an
affiliated service group within the meaning of Section 414(m) or (o) of
the Internal Revenue Code of which that Person, any corporation described
in clause (i) above or any trade or business described in clause (ii)
above is a member. Any former ERISA Affiliate of Company or any of its
Subsidiaries shall continue to be considered an ERISA Affiliate of Company
or such Subsidiary within the meaning of this definition with respect to
the period such entity was an ERISA Affiliate of Company or such
Subsidiary and with respect to liabilities arising after such period for
which Company or such Subsidiary could be liable under the Internal
Revenue Code or ERISA.
"ERISA Event" means (i) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect
to any Pension Plan (excluding those for which the provision for 30-day
notice to the PBGC has
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been waived by regulation); (ii) the failure to meet the minimum funding
standard of Section 412 of the Internal Revenue Code with respect to any
Pension Plan (whether or not waived in accordance with Section 412(d) of
the Internal Revenue Code) or the failure to make by its due date a
required installment under Section 412(m) of the Internal Revenue Code
with respect to any Pension Plan or the failure to make any required
contribution to a Multiemployer Plan; (iii) the provision by the
administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA
of a notice of intent to terminate such plan in a distress termination
described in Section 4041(c) of ERISA; (iv) the withdrawal by Company, any
of its Subsidiaries or any of their respective ERISA Affiliates from any
Pension Plan with two or more contributing sponsors or the termination of
any such Pension Plan resulting in liability pursuant to Section 4063 or
4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate
any Pension Plan, or the occurrence of any event or condition which could
reasonably be expected to constitute grounds under ERISA for the
termination of, or the appointment of a trustee to administer, any Pension
Plan; (vi) the imposition of liability on Company, any of its Subsidiaries
or any of their respective ERISA Affiliates pursuant to Section 4062(e) or
4069 of ERISA or by reason of the application of Section 4212(c) of ERISA;
(vii) the withdrawal of Company, any of its Subsidiaries or any of their
respective ERISA Affiliates in a complete or partial withdrawal (within
the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer
Plan if there is any potential liability therefor, or the receipt by
Company, any of its Subsidiaries or any of their respective ERISA
Affiliates of notice from any Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or
that it intends to terminate or has terminated under Section 4041A or 4042
of ERISA; (viii) the occurrence of an act or omission which could
reasonably be expected to give rise to the imposition on Company, any of
its Subsidiaries or any of their respective ERISA Affiliates of fines,
penalties, taxes or related charges under Chapter 43 of the Internal
Revenue Code or under Section 409, Section 502(c), (i) or (1), or Section
4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion
of a material claim (other than routine claims for benefits) against any
Employee Benefit Plan other than a Multiemployer Plan or the assets
thereof, or against Company, any of its Subsidiaries or any of their
respective ERISA Affiliates in connection with any Employee Benefit Plan;
(x) receipt from the Internal Revenue Service of notice of the failure of
any Pension Plan (or any other Employee Benefit Plan intended to be
qualified under Section 401(a) of the Internal Revenue Code) to qualify
under Section 401(a) of the Internal Revenue Code, or the failure of any
trust forming part of any Pension Plan to qualify for exemption from
taxation under Section 501(a) of the Internal Revenue Code; or (xi) the
imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the
Internal Revenue Code or pursuant to ERISA with respect to any Pension
Plan.
"Eurocurrency Liabilities" has the meaning specified in Regulation D
of the Board of Governors of the Federal Reserve System, as in effect from
time to time.
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"Eurodollar Rate AXELs" means AXELs bearing interest at rates
determined by reference to the Adjusted Eurodollar Rate as provided in
subsection 2.2A.
"Eurodollar Rate Reserve Percentage" means, for any Interest Period
for all Eurodollar Rate AXELs comprising part of the same Borrowing, the
reserve percentage applicable two Business Days before the first day of
such Interest Period under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal Reserve System in New York
City with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest rate
on Eurodollar Rate AXELs is determined) having a term equal to such
Interest Period.
"Event of Default" means each of the events set forth in Section 7.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"Excludable Current Liabilities" means, with respect to the
consideration received by the Company in connection with any Asset Sale,
(i) each trade payable incurred in the ordinary course of business of the
Company or any Restricted Subsidiary, (ii) each current liability that is
in an amount less than $50,000 on an individual basis, and (iii) each
liability due within 90 days of the date of consummation of such Asset
Sale, in the case of each of clauses (i) through (iii), that is assumed by
the transferee of the assets the subject to such Asset Sale pursuant to
customary assumption provisions.
"Existing Credit Agreements" means any and all credit agreements
entered into by Company, in each case as amended prior to the Closing
Date, as set forth on Schedule 3.1F.
"Existing Indebtedness" means Indebtedness of Company and its
Restricted Subsidiaries (other than Indebtedness under this Agreement and
the Revolving Credit Agreement) in existence on the date of the Senior
Subordinated Note Indenture, until such amounts are repaid.
"Facilities" means any and all real property (including all
buildings, fixtures or other improvements located thereon) now, hereafter
or heretofore owned, leased, operated or used by Company or any of its
Subsidiaries or any of their respective predecessors or Affiliates.
14
<PAGE> 21
"Federal Funds Effective Rate" means, for any period, a fluctuating
interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the
next preceding Business Day) by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by
Administrative Agent from three Federal funds brokers of recognized
standing selected by Administrative Agent.
"Fee Property" means any real property owned in fee simple by any
Loan Party, other than any such real property designated from time to time
by Collateral Agent in its sole discretion as not being required to be
included in the Collateral.
"Financial Plan" has the meaning assigned to that term in subsection
5.1(xiii).
"First Priority" means, with respect to any Lien purported to be
created in any Collateral pursuant to any Collateral Document, that (i)
such Lien has priority over any other Lien on such Collateral (other than
Liens permitted pursuant to subsection 6.2A) and (ii) such Lien is the
only Lien (other than Permitted Encumbrances and Liens permitted pursuant
to subsection 6.2) to which such Collateral is subject.
"Fiscal Quarter" means a fiscal quarter of any Fiscal Year.
"Fiscal Year" means the fiscal year of Company and its Subsidiaries
ending on December 31 of each calendar year. For purposes of this
Agreement, any particular Fiscal Year shall be designated by reference to
the calendar year in which such Fiscal Year ends.
"Fixed Charge Coverage Ratio means with respect to any Person for
any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Consolidated Fixed Charges
of such Person and its Restricted Subsidiaries for such period. In the
event that Company or any of its Restricted Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues Preferred Stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated
but on or prior to the date on which the event for which the calculation
of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then
the Fixed Charge Coverage Ratio shall be calculated giving pro forma
effect to such incurrence, assumption, Guarantee or redemption or
Indebtedness, or such issuance or redemption of Preferred Stock, as if
the same had occurred at the beginning of the applicable four-quarter
reference period.
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<PAGE> 22
In calculating the Fixed Charge Coverage Ratio, acquisitions will be
given pro forma effect as follows:
(i) (a) acquisitions that have been made or are being made by
Company or any of its Restricted Subsidiaries during the
four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date (including through mergers
or consolidations and including any related financing transactions)
shall be deemed to have occurred on the first day of the
four-quarter reference period, and
(b) for purposes of determining the pro forma effects of
any such acquisition, Consolidated Cash Flow shall be increased to
reflect the annualized amount of any cost savings expected by
Company to be realized in connection with such acquisition (from
steps to be taken not later than the first anniversary of such
acquisition, and without reduction for any non-recurring charges
expected in connection with such acquisition), as set forth in an
Officers' Certificate signed by Company's chief executive and chief
financial officers (which shall be determinative of such matters)
which states (x) the amount of such increase, (y) that such increase
is based on the reasonable beliefs of the officers executing such
Officers' Certificate at the time of such execution (and that
estimates of cost savings from prior acquisitions have been
reevaluated and updated) and (z) that any related incurrence of
Indebtedness is permitted pursuant to the this Agreement.
(ii) Consolidated Cash Flow shall be further increased to reflect
the annualized amount of any cost savings expected by Company but
not yet realized in respect of any acquisition made by Company
during the four fiscal quarters immediately preceding the four
quarter reference period prior to the Calculation Date, to the
extent such cost savings are (x) expected to result from steps taken
not later than the first anniversary of the relevant acquisition and
(y) determined and certified as set forth in clause (i) above.
In addition, in calculating the Fixed Charge Coverage Ratio, discontinued
operations will be given pro forma effect as follows:
(i) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and
operations or businesses disposed of on or prior to the
Calculation Date, shall be excluded, and
(ii) the Consolidated Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and
operations or businesses disposed of on or prior to the
Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such
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Consolidated Fixed Charges will not be obligations of Company
or any of its Restricted Subsidiaries following the
Calculation Date.
"Fleet" has the meaning assigned to that term in the introduction to
this Agreement.
"Flood Hazard Property" means a Mortgaged Property located in an
area designated by the Federal Emergency Management Agency as having
special flood or mud slide hazards.
"Foreign Subsidiary" means a Subsidiary of Company other than a
Domestic Subsidiary.
"Funding and Payment Office" means (i) the office of Administrative
Agent located at Fleet National Bank, 1 Federal Street, Boston,
Massachusetts 02110, or (ii) such other office of Administrative Agent as
may from time to time hereafter be designated as such in a written notice
delivered by Administrative Agent to Company and each Lender.
"Funding Default" has the meaning assigned to that term in
subsection 2.9.
"GAAP" means, subject to the limitations on the application thereof
set forth in subsection 1.2, generally accepted accounting principles set
forth in 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 may be approved by a significant
segment of the accounting profession, in each case as the same are
applicable to the circumstances as of the date of determination.
"Governmental Authorization" means any permit, license,
authorization, plan, directive, consent order or consent decree of or from
any federal, state or local governmental authority, agency or court.
"GSCP" has the meaning assigned to that term in the introduction to
this Agreement.
"GSII" means, collectively, GS Capital Partners II, L.P., GS Capital
Partners II Offshore, L.P., Goldman, Sachs & Co. Verwaltungs GmbH, Stone
Street Fund 1997, L.P. and Bridge Street Fund 1997, L.P.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters
of credit and reimbursement agreements in respect thereof), of all of any
part of any Indebtedness.
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"Hazardous Materials" means (i) any chemical, material or substance
at any time defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "acutely hazardous waste", "radioactive waste",
"biohazardous waste", "pollutant", "toxic pollutant", "contaminant",
"restricted hazardous waste", "infectious waste", "toxic substances", or
any other term or expression intended to define, list or classify
substances by reason of properties harmful to health, safety or the indoor
or outdoor environment (including harmful properties such as ignitability,
corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity,
"TCLP toxicity" or "EP toxicity" or words of similar import under any
applicable Environmental Laws); (ii) any oil, petroleum, petroleum
fraction or petroleum derived substance; (iii) any drilling fluids,
produced waters and other wastes associated with the exploration,
development or production of crude oil, natural gas or geothermal
resources; (iv) any flammable substances or explosives; (v) any
radioactive materials; (vi) any asbestos-containing materials; (vii) urea
formaldehyde foam insulation; (viii) electrical equipment which contains
any oil or dielectric fluid containing polychlorinated biphenyls; (ix)
pesticides; and (x) any other chemical, material or substance, exposure to
which is prohibited, limited or regulated by any governmental authority or
which may or could pose a hazard to the health and safety of the owners,
occupants or any Persons in the vicinity of any Facility or to the indoor
or outdoor environment.
"Hazardous Materials Activity" means any past, current or future
activity, event or occurrence involving any Hazardous Materials, including
the use, manufacture, possession, storage, holding, presence, existence,
location, Release, threatened Release, discharge, placement, generation,
transportation, processing, construction, treatment, abatement, removal,
remediation, disposal, disposition or handling of any Hazardous Materials,
and any corrective action or response action with respect to any of the
foregoing.
"Hedge Agreement" means an Interest Rate Agreement or a Currency
Agreement designed to hedge against fluctuations in interest rates or
currency values, respectively.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) currency exchange or interest rate
swap agreements, currency exchange or interest rate cap agreements and
currency exchange or interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against
fluctuations in currency exchange or interest rates.
"Increased Cost Lender" has the meaning assigned to that term in
subsection 2.10.
"Indebtedness" means, with respect to any Person, any indebtedness
of such Person, whether or not contingent, in respect of borrowed money or
evidenced by
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bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or bankers' acceptances or
representing Capital Leases or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade
payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as liability
upon a balance sheet of such Person prepared in accordance with GAAP, as
well as all indebtedness of others secured by a Lien on any asset of such
Person (whether or not such indebtedness is assumed by such Person) and,
to the extent not otherwise included, the Guarantee by such Person of any
indebtedness of any other Person.
"Indemnitee" has the meaning assigned to that term in subsection
9.3.
"Insolvency Laws" means the Bankruptcy Code or any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect in the
United States of America or any state thereof.
"Intellectual Property" means all patents, trademarks, tradenames,
copyrights, technology, know-how and processes used in or necessary for
the conduct of the business of Company and its Subsidiaries as currently
conducted that are material to the condition (financial or otherwise),
business or operations of Company and its Subsidiaries, taken as a whole.
"Intercreditor Agreement" means the Intercreditor Agreement dated as
of December 19, 1997 among the Administrative Agent, the Revolving Credit
Facility Agent, the Collateral Agent, the Company and the Subsidiary
Guarantors as such agreement may be amended, supplemented or otherwise
modified from time to time.
"Interest Payment Date" means (i) with respect to any Base Rate
AXEL, each March 15, June 15, September 15 and December 15 of each year,
commencing on the first such date to occur after the Closing Date, and
(ii) with respect to any Eurodollar Rate AXEL, the last day of each
Interest Period applicable to such Eurodollar Rate AXEL; provided that in
the case of each Interest Period of longer than three months "Interest
Payment Date" shall also include each date that is three months, or an
integral multiple thereof, after the commencement of such Interest Period.
"Interest Period" has the meaning assigned to that term in
subsection 2.2B.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other
similar agreement or arrangement to which Company or any of its
Subsidiaries is a party.
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"Interest Rate Determination Date" means, with respect to any
Interest Period, the second Business Day prior to the first day of such
Interest Period.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter, and any
successor statute.
"Investment" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct
or indirect loans (including guarantees of indebtedness or other
obligations), advances (other than cash advances made to suppliers with
respect to current or anticipated purchases of inventory in the ordinary
course of business) or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course
of business), purchases or other acquisitions of Indebtedness, Equity
Interests or other securities (directly from the issuer thereof or from
third parties) together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided
that an acquisition of Equity Interests or other securities by the Company
for consideration consisting of common equity securities of Company shall
not be deemed to be an Investment. If Company or any Subsidiary of Company
sells or otherwise disposes of any Equity Interests of any direct or
indirect Subsidiary of Company such that, after giving effect to any such
sale or disposition, Company no longer owns, directly or indirectly
greater than 50% of the outstanding Equity Interest of such Subsidiary,
Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests
of such Subsidiary not sold or disposed of.
"Joint Venture" means all corporations, partnerships, associations
or other business entities (i) that are engaged in a Principal Business
and (ii) of which 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by the Company or one or more
Restricted Subsidiaries of the Company (or a combination thereof).
"Landlord Consent and Estoppel" means, with respect to any Leasehold
Property, a letter, certificate or other instrument in writing from the
lessor under the related lease, satisfactory in form and substance to
Collateral Agent, pursuant to which such lessor agrees, for the benefit of
Collateral Agent, (i) to the matters contained in the form of Collateral
Access Agreement applicable to a Leasehold Property, and (ii) to such
other matters relating to such Leasehold Property as Collateral Agent may
reasonably request, including, without limitation, that without any
further consent of such lessor or any further action on the part of the
Loan Party holding such Leasehold Property, such Leasehold Property may be
encumbered pursuant to a Mortgage and may be assigned to the purchaser at
a foreclosure sale
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<PAGE> 27
or in a transfer in lieu of such a sale (and to a subsequent third party
assignee if Collateral Agent, any Lender, or an Affiliate of either so
acquires such Leasehold Property).
"Leasehold Property" means any leasehold interest of any Loan Party
as lessee under any lease of real property, other than any such leasehold
interest designated from time to time by Collateral Agent in its sole
discretion as not being required to be included in the Collateral.
"Lender" and "Lenders" means the persons identified as "Lenders" and
listed on the signature pages of this Agreement, together with their
successors and permitted assigns pursuant to subsection 9.1.
"Lien" means any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature thereof,
and any agreement to give any security interest) and any option, trust or
other preferential arrangement having the practical effect of any of the
foregoing.
"Loan Documents" means the Revolving Loan Documents and the AXEL
Loan Documents.
"Loan Party" means each of Company and any of Company's Subsidiaries
from time to time executing a Loan Document, and "Loan Parties" means all
such Persons, collectively.
"Management Investors" means the management officers and employees
of Company and its Subsidiaries identified as Management Investors on
Schedule 3.1C annexed hereto.
"Margin Stock" has the meaning assigned to that term in Regulation U
of the Board of Governors of the Federal Reserve System as in effect from
time to time.
"Material Adverse Effect" means (i) a material adverse effect upon
the business, operations, properties, assets, condition (financial or
otherwise) or prospects of Company or any of its Subsidiaries or (ii) the
impairment in any material respect of the ability of the Loan Parties,
taken as a whole, to perform, or of Administrative Agent or Lenders to
enforce, the Obligations.
"Material Contract" means any contract or other arrangement to which
Company or any of its Subsidiaries is a party (other than the Loan
Documents) for which breach, nonperformance, cancellation or failure to
renew could reasonably be expected to have a Material Adverse Effect.
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"Material Domestic Subsidiary" means (a) each Restricted Subsidiary
and (b) each other Domestic Subsidiary of Company now existing or
hereafter acquired or formed by Company which, on a consolidated basis for
such Subsidiary and its Subsidiaries, (i) for the most recent Fiscal Year
account for more than 5% of the consolidated revenues of Company and its
Subsidiaries or (ii) as at the end of such Fiscal Year, was the owner of
more than 5% of the consolidated assets of Company and its Subsidiaries.
"Material Leasehold Property" means a Leasehold Property reasonably
determined by Administrative Agent to be of material value as Collateral
or of material importance to the operations of Company or any of its
Subsidiaries; provided, however that, excepting any such Leasehold
Properties set forth on Schedule 4.1I annexed hereto, no Leasehold
Property with respect to which the aggregate amount of all rents payable
during any one Fiscal Year is not expected to exceed $500,000 shall be a
"Material Leasehold Property".
"Merger" means the merger of Newco with and into Company in
accordance with the terms of the Recapitalization Agreement, with Company
being the surviving corporation in such Merger.
"Mortgage" means a security instrument (whether designated as a deed
of trust or a mortgage or by any similar title) executed and delivered by
any Loan Party, substantially in the form of Exhibit XV annexed hereto or
in such other form as may be approved by Collateral Agent in its sole
discretion, in each case with such changes thereto as may be recommended
by Collateral Agent's local counsel based on local laws or customary local
mortgage or deed of trust practices. "Mortgages" means all such
instruments collectively.
"Mortgage Financing" means the incurrence by the Company or a
Restricted Subsidiary of the Company of any Indebtedness secured by a
mortgage or other Lien on real property acquired or improved by the
Company or any Restricted Subsidiary of the Company after the date hereof.
"Mortgage Refinancing" means the incurrence by the Company or a
Restricted Subsidiary of the Company of any Indebtedness secured by a
mortgage or other Lien on real property subject to a mortgage or other
Lien existing on the date hereof or created or incurred subsequent to the
date hereof and owned by the Company or any Restricted Subsidiary of the
Company.
"Mortgaged Property" has the meaning assigned to that term in
subsection 5.9.
"Mortgage Policy" has the meaning assigned to that term in
subsection 5.9.
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"Multiemployer Plan" means any Employee Benefit Plan which is a
"multiemployer plan" as defined in Section 3(37) of ERISA.
"Net Asset Sale Proceeds" means, with respect to any Asset Sale,
Cash payments (including any Cash received by way of deferred payment
pursuant to, or by monetization of, a note receivable or otherwise, but
only as and when so received) received from such Asset Sale, net of any
bona fide direct costs, including, without limitation, all transaction
costs, incurred in connection with such Asset Sale, including (i) income
taxes reasonably estimated to be actually payable within two years of the
date of such Asset Sale as a result of any gain recognized in connection
with such Asset Sale and (ii) payment of the outstanding principal amount
of, premium or penalty, if any, and interest on any Indebtedness that is
secured by a Lien on the stock or assets in question and that prior to the
Lien securing the AXELs on such stock or assets and is required to be
repaid under the terms thereof as a result of such Asset Sale.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of Preferred Stock dividends, excluding, however, (i)
any gain (but not loss), together with any related provision for taxes on
such gain (but not loss) realized in connection with (a) any Asset Sale
(including, without limitation, dispositions pursuant to sale and
leaseback transactions) or (b) the disposition of any securities by such
Person or any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries and (ii)
any extraordinary or nonrecurring gain (but not loss) together with any
related provision for taxes on such extraordinary or nonrecurring gain
(but not loss).
"Net Insurance/Condemnation Proceeds" means any Cash payments or
proceeds received by Company or any of its Subsidiaries (i) under any
business interruption or casualty insurance policy in respect of a covered
loss thereunder or (ii) as a result of the taking of any assets of Company
or any of its Subsidiaries by any Person pursuant to the power of eminent
domain, condemnation or otherwise, or pursuant to a sale of any such
assets to a purchaser with such power under threat of such a taking, in
each case net of (x) any actual and reasonable documented costs incurred
by Company or any of its Subsidiaries in connection with the adjustment or
settlement of any claims of Company or such Subsidiary in respect thereof
and (y) any amounts required to be applied to the repayment of any
Indebtedness secured by a Lien which is prior to any Liens of the Lenders
on the asset or assets that are subject to the taking, condemnation or
casualty but excluding, however, in each case any payments or proceeds
relating to assets having a value of $500,000 or less in any single
transaction or related series of transactions.
"Newco" has the meaning assigned to that term in the introduction to
this Agreement.
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"Newco Common Stock" means the shares of common stock of Newco par
value $0.10 per share to be converted into shares of Company Common Stock
upon consummation of the Merger.
"Non-Consenting Lender" has the meaning assigned to that term in
subsection 2.10.
"Non-Recourse Debt" means Indebtedness of any Unrestricted
Subsidiary (i) as to which neither Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable (as a guarantor or otherwise), or (c)
constitutes the lender; and (ii) no default with respect to which
(including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness of Company or any of its Restricted Subsidiaries or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and (iii) as to which the lenders, have been notified in writing
that they will not have any recourse to the stock or assets of Company or
any of its Restricted Subsidiaries.
"Notice of Borrowing" means a notice substantially in the form of
Exhibit I annexed hereto delivered by Company to Administrative Agent
pursuant to subsection 2.1B with respect to a proposed borrowing.
"Notice of Conversion/Continuation" means a notice substantially in
the form of Exhibit II annexed hereto delivered by Company to
Administrative Agent pursuant to subsection 2.2D with respect to a
proposed conversion or continuation of the applicable basis for
determining the interest rate with respect to the AXELs specified therein.
"Obligations" means all obligations of every nature of each Loan
Party from time to time owed to Agents, Lenders or their respective
Affiliates or any of them under the AXEL Loan Documents, whether for
principal, interest, fees, expenses, indemnification or otherwise.
"Officers' Certificate" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its chairman of the
board (if an officer) or its president or one of its vice presidents and
by its chief financial officer or its treasurer; provided that every
Officers' Certificate with respect to the compliance with a condition
precedent to the making of any AXELs hereunder shall include (i) a
statement that the officer or officers making or giving such Officers'
Certificate have read such condition and any definitions or other
provisions contained in this Agreement relating thereto, (ii) a statement
that, in the opinion of the signers, they
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<PAGE> 31
have made or have caused to be made such examination or investigation as
is necessary to enable them to express an informed opinion as to whether
or not such condition has been complied with, and (iii) a statement as to
whether, in the opinion of the signers, such condition has been complied
with.
"Old Management Shares" means shares of Company Common Stock held by
Management Investors prior to the consummation of the Merger.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.
"Pension Plan" means any Employee Benefit Plan, other than a Multi-
employer Plan, which is subject to Section 412 of the Internal Revenue
Code or Section 302 of ERISA.
"Permitted Encumbrances" means the following types of Liens
(excluding any such Lien imposed pursuant to Section 401(a)(29) or 412(n)
of the Internal Revenue Code or by ERISA, any such Lien relating to or
imposed in connection with any Environmental Claim, and any such Lien
expressly prohibited by any applicable terms of any of the Collateral
Documents):
(i) Liens for taxes, assessments or governmental charges or
claims the payment of which is not, at the time, required by
subsection 5.3;
(ii) statutory Liens of landlords, statutory Liens of banks
and rights of set-off, statutory Liens of carriers, warehousemen,
mechanics, repairmen, workmen and materialmen, and other Liens
imposed by law, in each case incurred in the ordinary course of
business (a) for amounts not yet overdue or (b) for amounts that are
overdue and that (in the case of any such amounts overdue for a
period in excess of 15 days) are being contested in good faith by
appropriate proceedings, so long as (1) such reserves or other
appropriate provisions, if any, as shall be required by GAAP shall
have been made for any such contested amounts, and (2) in the case
of a Lien with respect to any portion of the Collateral, such
contest proceedings conclusively operate to stay the sale of any
portion of the Collateral on account of such Lien;
(iii) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the
performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money), so
long as no foreclosure, sale or similar proceedings have been
commenced with respect to any portion of the Collateral on account
thereof;
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(iv) any attachment or judgment Lien not constituting an Event
of Default under subsection 7.6;
(v) leases or subleases granted to third parties in accordance
with any applicable terms of the Collateral Documents and not
interfering in any material respect with the ordinary conduct of the
business of Company or any of its Subsidiaries or resulting in a
material diminution in the value of any Collateral as security for
the Obligations;
(vi) easements, rights-of-way, covenants, conditions,
restrictions, encroachments, and other defects or irregularities in
title, in each case which do not and will not interfere in any
material respect with the ordinary conduct of the business of
Company or any of its Subsidiaries or result in a material
diminution in the value of any Collateral as security for the
Obligations;
(vii) any (a) interest or title of a lessor or sublessor under
any lease permitted hereunder, (b) restriction or encumbrance that
the interest or title of such lessor or sublessor may be subject to,
or (c) subordination of the interest of the lessee or sublessee
under such lease to any restriction or encumbrance referred to in
the preceding clause (b), so long as the holder of such restriction
or encumbrance agrees to recognize the rights of such lessee or
sublessee under such lease;
(viii) Liens arising from filing UCC financing statements
relating solely to leases permitted by this Agreement;
(ix) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection
with the importation of goods;
(x) any zoning or similar law or right reserved to or vested
in any governmental office or agency to control or regulate the use
of any real property;
(xi) Liens securing obligations (other than obligations
representing Indebtedness for borrowed money) under operating,
reciprocal easement or similar agreements entered into in the
ordinary course of business of Company and its Subsidiaries; and
(xii) licenses of patents, trademarks and other intellectual
property rights granted by Company or any of its Subsidiaries in the
ordinary course of business and not interfering in any material
respect with the ordinary conduct of the business of Company or such
Subsidiary.
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"Permitted Holders" means Goldman, Sachs & Co.. and any of its
Affiliates.
"Permitted Investments" means (i) any Investment in Company or in a
Restricted Subsidiary of Company (including the acquisition of any Equity
Interest in a Restricted Subsidiary); (ii) any investment in cash and Cash
Equivalents; (iii) any Investment by the Company or any Restricted
Subsidiary of Company in a Person, if as a result of such Investment (a)
such Person becomes a Restricted Subsidiary of Company or (b) such Person,
in one transaction or a series of related transactions, is merged,
consolidated or amalgamated with or into, or transfer or conveys
substantially all of its assets to, or is liquidated into, Company or a
Restricted Subsidiary of Company; (iv) any Investment made as a result of
the receipt of consideration not constituting cash or Cash Equivalents
from an Asset Sale; (v) any Investment existing on the date of the
Indenture; (vi) any Investment by Restricted Subsidiaries in other
Restricted Subsidiaries and Investments by Subsidiaries that are not
Restricted Subsidiaries in other Subsidiaries that are not Restricted
Subsidiaries; (vii) advances to employees not in excess of $2,500,000
outstanding at any one time; (viii) any Investment acquired by Company or
any of its Restricted Subsidiaries (a) in exchange for any other
Investment or accounts receivable held by Company or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment
or accounts receivable or (b) as a result of a foreclosure by Company or
any of its Restricted Subsidiaries with respect to any secured Investment
or other transfer of title with respect to any secured Investment in
default; (ix) Hedging Obligations; (x) loans and advances to officers,
directors and employees for business-related travel expenses, moving
expenses and other similar expenses, in each case incurred in the ordinary
course of business; (xi) Investments the payment for which consists
exclusively of Equity Interests (exclusive of Disqualified Stock) of
Company; and (xii) additional Investments having an aggregate fair market
value, taken together with all other Investments made pursuant to this
clause (xii) that are at that time outstanding, not to exceed $15,000,000
plus 5% of the increase in Total Asset since the Closing Date at the time
of such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes
in value).
"Permitted Refinancing Indebtedness" means any Indebtedness of
Company or any of its Restricted Subsidiaries issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund other Indebtedness of Company or any of its Restricted
Subsidiaries in whole or in part; provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount (or accreted value, if
applicable) of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final maturity date on or later than the final maturity
date of, and has a Weighted
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Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in
right of payment to the Obligations, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date
of the AXELs, and is subordinated in right of payment to the AXELs, on
terms at least as favorable to the Lenders as those contained in the
documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (iv) such Indebtedness is
incurred either by Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, Joint Ventures,
associations, companies, trusts, banks, trust companies, land trusts,
business trusts or other organizations, whether or not legal entities, and
governments (whether federal, state or local, domestic or foreign, and
including political subdivisions thereof) and agencies or other
administrative or regulatory bodies thereof.
"Pledged Collateral" means, collectively, the "Pledged Collateral"
as defined in the Company Pledge Agreement and the Subsidiary Pledge
Agreements.
"Potential Event of Default" means a condition or event that, after
notice or lapse of time or both, would constitute an Event of Default.
"Preferred Stock" means any Equity Interest with preferential right
of payment of dividends or upon liquidation, dissolution, or winding up.
"Prime Rate" means the rate that Fleet announces from time to time
as its prime lending rate, as in effect from time to time. The Prime Rate
is a reference rate and does not necessarily represent the lowest or best
rate actually charged to any customer. Fleet or any other Lender may make
commercial loans or other loans at rates of interest at, above or below
the Prime Rate.
"Pro Rata Share" means with respect to all payments, computations
and other matters relating to the AXEL Commitment or the AXEL of any
Lender, the percentage obtained by dividing (x) the AXEL Exposure of that
Lender by (y) the aggregate AXEL Exposure of all Lenders.
"Qualified Public Offering" means any sale of capital stock of
Company to the public pursuant to an offering registered under the
Securities Act of 1933 pursuant to which Company receives cash proceeds
(net of all fees and expenses (including underwriting discounts and legal,
investment banking and accounting and
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other professional fees) and disbursements actually incurred in connection
therewith) in an amount not less than $50,000,000.
"Real Property Asset" means, at any time of determination, any
interest then owned by any Loan Party in any real property.
"Recapitalization Agreement" means that certain Agreement and Plan
of Merger between Company and Newco dated as of August 10, 1997, in the
form delivered to Arranger, Administrative Agent and Lenders prior to
their execution of this Agreement and as such agreement may be amended
from time to time thereafter.
"Recapitalization Consideration" means payments required under
Article II of the Recapitalization Agreement.
"Recapitalization Documents" means the Recapitalization Agreement
and all other instruments or documents relating to the Recapitalization
Agreement.
"Recapitalization Financing Requirements" means the aggregate of all
amounts necessary (i) to pay the Recapitalization Consideration, (ii) to
refinance all Indebtedness outstanding under the Existing Credit
Agreements, and (iii) to pay Transaction Costs.
"Recorded Leasehold Interest" means a Leasehold Property with
respect to which a Record Document (as hereinafter defined) has been
recorded in all places necessary or desirable, in Collateral Agent's
reasonable judgment, to give constructive notice of such Leasehold
Property to third-party purchasers and encumbrancers of the affected real
property. For purposes of this definition, the term "Record Document"
means, with respect to any Leasehold Property, (a) the lease evidencing
such Leasehold Property or a memorandum thereof, executed and acknowledged
by the owner of the affected real property, as lessor, or (b) if such
Leasehold Property was acquired or subleased from the holder of a Recorded
Leasehold Interest, the applicable assignment or sublease document,
executed and acknowledged by such holder, in each case in form sufficient
to give such constructive notice upon recordation and otherwise in form
reasonably satisfactory to Administrative Agent.
"Refunding Capital Stock" has the meaning assigned to that term in
subsection 6.3A.
"Register" has the meaning assigned to that term in subsection 2.1D.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
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"Related Fund" means, with respect to any Lender that is a fund that
invests in commercial loans, any other fund that invests in commercial
loans and is managed by the same investment advisor as such Lender or by
any Affiliate of such investment advisor.
"Related Agreements" means, collectively, the Certificate of Merger,
the Stockholders Agreement, the Voting Agreement, the Employment
Agreements, the Tax Indemnification Agreement, the Recapitalization
Agreement and the Senior Subordinated Note Indenture.
"Related Parties" means any Person controlled by the Permitted
Holders, including any partnership of which any of the Permitted Holders
or their Affiliates is a general partner.
"Release" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Materials into the indoor or
outdoor environment (including the abandonment or disposal of any barrels,
containers or other closed receptacles containing any Hazardous
Materials), including the movement of any Hazardous Materials through the
air, soil, surface water or groundwater.
"Requirement of Law" means, with respect to any Person, (i) the
certificate or articles of incorporation, by-laws and other organizational
or governing documents of such Person, (ii) any law, treaty, rule,
regulation or determination of an arbitrator, court or other governmental
authority binding on such Person or any of its property, or (iii) any
franchise, license, lease, permit, certificate, authorization,
qualification, easement, right of way, or right of approval binding on
such Person or any of its property.
"Required Prepayment Date" has the meaning assigned to that term in
subsection 2.4.
"Requisite Lenders" means Lenders having or holding more than 50% of
the sum of the aggregate AXEL Exposure of all Lenders.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payments" has the meaning assigned to that team in
subsection 6.3.
"Restricted Subsidiary" of a Person means any Subsidiary of a Person
that is not (i) an Unrestricted Subsidiary or (ii) a direct or indirect
Subsidiary of an Unrestricted Subsidiary; provided, however, that upon the
occurrence of any
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Unrestricted Subsidiary ceasing to be an Unrestricted Subsidiary, such
Subsidiary shall be included in the definition of Restricted Subsidiary.
"Retired Capital Stock" has the meaning assigned to that term in
subsection 6.3A.
"Revolving Credit Agreement" means the Revolving Credit Agreement
dated as of December 19, 1997 among Company, the financial institutions
from time to time parties thereto, GSCP, as arranger and syndication
agent, and Revolving Credit Facility Agent as such Revolving Credit
Agreement may be amended, supplemented, refinanced, renewed, extended or
otherwise modified from time to time.
"Revolving Credit Facility Agent" has the meaning assigned to that
term in the introduction to this Agreement.
"Revolving Credit Lender" means a lender under the Revolving Credit
Agreement holding an outstanding Revolving Loan or having a Revolving Loan
Commitment (as defined in the Revolving Credit Agreement), and "Revolving
Lenders" means any such lenders or lenders under the Revolving Credit
Agreement, collectively.
"Revolving Loans" means the loans made by a Revolving Credit Lender
to Company pursuant to the Revolving Credit Agreement.
"Revolving Loan Documents" means the Revolving Credit Agreement, the
Revolving Loan Notes, the Subsidiary Guaranty, the Collateral Documents
and the Intercreditor Agreement.
"Secured Parties" has the meaning assigned to that term in the
introduction to this Agreement.
"Securities" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds,
debentures, notes, or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of
interest, shares or participations in temporary or interim certificates
for the purchase or acquisition of, or any right to subscribe to, purchase
or acquire, any of the foregoing; provided that "Securities" shall not
include any earnout agreement or obligation or any employee bonus or other
incentive compensation plan or agreement.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and any successor statute.
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"Senior Subordinated Note Indenture" means the indenture pursuant to
which the Senior Subordinated Notes are issued, as such indenture may be
amended from time to time.
"Senior Subordinated Guarantees" means the Guarantees by the
guarantors of the Obligations under the Senior Subordinated Notes
Indenture and the Senior Subordinated Notes;
"Senior Subordinated Notes" means the $110,000,000 in aggregate
principal amount of 9.875% Senior Subordinated Notes due 2007 of Company
issued pursuant to the Senior Subordinated Note Indenture.
"Solvent" means, with respect to any Person, that as of the date of
determination both (A) (i) the then fair saleable value of the property of
such Person is (y) greater than the total amount of liabilities (including
contingent liabilities) of such Person and (z) not less than the amount
that will be required to pay the probable liabilities on such Person's
then existing debts as they become absolute and matured considering all
financing alternatives and potential asset sales reasonably available to
such Person; (ii) such Person's capital is not unreasonably small in
relation to its business or any contemplated or undertaken transaction;
and (iii) such Person does not intend to incur, or believe (nor should it
reasonably believe) that it will incur, debts beyond its ability to pay
such debts as they become due; and (B) such Person is "solvent" within the
meaning given that term and similar terms under applicable laws relating
to fraudulent transfers and conveyances. For purposes of this definition,
the amount of any contingent liability at any time shall be computed as
the amount that, in light of all of the facts and circumstances existing
at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"Stated Maturity" means, with respect to any installment of interest
or principal on, or any other payments with respect to, any series of
Indebtedness, the date on which such payment of interest or principal or
other payment (including any sinking fund payment) was scheduled or
required to be paid, but shall not include any acceleration of such
payment or any contingent obligations to repay, redeem or repurchase any
such interest or principal prior to the date originally scheduled for the
payment thereof.
"Stockholders Agreement" means the Stockholders Agreement dated as
of December 19, 1997 by and among Company, GSII, the Estate of John A.
Svenningsen and certain other individuals and as such agreement may be
amended from time to time thereafter.
"Subordinated Indebtedness" means any Indebtedness of the Company or
any of its Restricted Subsidiaries which is expressly by its terms
subordinated in right of payment to the Obligations.
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"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly
or indirectly, by such Person or one or more of the other Subsidiaries of
that Person (or a combination thereof) and (ii) any partnership (a) the
sole general partner or the managing general partner of which is such
Person or a Subsidiary of such Person or (b) the only general partners of
which are such Person or one or more Subsidiaries of such Person (or any
combination thereof).
"Subsidiary Guarantor" means any Subsidiary of Company that executes
and delivers a counterpart of the Subsidiary Guaranty on the Closing Date
or from time to time thereafter pursuant to subsection 5.8.
"Subsidiary Guaranty" means the Subsidiary Guaranty executed and
delivered by existing Domestic Subsidiaries of Company on the Closing Date
and to be executed and delivered by additional Domestic Subsidiaries of
Company from time to time thereafter in accordance with subsection 5.8,
substantially in the form of Exhibit XII annexed hereto, as such
Subsidiary Guaranty may hereafter be amended, supplemented or otherwise
modified from time to time.
"Subsidiary Pledge Agreement" means each Subsidiary Pledge Agreement
executed and delivered by an existing Subsidiary Guarantor on the Closing
Date or executed and delivered by any additional Subsidiary Guarantor from
time to time thereafter in accordance with subsection 5.8, in each case
substantially in the form of Exhibit XIII annexed hereto, as such
Subsidiary Pledge Agreement may be amended, supplemented or otherwise
modified from time to time, and "Subsidiary Pledge Agreements" means all
such Subsidiary Pledge Agreements, collectively.
"Subsidiary Security Agreement" means each Subsidiary Security
Agreement executed and delivered by an existing Subsidiary Guarantor on
the Closing Date or executed and delivered by any additional Subsidiary
Guarantor from time to time thereafter in accordance with subsection 5.8,
in each case substantially in the form of Exhibit XIV annexed hereto, as
such Subsidiary Security Agreement may be amended, supplemented or
otherwise modified from time to time, and "Subsidiary Security Agreements"
means all such Subsidiary Security Agreements, collectively.
"Supplemental Collateral Agent" has the meaning assigned to that
term in subsection 8.1B.
"Syndication Agent" has the meaning assigned to that term in the
introduction to this Agreement.
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"Tax" or "Taxes" means any present or future tax, levy, impost,
duty, charge, fee, deduction or withholding of any nature and whatever
called, by whomsoever, on whomsoever and wherever imposed, levied,
collected, withheld or assessed; provided that "Tax on the overall net
income" of a Person shall be construed as a reference to a tax imposed by
the jurisdiction in which that Person is organized or in which that
Person's principal office (and/or, in the case of a Lender, its lending
office) is located or in which that Person (and/or, in the case of a
Lender, its lending office) is deemed to be doing business on all or part
of the net income, profits or gains (whether worldwide, or only insofar as
such income, profits or gains are considered to arise in or to relate to a
particular jurisdiction, or otherwise) of that Person (and/or, in the case
of a Lender, its lending office).
"Tax Indemnification Agreement" means the Tax Indemnification
Agreement dated as of August 10, 1997 by and between Company, Christine
Svenningsen and the Estate of John A. Svenningsen and as such agreement
may be amended from time to time thereafter.
"Terminated Lender" has the meaning assigned to that term in
subsection 2.10.
"Title Company" means, collectively one or more title insurance
companies that are members of ALTA and are reasonably satisfactory to
Arranger and Administrative Agent.
"Total Assets" means, with respect to any Person, the total
consolidated assets of such Person and its Restricted Subsidiaries, as
shown on the most recent balance sheet of such Person.
"Transaction Costs" means the fees, costs and expenses payable by
Company in connection with the transactions contemplated by the Loan
Documents and the Related Agreements.
"UCC" means the Uniform Commercial Code (or any similar or
equivalent legislation) as in effect in any applicable jurisdiction.
"Unrestricted Subsidiary" means any Subsidiary (other than the
Subsidiary Guarantors or any successor to any of them) that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any
agreement, contract, arrangement or understanding with Company or any
Restricted Subsidiary of Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to Company or
such Restricted Subsidiary than those that might be obtained at the time
from Persons who are not Affiliates of Company; (c) is a Person with
respect to which
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neither Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (x) to subscribe for additional Equity Interests or
(y) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results; (d) has
not guaranteed and does not otherwise directly or indirectly provide
credit support for any Indebtedness of Company or any of its Restricted
Subsidiaries; and (e) has at least one director on its board of directors
that is not a director or executive officer of Company or any of its
Restricted Subsidiaries and has at least one executive officer that is not
a director or executive officer of Company or any of its Restricted
Subsidiaries. If, at any time, any Unrestricted Subsidiary would fail to
meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes hereof and,
so long as such Unrestricted Subsidiary remains a Subsidiary, any
Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the
covenant described under subsection 6.1, Company shall be in default of
such covenant). The Board of Directors of Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall
only be permitted if (i) such Indebtedness is permitted under the covenant
described under subsection 6.1, and (ii) no Potential Event of Default or
Event of Default would be in existence following such designation.
"Unreinvested Asset Sale Proceeds" means that portion, if any, of
any Net Asset Sale Proceeds that shall not have been reinvested by Company
and its Subsidiaries in the business of Company and its Subsidiaries
within six months after the date of receipt by Company or any of its
Subsidiaries of such Net Asset Sale Proceeds or in the case of Net Asset
Sale Proceeds from the sale of the Chester, New York, Montreal, Quebec or
Melbourne, Australia properties, (i) that portion of Net Asset Sale
Proceeds that is not subject to a binding agreement with a third party to
reinvest such net Asset Sale Proceeds entered into within six months after
the date of receipt of such Net Asset Sale Proceeds or (ii) if subject to
such a binding agreement, that portion of such Net Asset Sale Proceeds
that shall not have been reinvested within nine months of such binding
agreement, such reinvestment to be evidenced by an Officers' Certificate,
satisfactory in form and substance to Administrative Agent, delivered by
Company to Administrative Agent prior to the expiration of such six-month
period and demonstrating in reasonable detail the reinvestment of such Net
Asset Sale Proceeds as aforesaid.
"Voting Agreement" means the Voting Agreement dated as of August 10,
1997 by and between Newco and the Estate of John A. Svenningsen and
Christine Svenningsen and as such agreement may be amended from time to
time thereafter.
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"Voting Stock" means, with respect to any Person, any class or
series of capital stock of such Person that is ordinarily entitled to vote
in the election of directors thereof at a meeting of stockholders called
for such purpose, without the occurrence of any additional event or
contingency.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment, by (ii) the then outstanding principal amount of such
Indebtedness.
"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary
that is a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares) shall at the time be
owned by such person or by one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under
Agreement.
Except as otherwise expressly provided in this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to them in
conformity with GAAP. Financial statements and other information required to be
delivered by Company to Lenders pursuant to clauses (i), (ii), (iii) and (xiii)
of subsection 5.1 shall be prepared in accordance with GAAP as in effect at the
time of such preparation (and delivered together with the reconciliation
statements provided for in subsection 5.1(v)). Calculations in connection with
the definitions, covenants and other provisions of this Agreement shall utilize
accounting principles and policies in conformity with those used to prepare the
financial statements referred to in subsection 4.3.
1.3 Other Definitional Provisions and Rules of Construction.
A. Any of the terms defined herein may, unless the context otherwise
requires, be used in the singular or the plural, depending on the reference.
B. References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided.
AXEL CREDIT AGREEMENT EXECUTION
36
<PAGE> 43
C. The use herein of the word "include" or "including", when following any
general statement, term or matter, shall not be construed to limit such
statement, term or matter to the specific items or matters set forth immediately
following such word or to similar items or matters, whether or not nonlimiting
language (such as "without limitation" or "but not limited to" or words of
similar import) is used with reference thereto, but rather shall be deemed to
refer to all other items or matters that fall within the broadest possible scope
of such general statement, term or matter.
D. Any term incorporated herein from the Revolving Credit Agreement (as
amended, supplemented or otherwise modified from time to time) shall continue to
have the meaning assigned thereto whether or not the Revolving Agreement is
still in effect.
SECTION 2.
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 Commitments; Making of Loans; the Register; Notes.
A. Commitments. Subject to the terms and conditions of this Agreement and
in reliance upon the representations and warranties of Company herein set forth,
each Lender hereby severally agrees to lend to Company on the Closing Date an
amount not exceeding its Pro Rata Share of the aggregate amount of the AXEL
Commitments to be used for the purposes identified in subsection 2.5A. The
amount of each Lender's AXEL Commitment is set forth opposite its name on
Schedule 2.1 annexed hereto and the aggregate amount of the AXEL Commitments is
$117,000,000; provided that the AXEL Commitments of Lenders shall be adjusted to
give effect to any assignments of the AXEL Commitments pursuant to subsection
9.1B. Each Lender's AXEL Commitment shall expire immediately and without further
action on January 31, 1998 if the AXELs are not funded on or before that date.
Company may make only one borrowing under the AXEL Commitments. Amounts borrowed
under this section 2.1A and subsequently repaid or prepaid may not be
reborrowed.
B. Borrowing Mechanics. AXELs or Eurodollar Rate AXELs with a particular
Interest Period shall be in an aggregate minimum amount of (x) $1,000,000 and
integral multiples of $100,000 in excess of that amount in the case of
Eurodollar Rate AXELs and (y) $100,000 and integral multiples of $100,000 in
excess of that amount in the case of Base Rate AXELs. Whenever Company desires
that Lenders make AXELs it shall deliver to Administrative Agent a Notice of
Borrowing no later than 10:00 A.M. (New York City time) at least three Business
Days in advance of the proposed Closing Date (in the case of a Eurodollar Rate
AXEL) or at least one Business Day in advance of the proposed Closing Date (in
the case of a Base Rate AXEL). The Notice of Borrowing shall specify (i) the
proposed Closing Date (which shall be a Business Day), (ii) the amount
requested, (iii) whether such AXELS shall be Base Rate AXELs or Eurodollar Rate
AXELs and (iv) in the case of any AXELS requested to be made as Eurodollar Rate
AXELs, the initial Interest Period requested therefor. AXELs may be continued as
or converted into Base
AXEL CREDIT AGREEMENT EXECUTION
37
<PAGE> 44
Rate AXELs and Eurodollar Rate AXELs in the manner provided in subsection 2.2D.
In lieu of delivering the above-described Notice of Borrowing, Company may give
Administrative Agent telephonic notice by the required time of any proposed
borrowing under this subsection 2.1B; provided that such notice shall be
promptly confirmed in writing by delivery of a Notice of Borrowing to
Administrative Agent on or before the Closing Date.
Neither Administrative Agent nor any Lender shall incur any liability to
Company in acting upon any telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow on behalf of Company or
for otherwise acting in good faith under this subsection 2.1B, and upon funding
of AXELs by Lenders in accordance with this Agreement pursuant to any such
telephonic notice Company shall have effected AXELs hereunder.
Company shall notify Administrative Agent prior to the Closing Date in the
event that any of the matters to which Company is required to certify in the
Notice of Borrowing is no longer true and correct as of the Closing Date, and
the acceptance by Company of the proceeds of any AXELs shall constitute a
re-certification by Company, as of the Closing Date, as to the matters to which
Company is required to certify in the applicable Notice of Borrowing.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice
of Borrowing for a Eurodollar Rate AXEL (or telephonic notice in lieu thereof)
shall be irrevocable on and after the related Interest Rate Determination Date,
and Company shall be bound to make a borrowing in accordance therewith.
C. Disbursement of Funds. All AXELs under this Agreement shall be made by
Lenders simultaneously and proportionately to their respective Pro Rata Shares,
it being understood that no Lender shall be responsible for any default by any
other Lender in that other Lender's obligation to make an AXEL requested
hereunder nor shall the AXEL Commitment of any Lender to make the AXEL requested
be increased or decreased as a result of a default by any other Lender in that
other Lender's obligation to make an AXEL requested hereunder. Promptly after
receipt by Administrative Agent of a Notice of Borrowing pursuant to subsection
2.1B (or telephonic notice in lieu thereof), Administrative Agent shall notify
each Lender of the proposed borrowing. Each Lender shall make the amount of its
AXEL available to Administrative Agent not later than 12:00 Noon (New York City
time) on the Closing Date, in same day funds in Dollars, at the Funding and
Payment Office. Upon satisfaction or waiver of the conditions precedent
specified in subsections 3.1 and 3.2, Administrative Agent shall make the
proceeds of such AXELs available to Company on the Closing Date by causing an
amount of same day funds in Dollars equal to the proceeds of all such AXELs
received by Administrative Agent from Lenders to be credited to the account of
Company at the Funding and Payment Office.
Unless Administrative Agent shall have been notified by any Lender prior
to the Closing Date for any AXELs that such Lender does not intend to make
available to
AXEL CREDIT AGREEMENT EXECUTION
38
<PAGE> 45
Administrative Agent the amount of such Lender's AXEL requested on such Closing
Date, Administrative Agent may assume that such Lender has made such amount
available to Administrative Agent on the Closing Date and Administrative Agent
may, in its sole discretion, but shall not be obligated to, make available to
Company a corresponding amount on the Closing Date. If such corresponding amount
is not in fact made available to Administrative Agent by such Lender,
Administrative Agent shall be entitled to recover such corresponding amount on
demand from such Lender together with interest thereon, for each day from the
Closing Date until the date such amount is paid to Administrative Agent, at the
customary rate set by Administrative Agent for the correction of errors among
banks for three Business Days and thereafter at the Base Rate. If such Lender
does not pay such corresponding amount forthwith upon Administrative Agent's
demand therefor, Administrative Agent shall promptly notify Company and Company
shall immediately pay such corresponding amount to Administrative Agent together
with interest thereon, for each day from the Closing Date until the date such
amount is paid to Administrative Agent, at the rate payable under this Agreement
for Base Rate AXELs. Nothing in this subsection 2.1C shall be deemed to relieve
any Lender from its obligation to fulfill its AXEL Commitments hereunder or to
prejudice any rights that Company may have against any Lender as a result of any
default by such Lender hereunder.
D. The Register.
(i) Administrative Agent shall maintain, at its address referred to
in subsection 9.8, a register for the recordation of the names and
addresses of Lenders and the AXEL Commitments and AXELs of each Lender
from time to time (the "Register"). The Register shall be available for
inspection by Company or any Lender at any reasonable time and from time
to time upon reasonable prior notice.
(ii) Administrative Agent shall record in the Register the AXEL
Commitment and the AXELs from time to time of each Lender and each
repayment or prepayment in respect of the principal amount of the AXEL of
each Lender. Any such recordation shall be conclusive and binding on
Company and each Lender, absent manifest error; provided that failure to
make any such recordation, or any error in such recordation, shall not
affect any Lender's Commitments or Company's Obligations in respect of any
AXELs.
(iii) Each Lender shall record on its internal records (including
the AXEL Notes held by such Lender) the amount of the AXEL made by it and
each payment in respect thereof. Any such recordation shall be conclusive
and binding on Company, absent manifest error; provided that failure to
make any such recordation, or any error in such recordation, shall not
affect any Lender's AXEL Commitments or Company's Obligations in respect
of any AXELs and provided, further that in the event of any inconsistency
between the Register and any Lender's records, the recordations in the
Register shall govern.
AXEL CREDIT AGREEMENT EXECUTION
39
<PAGE> 46
(iv) Company, Administrative Agent and Lenders shall deem and treat
the Persons listed as Lenders in the Register as the holders and owners of
the corresponding AXEL Commitments and AXELs listed therein for all
purposes hereof, and no assignment or transfer of any such AXEL Commitment
or AXEL shall be effective, in each case unless and until an Assignment
Agreement effecting the assignment or transfer thereof shall have been
accepted by Administrative Agent and recorded in the Register as provided
in subsection 9.1B(ii). Prior to such recordation, all amounts owed with
respect to the applicable AXEL Commitment or AXEL shall be owed to the
Lender listed in the Register as the owner thereof, and any request,
authority or consent of any Person who, at the time of making such request
or giving such authority or consent, is listed in the Register as a Lender
shall be conclusive and binding on any subsequent holder, assignee or
transferee of the corresponding AXEL Commitments or AXELs.
(v) Company hereby designates Fleet to serve as Company's agent
solely for purposes of maintaining the Register as provided in this
subsection 2.1D, and Company hereby agrees that, to the extent Fleet
serves in such capacity, Fleet and its officers, directors, employees,
agents and affiliates shall constitute Indemnitees for all purposes under
subsection 9.3.
E. AXEL Notes. Company shall execute and deliver on the Closing Date to
each Lender (or to Administrative Agent for that Lender) an AXEL Note
substantially in the form of Exhibit III annexed hereto to evidence that
Lender's AXEL, in the principal amount of that Lender's AXEL and with other
appropriate insertions.
2.2 Interest on the Loans.
A. Rate of Interest. Subject to the provisions of subsections 2.6 and 2.7,
each AXEL shall bear interest on the unpaid principal amount thereof from the
date made through maturity (whether by acceleration or otherwise) at a rate
determined by reference to the Base Rate or the Adjusted Eurodollar Rate. The
applicable basis for determining the rate of interest with respect to any AXEL
shall be selected by Company initially at the time a Notice of Borrowing is
given with respect to such AXEL pursuant to subsection 2.1B. The basis for
determining the interest rate with respect to any AXEL may be changed from time
to time pursuant to subsection 2.2D. If on any day an AXEL is outstanding with
respect to which notice has not been delivered to Administrative Agent in
accordance with the terms of this Agreement specifying the applicable basis for
determining the rate of interest, then for that day that AXEL shall bear
interest determined by reference to the Base Rate.
Subject to the provisions of subsections 2.2E and 2.7, the AXELs shall
bear interest through maturity as follows:
AXEL CREDIT AGREEMENT EXECUTION
40
<PAGE> 47
(i) if a Base Rate AXEL, then at the sum of the Base Rate plus
1-3/8% per annum; or
(ii) if a Eurodollar Rate AXEL, then at the sum of the Adjusted
Eurodollar Rate plus 2-3/8% per annum.
B. Interest Periods. In connection with each Eurodollar Rate AXEL, Company
may, pursuant to the applicable Notice of Borrowing or Notice of Conversion/
Continuation, as the case may be, select an interest period (each an "Interest
Period") to be applicable to such Eurodollar Rate AXEL, which Interest Period
shall be, at Company's option, either a one-, two-, three- or six-month period;
provided that:
(i) the initial Interest Period for any Eurodollar Rate AXEL shall
commence on the Closing Date in respect of such Eurodollar Rate AXEL, in
the case of an AXEL initially made as a Eurodollar Rate AXEL, or on the
date specified in the applicable Notice of Conversion/Continuation, in the
case of an AXEL converted to a Eurodollar Rate AXEL;
(ii) in the case of immediately successive Interest Periods
applicable to a Eurodollar Rate AXEL continued as such pursuant to a
Notice of Conversion/Continuation, each successive Interest Period shall
commence on the day on which the next preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided that, if any Interest Period would
otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iv) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (v) of this subsection 2.2B, end on the
last Business Day of a calendar month;
(v) no Interest Period with respect to any portion of the AXELs
shall extend beyond December 31, 2004;
(vi) no Interest Period with respect to any portion of the AXELs
shall extend beyond a date on which Company is required to make a
scheduled payment of principal of the AXELs unless the sum of (a) the
aggregate principal amount of AXELs that are Base Rate AXELs plus (b) the
aggregate principal amount of AXELs that are Eurodollar Rate AXELs with
Interest Periods expiring on or before such date equals or exceeds the
principal amount required to be paid on the AXELs on such date;
AXEL CREDIT AGREEMENT EXECUTION
41
<PAGE> 48
(vii) there shall be no more than seven (7) Interest Periods
outstanding at any time under this Agreement and the Revolving Credit
Agreement; and
(viii) in the event Company fails to specify an Interest Period for
any Eurodollar Rate AXEL in the applicable Notice of Borrowing or Notice
of Conversion/Continuation, Company shall be deemed to have selected an
Interest Period of one month.
C. Interest Payments. Subject to the provisions of subsection 2.2E,
interest on each AXEL shall be payable in arrears on and to each Interest
Payment Date applicable to that AXEL, upon any prepayment of that AXEL (to the
extent accrued on the amount being prepaid) and at maturity (including final
maturity).
D. Conversion or Continuation. Subject to the provisions of subsection
2.6, Company shall have the option (i) to convert at any time all or any part of
its outstanding AXELs equal to $1,000,000 and integral multiples of $100,000 in
excess of that amount from Base Rate AXELs to Eurodollar Rate AXELs or (ii) to
convert at any time all or any part of its outstanding AXELs equal to $100,000
and integral multiples of $100,000 in excess of that amount from Eurodollar Rate
AXELs to Base Rate AXELs upon the expiration of any Interest Period applicable
to a Eurodollar Rate AXEL, to continue all or any portion of such Eurodollar
Rate AXEL equal to $1,000,000 and integral multiples of $100,000 in excess of
that amount as a Eurodollar Rate AXEL; provided, however, that a Eurodollar Rate
AXEL may only be converted into a Base Rate AXEL on the expiration date of an
Interest Period applicable thereto.
Company shall deliver a Notice of Conversion/Continuation to
Administrative Agent no later than 10:00 A.M. (New York City time) at least one
Business Day in advance of the proposed conversion date (in the case of a
conversion to a Base Rate AXEL) and at least three Business Days in advance of
the proposed conversion/continuation date (in the case of a conversion to, or a
continuation of, a Eurodollar Rate AXEL). A Notice of Conversion/Continuation
shall specify (i) the proposed conversion/continuation date (which shall be a
Business Day), (ii) the amount to be converted/continued, (iii) the nature of
the proposed conversion/continuation, (iv) in the case of a conversion to, or a
continuation of, a Eurodollar Rate AXEL, the requested Interest Period, and (v)
in the case of a conversion to, or a continuation of, a Eurodollar Rate AXEL,
that no Potential Event of Default or Event of Default has occurred and is
continuing. In lieu of delivering the above-described Notice of
Conversion/Continuation, Company may give Administrative Agent telephonic notice
by the required time of any proposed conversion/continuation under this
subsection 2.2D; provided that such notice shall be promptly confirmed in
writing by delivery of a Notice of Conversion/Continuation to Administrative
Agent on or before the proposed conversion/continuation date. Upon receipt of
written or telephonic notice of any proposed conversion/continuation under this
subsection 2.2D, Administrative Agent shall promptly transmit such notice by
telefacsimile or telephone to each Lender.
AXEL CREDIT AGREEMENT EXECUTION
42
<PAGE> 49
Neither Administrative Agent nor any Lender shall incur any liability to
Company in acting upon any telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to act on behalf of Company or for
otherwise acting in good faith under this subsection 2.2D, and upon conversion
or continuation of the applicable basis for determining the interest rate with
respect to any AXELs in accordance with this Agreement pursuant to any such
telephonic notice Company shall have effected a conversion or continuation, as
the case may be, hereunder.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice
of Conversion/Continuation for conversion to, or continuation of, a Eurodollar
Rate AXEL (or telephonic notice in lieu thereof) shall be irrevocable on and
after the related Interest Rate Determination Date, and Company shall be bound
to effect a conversion or continuation in accordance therewith.
E. Default Rate. Upon the occurrence and during the continuation of any
Event of Default, the outstanding principal amount of all AXELs and, to the
extent permitted by applicable law, any interest payments thereon not paid when
due and any fees and other amounts then due and payable hereunder, shall
thereafter bear interest (including post-petition interest in any proceeding
under the Bankruptcy Code or other applicable bankruptcy laws) payable upon
demand at a rate that is 2% per annum in excess of the interest rate otherwise
payable under this Agreement with respect to the applicable AXELs (or, in the
case of any such fees and other amounts, at a rate which is 2% per annum in
excess of the interest rate otherwise payable under this Agreement for Base Rate
AXELs); provided that, in the case of Eurodollar Rate AXELs, upon the expiration
of the Interest Period in effect at the time any such increase in interest rate
is effective such Eurodollar Rate AXELs shall thereupon become Base Rate AXELs
and shall thereafter bear interest payable upon demand at a rate which is 2% per
annum in excess of the interest rate otherwise payable under this Agreement for
Base Rate AXELs. Payment or acceptance of the increased rates of interest
provided for in this subsection 2.2E is not a permitted alternative to timely
payment and shall not constitute a waiver of any Event of Default or otherwise
prejudice or limit any rights or remedies of Administrative Agent or any Lender.
F. Computation of Interest. Interest on the AXELs shall be computed on the
basis of a 360-day year, in each case for the actual number of days elapsed in
the period during which it accrues. In computing interest on any AXEL, the date
of the making of such AXEL or the first day of an Interest Period applicable to
such AXEL or, with respect to a Base Rate AXEL being converted from a Eurodollar
Rate AXEL, the date of conversion of such Eurodollar Rate AXEL to such Base Rate
AXEL, as the case may be, shall be included, and the date of payment of such
AXEL or the expiration date of an Interest Period applicable to such AXEL or,
with respect to a Base Rate AXEL being converted to a Eurodollar Rate AXEL, the
date of conversion of such Base Rate AXEL to such Eurodollar Rate AXEL, as the
case may be, shall be excluded; provided that if a
AXEL CREDIT AGREEMENT EXECUTION
43
<PAGE> 50
AXEL is repaid on the same day on which it is made, one day's interest shall be
paid on that AXEL.
2.3 Fees.
Company agrees to pay to Arranger and Administrative Agent such fees in
the amounts and at the times separately agreed upon between Company, Arranger
and Administrative Agent.
2.4 Repayments, Prepayments; General Provisions Regarding Payments;
Application of Proceeds of Collateral and Payments Under Subsidiary
Guaranty.
A. Scheduled Payments of AXELs. Company shall make principal payments on
the AXELs in installments on the dates and in the amounts set forth below:
<TABLE>
<CAPTION>
=================================================
Scheduled
Payment Repayment
Date of AXELs
=================================================
<S> <C>
March 31, 1998 $292,500
-------------------------------------------------
June 30, 1998 $292,500
-------------------------------------------------
September 30, 1998 $292,500
-------------------------------------------------
December 31, 1998 $292,500
-------------------------------------------------
March 31, 1999 $292,500
-------------------------------------------------
June 30, 1999 $292,500
-------------------------------------------------
September 30, 1999 $292,500
-------------------------------------------------
December 31, 1999 $292,500
-------------------------------------------------
March 31, 2000 $292,500
-------------------------------------------------
June 30, 2000 $292,500
-------------------------------------------------
September 30, 2000 $292,500
-------------------------------------------------
December 31, 2000 $292,500
-------------------------------------------------
March 31, 2001 $292,500
-------------------------------------------------
June 30, 2001 $292,500
-------------------------------------------------
September 30, 2001 $292,500
-------------------------------------------------
December 31, 2001 $292,500
-------------------------------------------------
</TABLE>
AXEL CREDIT AGREEMENT EXECUTION
44
<PAGE> 51
<TABLE>
<CAPTION>
=================================================
Scheduled
Payment Repayment
Date of AXELs
=================================================
<S> <C>
March 31, 2002 $292,500
-------------------------------------------------
June 30, 2002 $292,500
-------------------------------------------------
September 30, 2002 $292,500
-------------------------------------------------
December 31, 2002 $292,500
-------------------------------------------------
March 31, 2003 $5,000,000
-------------------------------------------------
June 30, 2003 $5,000,000
-------------------------------------------------
September 30, 2003 $13,893,750
-------------------------------------------------
December 31, 2003 $13,893,750
-------------------------------------------------
March 31, 2004 $13,893,750
-------------------------------------------------
June 30, 2004 $13,893,750
-------------------------------------------------
September 30, 2004 $22,787,500
-------------------------------------------------
December 31, 2004 $22,787,500
-------------------------------------------------
TOTAL $117,000,000
=================================================
</TABLE>
; provided that the scheduled installments of principal of the AXELs set
forth above shall be reduced in connection with any voluntary or mandatory
prepayments of the AXELs in accordance with subsection 2.4B(iii); and
provided, further that the AXELs and all other amounts owed hereunder with
respect to the AXELs shall be paid in full no later than December 31,
2004, and the final installment payable by Company in respect of the AXELs
on such date shall be in an amount, if such amount is different from that
specified above, sufficient to repay all amounts owing by Company under
this Agreement with respect to the AXELs.
B. Prepayments.
(i) Voluntary Prepayments.
(a) Notice of Prepayment. Company may, upon not less than one
Business Day's prior written or telephonic notice, in the case of
Base Rate AXELs, and three Business Days' prior written or
telephonic notice, in the case of Eurodollar Rate AXELs, in each
case given to Administrative Agent by 12:00 Noon (New York City
time) on the date required and, if given by telephone, promptly
confirmed in writing to Administrative Agent (which
AXEL CREDIT AGREEMENT EXECUTION
45
<PAGE> 52
original written or telephonic notice Administrative Agent will
promptly transmit by telefacsimile or telephone to each Lender), at
any time and from time to time prepay any AXELs on any Business Day
in whole or in part in an aggregate minimum amount of $1,000,000 and
integral multiples of $500,000 in excess of that amount. Notice of
prepayment having been given as aforesaid, the principal amount of
the AXELs specified in such notice shall become due and payable on
the prepayment date specified therein. Any such voluntary prepayment
shall be applied as specified in subsection 2.4B(iii).
(b) Prepayment Fees. If any portion of the AXELs is prepaid
(1) pursuant to clause (a) of subsection 2.4B(i) or (2) pursuant to
clause (a), (b) or (c) of subsection 2.4B(ii), in each case on or
prior to the date that is 18 months after the Closing Date, Company
shall pay to Administrative Agent, for distribution to the holders
of the AXELs so prepaid in accordance with their Pro Rata Shares, a
fee equal to (x) 1.5% of the principal amount of AXELs so prepaid
during the period commencing on the Closing Date and ending on the
day prior to the first anniversary of the Closing Date and (y) 0.75%
of the principal amount of AXELs so prepaid during the period
commencing on the first anniversary of the Closing Date and ending
18 months after the Closing Date.
(ii) Mandatory Prepayments. The AXELs shall be prepaid in the
amounts and under the circumstances set forth below, all such prepayments
to be applied as set forth below or as more specifically provided in
subsection 2.4B(iii):
(a) Prepayments From Unreinvested Asset Sale Proceeds. No
later than the first Business Day following the date on which any
Net Asset Sale Proceeds become Unreinvested Asset Sale Proceeds,
Company shall prepay the AXELs in an aggregate amount equal to such
Unreinvested Asset Sale Proceeds; provided, further that, with
respect to an Asset Sale of any asset owned by a Foreign Subsidiary,
the Unreinvested Asset Sale Proceeds in respect thereof shall be
applied (i) first, to the extent such Unreinvested Net Asset Sale
Proceeds may be repatriated to the United States without in the
reasonable judgment of the Company resulting in a material tax
liability to Company in relation to the amount of proceeds to be
repatriated, to prepay the AXELs as set forth above in this
subsection 2.4B(ii)(a), (ii) second, to the extent of any remaining
portion of such Unreinvested Asset Sale Proceeds, to finance the
general corporate purposes of such Foreign Subsidiary so long as the
aggregate of all such amounts so applied by all Foreign Subsidiaries
with respect to Asset Sales consummated after the Closing Date does
not exceed $5,000,000, and (iii) third, to the extent of any
remaining portion of such Unreinvested Asset Sale Proceeds, to
prepay the AXELs as set forth above in this subsection 2.4B(ii)(a).
Concurrently with any determination by Company that any portion of
any Unreinvested Asset Sale Proceeds of any
AXEL CREDIT AGREEMENT EXECUTION
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<PAGE> 53
Foreign Subsidiary will be applied as described in clause (ii) of
the immediately preceding proviso, Company shall deliver to Agent an
Officers' Certificate (w) certifying that such Unreinvested Asset
Sale Proceeds cannot be repatriated to the United States without
resulting in a material tax liability to Company and the reasons
therefor, (y) specifying the amount of Unreinvested Asset Sale
Proceeds to be retained by such Foreign Subsidiary as described in
said clause (ii) and the cumulative aggregate amount of all such
Unreinvested Asset Sale Proceeds so retained by all Foreign
Subsidiaries since the date of this Agreement and (z) demonstrating
the derivation of the Unreinvested Asset Sale Proceeds of the
correlative Asset Sale from the gross sales price thereof.
(b) Prepayments from Net Insurance/Condemnation Proceeds. No
later than the first Business Day following the date of receipt by
Administrative Agent or by Company or any of its Subsidiaries of any
Net Insurance/Condemnation Proceeds that are required to be applied
to prepay the AXELs pursuant to the provisions of subsection 5.4C,
Company shall prepay the AXELs in an aggregate amount equal to the
amount of such Net Insurance/Condemnation Proceeds.
(c) Prepayments Due to Issuance of Debt or Equity Securities.
On the date of receipt by Company or any of its Subsidiaries of the
Cash proceeds (any such proceeds, net of underwriting discounts and
commissions and other reasonable costs and expenses associated
therewith, including reasonable legal fees and expenses, being "Net
Securities Proceeds") from the issuance of any debt (other than debt
permitted by Section 6.1) or equity Securities of Company or any of
its Subsidiaries to any Person other than Company or any of its
Subsidiaries (and excluding any private issuances of Company Common
Stock after the Closing Date to the extent such funds would not be
required to prepay any other Indebtedness of the Company and its
Subsidiaries) after the Closing Date, Company shall prepay the AXELs
in an aggregate amount equal to such Net Securities Proceeds.
(d) Prepayments and Reductions from Consolidated Excess Cash
Flow.
In the event that there shall be Consolidated Excess Cash Flow for
any Fiscal Year (commencing with Fiscal Year 1998), Company shall,
no later than 90 days after the end of such Fiscal Year, prepay the
AXELs in an aggregate amount equal to 75% of such Consolidated
Excess Cash Flow; provided that for any Fiscal Year in which the
Consolidated Leverage Ratio as of the end of any such Fiscal Year is
less than 3.75:1, such percentage of Consolidated Excess Cash Flow
applied to prepay the AXELs shall be reduced to 50%.
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(e) Calculations of Net Proceeds Amounts; Additional
Prepayments Based on Subsequent Calculations. Concurrently with any
prepayment of the AXELs pursuant to subsections 2.4B(ii)(a)-(e),
Company shall deliver to Administrative Agent an Officers'
Certificate demonstrating the calculation of the amount (the "Net
Proceeds Amount") of the applicable Unreinvested Asset Sale Proceeds
or Net Insurance/Condemnation Proceeds, the applicable Net
Securities Proceeds (as such term is defined in subsection
2.4B(ii)(c)) or the applicable Consolidated Excess Cash Flow, as the
case may be, that gave rise to such prepayment. In the event that
Company shall subsequently determine that the actual Net Proceeds
Amount was greater than the amount set forth in such Officers'
Certificate, Company shall promptly make an additional prepayment of
the AXEL in an amount equal to the amount of such excess, and
Company shall concurrently therewith deliver to Administrative Agent
an Officers' Certificate demonstrating the derivation of the
additional Net Proceeds Amount resulting in such excess.
(iii) Application of Prepayments.
(a) Application of Voluntary Prepayments. Any voluntary
prepayments pursuant to subsection 2.4B(i) shall be applied to
reduce the scheduled installments of principal of the AXELs set
forth in subsections 2.4A on a pro rata basis.
(b) Application of Mandatory Prepayments. Any mandatory
prepayments of the AXELs pursuant to subsection 2.4B(ii) shall be
applied to reduce the scheduled installments of principal of the
AXELs set forth in subsection 2.4A on a pro rata basis.
(c) Application of Prepayments to Base Rate AXELs and
Eurodollar Rate AXELs. Any prepayment of the AXELs shall be applied
first to Base Rate AXELs to the full extent thereof before
application to Eurodollar Rate AXELs, in a manner which minimizes
the amount of any payments required to be made by Company pursuant
to subsection 2.6D.
C. General Provisions Regarding Payments.
(i) Manner and Time of Payment. All payments by Company of
principal, interest, fees and other Obligations hereunder and under the
AXEL Notes shall be made in Dollars in same day funds, without defense,
setoff or counterclaim, free of any restriction or condition, and
delivered to Administrative Agent not later than 12:00 Noon (New York City
time) on the date due at the Funding and Payment Office for the account of
Lenders; funds received by Administrative Agent after that time on such
due date shall be deemed to have been paid by Company on the next
succeeding Business Day. Company hereby authorizes Administrative Agent to
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charge its accounts with Administrative Agent in order to cause timely
payment to be made to Administrative Agent of all principal, interest,
fees and expenses due hereunder (subject to sufficient funds being
available in its accounts for that purpose).
(ii) Application of Payments to Principal and Interest. All payments
in respect of the principal amount of any AXEL shall include payment of
accrued interest on the principal amount being repaid or prepaid, and all
such payments shall be applied to the payment of interest before
application to principal.
(iii) Apportionment of Payments. Aggregate principal and interest
payments shall be apportioned among all outstanding AXELs to which such
payments relate, in each case proportionately to Lenders' respective Pro
Rata Shares. Administrative Agent shall promptly distribute to each
Lender, at its primary address set forth below its name on the appropriate
signature page hereof or at such other address as such Lender may request,
its Pro Rata Share of all such payments received by Administrative Agent.
Notwithstanding the foregoing provisions of this subsection 2.4C(iii), if,
pursuant to the provisions of subsection 2.6C, any Notice of
Conversion/Continuation is withdrawn as to any Affected Lender or if any
Affected Lender makes Base Rate AXELs in lieu of its Pro Rata Share of any
Eurodollar Rate AXELs, Administrative Agent shall give effect thereto in
apportioning payments received thereafter.
(iv) Payments on Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day,
such payment shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the payment of
interest hereunder or of the commitment fees hereunder, as the case may
be.
(v) Notation of Payment. Each AXEL Lender agrees that before
disposing of any AXEL Note held by it, or any part thereof (other than by
granting participations therein), that Lender will make a notation thereon
of all AXELs evidenced by that AXEL Note and all principal payments
previously made thereon and of the date to which interest thereon has been
paid; provided that the failure to make (or any error in the making of) a
notation of any AXEL made under such AXEL Note shall not limit or
otherwise affect the obligations of Company hereunder or under such AXEL
Note with respect to any AXEL or any payments of principal or interest on
such AXEL Note.
2.5 Use of Proceeds.
A. AXELs. The proceeds of the AXELs and the proceeds of the debt and
equity capitalization of Company described in subsection 3.1D(ii), shall be
applied by Company to fund the Recapitalization Financing Requirements.
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B. Margin Regulations. No portion of the proceeds of any borrowing under
this Agreement shall be used by Company or any of its Subsidiaries in any manner
that might cause the borrowing or the application of such proceeds to violate
Regulation G, Regulation U, Regulation T or Regulation X of the Board of
Governors of the Federal Reserve System or any other regulation of such Board or
to violate the Exchange Act, in each case as in effect on the date or dates of
such borrowing and such use of proceeds.
2.6 Special Provisions Governing Eurodollar Rate AXELs.
Notwithstanding any other provision of this Agreement to the contrary, the
following provisions shall govern with respect to Eurodollar Rate AXELs as to
the matters covered:
A. Determination of Applicable Interest Rate. As soon as practicable after
10:00 A.M. (New York City time) on each Interest Rate Determination Date,
Administrative Agent shall determine (which determination shall, absent manifest
error, be final, conclusive and binding upon all parties) the interest rate that
shall apply to the Eurodollar Rate AXELs for which an interest rate is then
being determined for the applicable Interest Period and shall promptly give
notice thereof (in writing or by telephone confirmed in writing) to Company and
each Lender.
B. Inability to Determine Applicable Interest Rate. In the event that
Administrative Agent shall have determined (which determination shall be final
and conclusive and binding upon all parties hereto), on any Interest Rate
Determination Date with respect to any Eurodollar Rate AXELs, that by reason of
circumstances affecting the Eurodollar market adequate and fair means do not
exist for ascertaining the interest rate applicable to such Eurodollar Rate
AXELs on the basis provided for in the definition of Adjusted Eurodollar Rate,
Administrative Agent shall on such date give notice (by telefacsimile or by
telephone confirmed in writing) to Company and each Lender of such
determination, whereupon (i) no AXELs may be converted to Eurodollar Rate AXELs
until such time as Administrative Agent notifies Company and Lenders that the
circumstances giving rise to such notice no longer exist and (ii) any Notice of
Conversion/Continuation given by Company with respect to the AXELs in respect of
which such determination was made shall be deemed to be rescinded by Company.
C. Illegality or Impracticability of Eurodollar Rate AXELs. In the event
that on any date any Lender shall have determined (which determination shall be
final and conclusive and binding upon all parties hereto but shall be made only
after consultation with Company and Administrative Agent) that the making,
maintaining or continuation of its Eurodollar Rate AXELs (i) has become unlawful
as a result of compliance by such Lender in good faith with any law, treaty,
governmental rule, regulation, guideline or order (or would conflict with any
such treaty, governmental rule, regulation, guideline or order not having the
force of law even though the failure to comply therewith would not be unlawful)
or (ii) has become impracticable, or would cause such Lender material hardship,
as a result of contingencies occurring after the date of this Agreement which
materially and adversely
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affect the Eurodollar market or the position of such Lender in that market,
then, and in any such event, such Lender shall be an "Affected Lender" and it
shall on that day give notice (by telefacsimile or by telephone confirmed in
writing) to Company and Administrative Agent of such determination (which notice
Administrative Agent shall promptly Transmit to each other Lender). Thereafter
(a) the obligation of the Affected Lender to convert AXELs to Eurodollar Rate
AXELs shall be suspended until such notice shall be withdrawn by the Affected
Lender, (b) to the extent such determination by the Affected Lender relates to a
Eurodollar Rate AXEL then being requested by Company pursuant to a Notice of
Conversion/Continuation, the Affected Lender shall convert such AXEL to a Base
Rate AXEL, (c) the Affected Lender's obligation to maintain its outstanding
Eurodollar Rate AXELs (the "Affected Loans") shall be terminated at the earlier
to occur of the expiration of the Interest Period then in effect with respect to
the Affected Loans or when required by law, and (d) the Affected Loans shall
automatically convert into Base Rate AXELs on the date of such termination.
Notwithstanding the foregoing, to the extent a determination by an Affected
Lender as described above relates to a Eurodollar Rate AXEL then being requested
by Company pursuant to a Notice of Conversion/Continuation, Company shall have
the option, subject to the provisions of subsection 2.6D, to rescind such Notice
of Conversion/Continuation as to all Lenders by giving notice (by telefacsimile
or by telephone confirmed in writing) to Administrative Agent of such rescission
on the date on which the Affected Lender gives notice of its determination as
described above (which notice of rescission Administrative Agent shall promptly
transmit to each other Lender). Except as provided in the immediately preceding
sentence, nothing in this subsection 2.6C shall affect the obligation of any
Lender other than an Affected Lender to maintain AXELs as, or to convert AXELs
to, Eurodollar Rate AXELs in accordance with the terms of this Agreement.
D. Compensation For Breakage or Non-Commencement of Interest Periods.
Company shall compensate each Lender, upon written request by that Lender (which
request shall set forth the basis for requesting such amounts), for all
reasonable losses, expenses and liabilities (including any interest paid by that
Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate
AXELs and any loss, expense or liability sustained by that Lender in connection
with the liquidation or re-employment of such funds) which that Lender may
sustain: (i) if for any reason (other than a default by that Lender) a borrowing
of any Eurodollar Rate AXEL does not occur on a date specified therefor in a
Notice of Borrowing or a telephonic request for borrowing, or a conversion to or
continuation of any Eurodollar Rate AXEL does not occur on a date specified
therefor in a Notice of Conversion/Continuation or a telephonic request for
conversion or continuation, (ii) if any prepayment (including any prepayment
pursuant to subsection 2.4B(i)) or other principal payment or any conversion of
any of its Eurodollar Rate AXELs occurs on a date prior to the last day of an
Interest Period applicable to that AXEL, (iii) if any prepayment of any of its
Eurodollar Rate AXELs is not made on any date specified in a notice of
prepayment given by Company, or (iv) as a consequence of any other default by
Company in the repayment of its Eurodollar Rate AXELs when required by the terms
of this Agreement.
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E. Booking of Eurodollar Rate AXELs. Any Lender may make, carry or
transfer Eurodollar Rate AXELs at, to, or for the account of any of its branch
offices or the office of an Affiliate of that Lender.
F. Assumptions Concerning Funding of Eurodollar Rate AXELs. Calculation of
all amounts payable to a Lender under this subsection 2.6 and under subsection
2.7A shall be made as though that Lender had actually funded each of its
relevant Eurodollar Rate AXELs through the purchase of a Eurodollar deposit
bearing interest at the rate obtained pursuant to clause (i) of the definition
of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar
Rate AXEL and having a maturity comparable to the relevant Interest Period and
through the transfer of such Eurodollar deposit from an offshore office of that
Lender to a domestic office of that Lender in the United States of America;
provided, however, that each Lender may fund each of its Eurodollar Rate AXELs
in any manner it sees fit and the foregoing assumptions shall be utilized only
for the purposes of calculating amounts payable under this subsection 2.6 and
under subsection 2.7A.
G. Eurodollar Rate AXELs After Default. After the occurrence of and during
the continuation of a Potential Event of Default or an Event of Default, (i)
Company may not elect to have an AXEL be maintained as, or converted to, a
Eurodollar Rate AXEL after the expiration of any Interest Period then in effect
for that AXEL and (ii) subject to the provisions of subsection 2.6D, any Notice
of Conversion/Continuation given by Company with respect to a requested
conversion/continuation that has not yet occurred shall be deemed to be
rescinded by Company.
2.7 Increased Costs; Taxes; Capital Adequacy.
A. Compensation for Increased Costs and Taxes. Subject to the provisions
of subsection 2.7B (which shall be controlling with respect to the matters
covered thereby and to the extent a Lender is not entitled to payment under the
terms of Section 2.7B, it shall not be entitled to such payment pursuant to this
subsection 2.7A), in the event that any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any law, treaty or governmental rule, regulation
or order, or any change therein or in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a court or
governmental authority, in each case that becomes effective after the date
hereof, or compliance by such Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental
or quasi-governmental authority (whether or not having the force of law):
(i) subjects such Lender (or its applicable lending office) to any
additional Tax (other than any Tax on the overall net income of such
Lender) with respect to this Agreement or any of its obligations hereunder
or any payments to such Lender
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(or its applicable lending office) of principal, interest, fees or any
other amount payable hereunder;
(ii) imposes, modifies or holds applicable any reserve (including
any marginal, emergency, supplemental, special or other reserve), special
deposit, compulsory loan, FDIC insurance or similar requirement against
assets held by, or deposits or other liabilities in or for the account of,
or advances or loans by, or other credit extended by, or any other
acquisition of funds by, any office of such Lender (other than any such
reserve or other requirements with respect to Eurodollar Rate AXELs that
are reflected in the definition of Adjusted Eurodollar Rate); or
(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting such Lender (or its applicable lending office) or
its obligations hereunder or the Eurodollar market;
and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining AXELs hereunder or to reduce any amount
received or receivable by such Lender (or its applicable lending office) with
respect thereto by an amount considered by the Lender to be material; then, in
any such case, Company shall promptly pay to such Lender, upon receipt of the
statement referred to in the next sentence, such additional amount or amounts
(in the form of an increased rate of, or a different method of calculating,
interest or otherwise as such Lender in its sole discretion shall determine) as
may be necessary to compensate such Lender for any such increased cost or
reduction in amounts received or receivable hereunder. Such Lender shall deliver
to Company (with a copy to Administrative Agent) a written statement, setting
forth in reasonable detail the basis for calculating the additional amounts owed
to such Lender under this subsection 2.7A, which statement shall be conclusive
and binding upon all parties hereto absent manifest error.
B. Withholding of Taxes.
(i) Payments to Be Free and Clear. All sums payable by Company under
this Agreement and the other AXEL Loan Documents shall (except to the
extent required by law) be paid free and clear of, and without any
deduction or withholding on account of, any Tax (other than a Tax on the
overall net income of any Lender) imposed, levied, collected, withheld or
assessed by or within the United States of America or any political
subdivision in or of the United States of America or any other
jurisdiction from or to which a payment is made by or on behalf of Company
or by any federation or organization of which the United States of America
or any such jurisdiction is a member at the time of payment.
(ii) Grossing-up of Payments. If Company or any other Person is
required by law to make any deduction or withholding on account of any
such Tax from any
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sum paid or payable by Company to Administrative Agent or any Lender under
any of the AXEL Loan Documents:
(a) Company shall notify Administrative Agent of any such
requirement or any change in any such requirement as soon as Company
becomes aware of it;
(b) Company shall pay any such Tax before the date on which
penalties attach thereto, such payment to be made (if the liability
to pay is imposed on Company) for its own account or (if that
liability is imposed on Administrative Agent or such Lender, as the
case may be) on behalf of and in the name of Administrative Agent or
such Lender;
(c) the sum payable by Company in respect of which the
relevant deduction, withholding or payment is required shall be
increased to the extent necessary to ensure that, after the making
of that deduction, withholding or payment, Administrative Agent or
such Lender, as the case may be, receives on the due date a net sum
equal to what it would have received had no such deduction,
withholding or payment been required or made; and
(d) within 30 days after paying any sum from which it is
required by law to make any deduction or withholding, and within 30
days after the due date of payment of any Tax which it is required
by clause (b) above to pay, Company shall deliver to Administrative
Agent evidence satisfactory to the other affected parties of such
deduction, withholding or payment and of the remittance thereof to
the relevant taxing or other authority;
provided that no such additional amount shall be required to be paid to
any Lender under clause (c) above except to the extent that any change
after the date hereof (in the case of each Lender listed on the signature
pages hereof) or after the date of the Assignment Agreement pursuant to
which such Lender became a Lender (in the case of each other Lender) in
any such requirement for a deduction, withholding or payment as is
mentioned therein shall result in an increase in the rate of such
deduction, withholding or payment from that in effect at the date of this
Agreement or at the date of such Assignment Agreement, as the case may be,
in respect of payments to such Lender.
(iii) Evidence of Exemption from U.S. Withholding Tax.
(a) Each Lender that is organized under the laws of any
jurisdiction other than the United States or any state or other
political subdivision thereof (for purposes of this subsection
2.7B(iii), a "Non-US Lender") shall deliver to Administrative Agent
for transmission to Company, on or prior to the Closing Date (in the
case of each Lender listed on the signature pages hereof)
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or on or prior to the date of the Assignment Agreement pursuant to
which it becomes a Lender (in the case of each other Lender), and at
such other times as may be necessary in the determination of Company
or Administrative Agent (each in the reasonable exercise of its
discretion), (1) two original copies of Internal Revenue Service
Form 1001 or 4224 (or any successor forms), properly completed and
duly executed by such Lender, together with any other certificate or
statement of exemption required under the Internal Revenue Code or
the regulations issued thereunder to establish that such Lender is
not subject to deduction or withholding of United States federal
income tax with respect to any payments to such Lender of principal,
interest, fees or other amounts payable under any of the AXEL Loan
Documents or (2) if such Lender is not a "bank" or other Person
described in Section 881(c)(3) of the Internal Revenue Code and
cannot deliver either Internal Revenue Service Form 1001 or 4224
pursuant to clause (1) above, a Certificate re Non-Bank Status
together with two original copies of Internal Revenue Service Form
W-8 (or any successor form), properly completed and duly executed by
such Lender, together with any other certificate or statement of
exemption required under the Internal Revenue Code or the
regulations issued thereunder to establish that such Lender is not
subject to deduction or withholding of United States federal income
tax with respect to any payments to such Lender of interest payable
under any of the AXEL Loan Documents.
(b) Each Lender required to deliver any forms, certificates or
other evidence with respect to United States federal income tax
withholding matters pursuant to subsection 2.7B(iii)(a) hereby
agrees, from time to time after the initial delivery by such Lender
of such forms, certificates or other evidence, whenever a lapse in
time or change in circumstances renders such forms, certificates or
other evidence obsolete or inaccurate in any material respect, that
such Lender shall promptly (1) deliver to Administrative Agent for
transmission to Company two new original copies of Internal Revenue
Service Form 1001 or 4224, or a Certificate re Non-Bank Status and
two original copies of Internal Revenue Service Form W-8, as the
case may be, properly completed and duly executed by such Lender,
together with any other certificate or statement of exemption
required in order to confirm or establish that such Lender is not
subject to deduction or withholding of United States federal income
tax with respect to payments to such Lender under the AXEL Loan
Documents or (2) notify Administrative Agent and Company of its
inability to deliver any such forms, certificates or other evidence.
(c) Company shall not be required to pay any additional amount
to any Non-US Lender under clause (c) of subsection 2.7B(ii) if such
Lender shall have failed to satisfy the requirements of clause (a)
or (b)(1) of this subsection 2.7B(iii); provided that if such Lender
shall have satisfied the requirements of subsection 2.7B(iii)(a) on
the Closing Date (in the case of
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each Lender listed on the signature pages hereof) or on the date of
the Assignment Agreement pursuant to which it became a Lender (in
the case of each other Lender), nothing in this subsection
2.7B(iii)(c) shall relieve Company of its obligation to pay any
additional amounts pursuant to clause (c) of subsection 2.7B(ii) in
the event that, as a result of any change in any applicable law,
treaty or governmental rule, regulation or order, or any change in
the interpretation, administration or application thereof, such
Lender is no longer properly entitled to deliver forms, certificates
or other evidence at a subsequent date establishing the fact that
such Lender is not subject to withholding as described in subsection
2.7B(iii)(a).
C. Capital Adequacy Adjustment. If any Lender shall have determined that
the adoption, effectiveness, phase-in or applicability after the date hereof of
any law, rule or regulation (or any provision thereof) regarding capital
adequacy, or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Lender
(or its applicable lending office) with any guideline, request or directive
regarding capital adequacy (whether or not having the force of law) of any such
governmental authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the capital of such Lender or any
corporation controlling such Lender as a consequence of, or with reference to,
such Lender's AXELS or AXEL Commitments or other obligations hereunder with
respect to the AXELs to a level below that which such Lender or such controlling
corporation could have achieved but for such adoption, effectiveness, phase-in,
applicability, change or compliance (taking into consideration the policies of
such Lender or such controlling corporation with regard to capital adequacy) by
an amount considered by the Lender to be material, then from time to time,
within five Business Days after receipt by Company from such Lender of the
statement referred to in the next sentence, Company shall pay to such Lender
such additional amount or amounts as will compensate such Lender or such
controlling corporation on an after-tax basis for such reduction. Such Lender
shall deliver to Company (with a copy to Administrative Agent) a written
statement, setting forth in reasonable detail the basis of the calculation of
such additional amounts, which statement shall be conclusive and binding upon
all parties hereto absent manifest error.
2.8 Obligation of Lenders to Mitigate.
Each Lender agrees that, as promptly as practicable after the officer of
such Lender responsible for administering the AXELs of such Lender becomes aware
of the occurrence of an event or the existence of a condition that would cause
such Lender to become an Affected Lender or that would entitle such Lender to
receive payments under subsection 2.7, it will, to the extent not inconsistent
with the internal policies of such Lender and any applicable legal or regulatory
restrictions, use reasonable efforts (i) to make, fund or maintain the AXEL
Commitments of such Lender or the affected AXELs of such Lender through another
lending of such Lender, or (ii) take such other measures as such Lender
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may deem reasonable, if as a result thereof the circumstances which would cause
such Lender to be an Affected Lender would cease to exist or the additional
amounts which would otherwise be required to be paid to such Lender pursuant to
subsection 2.7 would be materially reduced and if, as determined by such Lender
in its sole discretion, the making, funding or maintaining of such AXEL
Commitments or AXELs through such other lending or in accordance with such other
measures, as the case may be, would not otherwise materially adversely affect
such AXEL Commitments or AXELs or the interests of such Lender; provided that
such Lender will not be obligated to utilize such other lending pursuant to this
subsection 2.8 unless Company agrees to pay all incremental expenses incurred by
such Lender as a result of utilizing such other lending office as described in
clause (i) above. A certificate as to the amount of any such expenses payable by
Company pursuant to this subsection 2.8 (setting forth in reasonable detail the
basis for requesting such amount) submitted by such Lender to Company (with a
copy to Administrative Agent) shall be conclusive absent manifest error.
2.9 Removal or Replacement of a Lender.
A. Anything contained in this Agreement to the contrary notwithstanding,
in the event that:
(i) (a) any Lender (an "Increased-Cost Lender") shall give notice to
Company that such Lender is an Affected Lender or that such Lender is
entitled to receive payments under subsection 2.7, (b) the circumstances
which have caused such Lender to be an Affected Lender or which entitle
such Lender to receive such payments shall remain in effect, and (c) such
Lender shall fail to withdraw such notice within five Business Days after
Company's request for such withdrawal; or
(ii) (a) in connection with any proposed amendment, modification,
termination, waiver or consent with respect to any of the provisions of
this Agreement as contemplated by clauses (i) through (v) of the first
proviso to subsection 9.6A, the consent of Requisite Lenders shall have
been obtained but the consent of one or more of such other Lenders (each a
"Non-Consenting Lender") whose consent is required shall not have been
obtained, and (b) the failure to obtain Non-Consenting Lenders' consents
does not result solely from the exercise of Non-Consenting Lenders' rights
(and the withholding of any required consents by Non-Consenting Lenders)
pursuant to the second proviso to subsection 9.6A;
then, and in each such case, Company shall have the right, at its option, to
remove or replace the applicable Increased-Cost Lender or Non-Consenting Lender
(the "Terminated Lender") to the extent permitted by subsection 2.9B.
B. Company may, by giving written notice to Administrative Agent and any
Terminated Lender of its election to do so:
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(i) elect to prepay on the date of such termination any outstanding
AXELs made by such Terminated Lender, together with accrued and unpaid
interest thereon and any other amounts payable to such Terminated Lender
hereunder pursuant to subsection 2.6 or subsection 2.7 or otherwise;
provided that, in the event such Terminated Lender has any AXELs
outstanding at the time of such termination, the written consent of
Administrative Agent and Requisite Lenders (which consent shall not be
unreasonably withheld or delayed) shall be required in order for Company
to make the election set forth in this clause (i); or
(ii) elect to cause such Terminated Lender (and such Terminated
Lender hereby irrevocably agrees) to assign its outstanding AXELs in full
at par to one or more Eligible Assignees (each a "Replacement Lender") in
accordance with the provisions of subsection 9.1B; provided that (a) on
the date of such assignment, Company shall pay any amounts payable to such
Terminated Lender pursuant to subsection 2.6 or subsection 2.7 or
otherwise as if it were a prepayment and (b) in the event such Terminated
Lender is a Non-Consenting Lender, each Replacement Lender shall consent,
at the time of such assignment, to each matter in respect of which such
Terminated Lender was a Non-Consenting Lender;
provided that Company may not make either of the elections set forth in clauses
(i) or (ii) above with respect to any Non-Consenting Lender unless Company also
makes one of such elections with respect to each other Terminated Lender which
is a Non-Consenting Lender.
C. Upon the prepayment of all amounts owing to any Terminated Lender
pursuant to clause (i) of subsection 2.9B, such Terminated Lender shall no
longer constitute a "Lender" for purposes of this Agreement; provided that any
rights of such Terminated Lender to indemnification under this Agreement
(including under subsections 2.6D, 2.7, 9.2 and 9.3) shall survive as to such
Terminated Lender.
SECTION 3.
CONDITIONS TO AXELs
The obligations of Lenders to make AXELs hereunder are subject to the
satisfaction of the following conditions.
3.1 Certain Conditions to AXELs.
The obligations of Lenders to make the AXELs on the Closing Date are, in
addition to the conditions precedent specified in subsection 3.2, subject to
prior or concurrent satisfaction of the following conditions:
A. Loan Party Documents. On or before the Closing Date, Company shall, and
shall cause each other Loan Party to, deliver to Lenders (or to Administrative
Agent for
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Lenders with sufficient originally executed copies, where appropriate, for each
Lender and its counsel) the following with respect to Company or such Loan
Party, as the case may be, each, unless otherwise noted, dated the Closing Date:
(i) Certified copies of the Certificate or Articles of Incorporation
of such Person, together with a good standing certificate from the
Secretary of State of its jurisdiction of incorporation and each other
state in which such Person is qualified as a foreign corporation to do
business and, to the extent generally available, a certificate or other
evidence of good standing as to payment of any applicable franchise or
similar taxes from the appropriate taxing authority of each of such
jurisdictions, each dated a recent date prior to the Closing Date;
(ii) Copies of the Bylaws of such Person, certified as of the
Closing Date by such Person's corporate secretary or an assistant
secretary;
(iii) Resolutions of the Board of Directors of such Person approving
and authorizing the execution, delivery and performance of the AXEL Loan
Documents and Related Agreements to which it is a party, certified as of
the Closing Date by the corporate secretary or an assistant secretary of
such Person as being in full force and effect without modification or
amendment;
(iv) Signature and incumbency certificates of the officers of such
Person executing the AXEL Loan Documents to which it is a party;
(v) Executed originals of the AXEL Loan Documents to which such
Person is a party; and
(vi) Such other documents as Arranger or Administrative Agent may
reasonably request.
B. No Material Adverse Effect. Since December 31, 1996, no Material
Adverse Effect (in the opinions of Arranger and Administrative Agent) shall have
occurred.
C. Corporate and Capital Structure, Ownership, Management, Etc.
(i) Corporate Structure. The corporate organizational structure of
Company and its Subsidiaries, both before and after giving effect to the
Merger, shall be as set forth on Schedule 3.1C annexed hereto.
(ii) Capital Structure and Ownership. The capital structure and
ownership of Company, both before and after giving effect to the Merger,
shall be as set forth on Schedule 3.1C annexed hereto.
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(iii) Management; Employment Agreements. The management structure of
Company after giving effect to the Merger shall be as set forth on
Schedule 3.1C annexed hereto. Arranger and Administrative Agent shall have
received duly executed copies of, and shall be satisfied with the form and
substance of, the Employment Agreements as set forth on Schedule 3.1C
annexed hereto.
D. Proceeds of Debt and Equity Capitalization of Newco and Company.
(i) Debt and Equity Capitalization of Company. On or before the
Closing Date, Newco and Company shall have consummated the transactions
contemplated under the Recapitalization Agreement, and in connection with
such transactions, Company will have, following the Merger of Newco with
and into Company, not less than $75,000,000 of equity financing,
consisting of (i) approximately $7,500,000 in shares of Company retained
by current shareholders, (ii) approximately $750,000 in cash common equity
contributions by certain Management Investors (which contributions will be
financed by Company and will be made following consummation of the Merger)
and (iii) approximately $67,500,000 in equity financing from Newco, which
equity financing shall have been contributed to Newco immediately prior to
the Merger as follows: (x) an amount not less than $61,875,000 in cash by
GSII, (y) approximately $4,500,000 of Old Management Shares (valued at the
highest cash price offered to public shareholders in the Acquisition)
contributed by a certain Management Investor in exchange for common stock
of Newco which will be converted in the Merger into shares of Company
Common Stock and (z) approximately $1,125,000 of restricted shares of
common stock of Newco granted to a certain Management Investor which will
be converted in the Merger into shares of Company Common Stock. On or
before the Closing Date, Company shall have issued and sold not less than
$110,000,000 in aggregate principal amount of Senior Subordinated Notes.
(ii) Use of Proceeds by Company. Company shall have provided
evidence satisfactory to Arranger and Administrative Agent that the
proceeds of the debt and equity capitalization of Company described in the
immediately preceding clause (i) have been contributed or irrevocably
committed, prior to the application of the proceeds of the AXELs, to the
payment of a portion of the Recapitalization Financing Requirements.
E. Related Agreements.
(i) Form of Senior Subordinated Note Indenture. The Senior
Subordinated Note Indenture shall be in the form that has been approved by
Arranger and Administrative Agent if the Senior Subordinated Notes were
issued and outstanding at the time of any such change.
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(ii) Approval of Certain Related Agreements. The Recapitalization
Agreement, the Certificate of Merger, the Stockholders Agreement, the
Voting Agreement, the Employment Agreements and the Tax Indemnification
Agreement shall each be satisfactory in form and substance to Arranger and
Administrative Agent.
(iii) Related Agreements in Full Force and Effect. Arranger and
Administrative Agent shall each have received a fully executed or
conformed copy of each Related Agreement (including all schedules and
exhibits thereto) and any material documents executed in connection
therewith, and each Related Agreement shall be in full force and effect
and no provision thereof shall have been modified or waived in any respect
determined by Arranger or Administrative Agent to be material, in each
case without the consent of Arranger and Administrative Agent.
F. Matters Relating to Existing Indebtedness of Company and its
Subsidiaries.
(i) Termination of Existing Credit Agreements and Related Liens;
Existing Letters of Credit. On the Closing Date, Company and its
Subsidiaries shall have (a) repaid in full all Indebtedness outstanding
under the Existing Credit Agreements as set forth on Schedule 3.1F (the
aggregate principal amount of which Indebtedness shall not exceed
$48,000,000), (b) terminated any commitments to lend or make other
extensions of credit thereunder, (c) delivered to Arranger and
Administrative Agent all documents or instruments necessary to release all
Liens securing Indebtedness or other obligations of Company and its
Subsidiaries thereunder, and (d) made arrangements satisfactory to
Arranger and Administrative Agent with respect to the cancellation of any
letters of credit outstanding thereunder or the issuance of Letters of
Credit under the Revolving Credit Agreement to support the obligations of
Company and its Subsidiaries with respect thereto.
(ii) Existing Indebtedness to Remain Outstanding. Arranger and
Administrative Agent shall have received an Officers' Certificate of
Company stating that, after giving effect to the transactions described in
this subsection 3.1F, the Indebtedness of Loan Parties (other than
Indebtedness under the Loan Documents and the Senior Subordinated Notes)
shall consist of (a) approximately $6,379,156 in aggregate principal
amount of outstanding Indebtedness described in Part I of Schedule 6.1
annexed hereto and (b) Indebtedness in an aggregate amount not to exceed
$4,643,679 in respect of Capital Leases described in Part II of Schedule
6.1 annexed hereto. The terms and conditions of all such Indebtedness
shall be in form and in substance satisfactory to Arranger, Administrative
Agent and Requisite Lenders.
G. Necessary Governmental Authorizations and Consents; Expiration of
Waiting Periods, Etc. Company shall have obtained all Governmental
Authorizations and all consents of other Persons, in each case that are
necessary or advisable in connection with
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the Merger, the other transactions contemplated by the Loan Documents and the
Related Agreements and the continued operation of the business conducted by
Company and its Subsidiaries in substantially the same manner as conducted prior
to the consummation of the Merger, and each of the foregoing shall be in full
force and effect, in each case other than those the failure to obtain or
maintain which, either individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. All applicable waiting periods shall
have expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose adverse conditions
on the Merger or the financing thereof. No action, request for stay, petition
for review or rehearing, reconsideration, or appeal with respect to any of the
foregoing shall be pending, and the time for any applicable agency to take
action to set aside its consent on its own motion shall have expired.
H. Consummation of Merger.
(i) All conditions to the Merger set forth in the Recapitalization
Agreement shall have been satisfied or the fulfillment of any such
conditions shall have been waived with the consent of Arranger,
Administrative Agent and Requisite Lenders;
(ii) the Merger shall have become effective in accordance with the
terms of the Recapitalization Agreement, the Certificate of Merger and the
laws of the State of Delaware;
(iii) Transaction Costs shall not exceed an amount previously agreed
to by Arranger, and Arranger shall have received evidence to its
satisfaction to such effect; and
(iv) Arranger and Administrative Agent shall have received an
Officers' Certificate of Company to the effect set forth in clauses
(i)-(iii) above.
I. Security Interests in Personal and Mixed Property. Collateral Agent
shall have received evidence satisfactory to it that Company and Subsidiary
Guarantors shall have taken or caused to be taken all such actions, executed and
delivered or caused to be executed and delivered all such agreements, documents
and instruments, and made or caused to be made all such filings and recordings
(other than the filing or recording of items described in clauses (iii), (iv)
and (v) below) that may be necessary or, in the opinion of Collateral Agent
desirable in order to create in favor of Collateral Agent, for the benefit of
Secured Parties, a valid and (upon such filing and recording) perfected First
Priority security interest in the entire personal and mixed property Collateral.
Such actions shall include the following:
(i) Schedules to Collateral Documents. Delivery to Collateral Agent
of accurate and complete schedules to all of the applicable Collateral
Documents.
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(ii) Stock Certificates and Instruments. Delivery to Collateral
Agent of (a) certificates (which certificates shall be accompanied by
irrevocable undated stock powers, duly endorsed in blank and otherwise
satisfactory in form and substance to Collateral Agent) representing all
capital stock pledged pursuant to the Company Pledge Agreement and the
Subsidiary Pledge Agreements and (b) all promissory notes or other
instruments (duly endorsed, where appropriate, in a manner satisfactory to
Collateral Agent) evidencing any Collateral;
(iii) Lien Searches and UCC Termination Statements. Delivery to
Arranger and Administrative Agent of (a) the results of a recent search,
by a Person satisfactory to Arranger and Administrative Agent, of all
effective UCC financing statements and fixture filings and all judgment
and tax lien filings which may have been made with respect to any personal
or mixed property of any Loan Party, together with copies of all such
filings disclosed by such search, and (b) UCC termination statements duly
executed by all applicable Persons for filing in all applicable
jurisdictions as may be necessary to terminate any effective UCC financing
statements or fixture filings disclosed in such search (other than any
such financing statements or fixture filings in respect of Liens permitted
to remain outstanding pursuant to the terms of this Agreement).
(iv) UCC Financing Statements and Fixture Filings. Delivery to
Collateral Agent of UCC financing statements and, where appropriate,
fixture filings, duly executed by each applicable Loan Party with respect
to all personal and mixed property Collateral of such Loan Party, for
filing in all jurisdictions as may be necessary or, in the reasonable
opinion of Collateral Agent, desirable to perfect the security interests
created in such Collateral pursuant to the Collateral Documents;
(v) Auxiliary Pledge Agreements. Execution and delivery to
Collateral Agent of Auxiliary Pledge Agreements with respect to the stock
of all Foreign Subsidiaries organized under the laws of all jurisdictions
with respect to which Collateral Agent deems an Auxiliary Pledge Agreement
necessary or advisable to perfect or otherwise protect the First Priority
Liens granted to Collateral Agent on behalf of Secured Parties in such
stock, and the taking of all such other actions under the laws of such
jurisdictions as Collateral Agent may deem necessary or advisable to
perfect or otherwise protect such Liens; and
(vi) Opinions of Local Counsel. Delivery to Arranger and
Administrative Agent of (a) an opinion of counsel (which counsel shall be
reasonably satisfactory to Arranger and Administrative Agent) under the
laws of each state in the United States in which any personal or mixed
property Collateral with an aggregate value in excess of $500,000 is
located with respect to the creation and perfection of the security
interests in favor of Collateral Agent in such Collateral and such other
matters governed by the laws of such jurisdiction regarding such security
interests as Arranger and Administrative Agent may reasonably request and
(b) an opinion of
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counsel (which counsel shall be reasonably satisfactory to Arranger and
Administrative Agent) under the laws of Quebec, Canada and England as to
the perfection of the pledge of stock of Foreign Subsidiaries organized in
those jurisdictions, in each case in form and substance reasonably
satisfactory to Arranger and Administrative Agent.
J. Environmental Reports. Arranger and Administrative Agent shall have
received such reports and other information, in form, scope and substance
satisfactory to Arranger and Administrative Agent, as Arranger and
Administrative Agent may reasonably require regarding environmental matters
relating to Company and its Subsidiaries and the Facilities, which reports shall
include (i) that certain Environmental Assessment dated October 7, 1997,
prepared by Pilko & Associates, Inc. for Confetti Acquisitions, Inc. covering
the Facilities located at Anaheim, California, Chester, New York, East
Providence, Rhode Island, Harriman, New York, Louisville, Kentucky, Montreal
(Kirkland), Quebec, Canada and Newburgh, New York, (the "Environmental
Assessment Report"), and (ii) a letter from Pilko & Associates, Inc. in form and
substance reasonably satisfactory to Administrative Agent allowing Arranger,
Administrative Agent, Collateral Agent and the Lenders to rely on the
Environmental Assessment Report to the same extent that Newco and Company may
rely thereon.
K. Financial Statements; Pro Forma Balance Sheet. On or before the Closing
Date, Lenders shall have received from Company (i) audited financial statements
of Company and its Subsidiaries for Fiscal Years ended December 31, 1994, 1995
and 1996, consisting of balance sheets and the related consolidated statements
of income, stockholders' equity and cash flows for such Fiscal Years, (ii)
unaudited financial statements of Company and its Subsidiaries as at September
30, 1997, consisting of a balance sheet and the related consolidated statements
of income, stockholders' equity and cash flows for the nine-month period ending
on such date, all in reasonable detail and certified by the chief financial
officer of Company that they fairly present the financial condition of Company
and its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to changes
resulting from audit and normal year-end adjustments, (iii) pro forma
consolidated balance sheets of Company and its Subsidiaries as of November 30,
1997, prepared in accordance with GAAP and reflecting the consummation of the
Merger, the related financings and the other transactions contemplated by the
Loan Documents and the Related Agreements, which pro forma financial statements
shall be in form and substance satisfactory to Lenders and (iv) pro forma
financial statements (including consolidated balance sheets, statements of
operations, stockholders' equity and cash flows) of Company and its Subsidiaries
for the 10-year period commencing on the Closing Date, which pro forma financial
statements shall be in form and substance satisfactory to Lenders.
L. Solvency Assurances. On the Closing Date, Arranger, Administrative
Agent and Lenders shall have received (i) a letter from Houlihan, Lokey, Howard
& Zukin, dated the Closing Date and addressed to Arranger, Administrative Agent
and Lenders, in form
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and substance satisfactory to Arranger and Administrative Agent and with
appropriate attachments, and (ii) a Financial Condition Certificate dated the
Closing Date, substantially in the form of Exhibit IX annexed hereto and with
appropriate attachments, in each case demonstrating that, after giving effect to
the consummation of the Merger, the related financings and the other
transactions contemplated by the Loan Documents and the Related Agreements,
Company will be Solvent.
M. Evidence of Insurance. Collateral Agent shall have received a
certificate from Company's insurance broker or other evidence satisfactory to it
that all insurance required to be maintained pursuant to subsection 5.4 is in
full force and effect and that Collateral Agent on behalf of Secured Parties has
been named as additional insured and/or loss payee thereunder to the extent
required under subsection 5.4.
N. Opinions of Counsel to Loan Parties. Lenders and their respective
counsel shall have received (i) originally executed copies of one or more
favorable written opinions of (a) Wachtell, Lipton, Rosen & Katz, special
counsel for Loan Parties, in form and substance reasonably satisfactory to
Administrative Agent and Arranger and its counsel, dated as of the Closing Date
and setting forth substantially the matters in the opinions designated in
Exhibit V-A annexed hereto and as to such other matters as Administrative Agent
or Arranger and acting on behalf of Lenders may reasonably request and (b)
Kurzman & Eisenberg, counsel for Loan Parties, in form and substance reasonably
satisfactory to Administrative Agent and Arranger and its counsel, dated as of
the Closing Date and setting forth substantially the matters in the opinions
designated in Exhibit V-B annexed hereto and as to such other matters as
Administrative Agent or Arranger and acting on behalf of Lenders may reasonably
request, and (ii) evidence satisfactory to Arranger and Administrative Agent
that Company has requested such counsel to deliver such opinions to Lenders.
O. Opinions of Arranger and Administrative Agent's Counsel. Lenders shall
have received originally executed copies of one or more favorable written
opinions of O'Melveny & Myers LLP, counsel to Arranger and Administrative Agent,
dated as of the Closing Date, substantially in the form of Exhibit VI annexed
hereto and as to such other matters as Arranger and Administrative Agent may
reasonably request.
P. Fees. Company shall have paid to Arranger and Administrative Agent, for
distribution (as appropriate) to Arranger, Administrative Agent and Lenders, the
fees payable on the Closing Date referred to in subsection 2.3.
Q. Representations and Warranties; Performance of Agreements. Company
shall have delivered to Arranger and Administrative Agent an Officers'
Certificate, in form and substance satisfactory to Arranger and Administrative
Agent, to the effect that the representations and warranties in Section 4 hereof
are true, correct and complete in all material respects on and as of the Closing
Date to the same extent as though made on and as of that date (or, to the extent
such representations and warranties specifically relate to
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an earlier date, that such representations and warranties were true, correct and
complete in all material respects on and as of such earlier date) and that
Company shall have performed in all material respects all agreements and
satisfied all conditions which this Agreement provides shall be performed or
satisfied by it on or before the Closing Date except as otherwise disclosed to
and agreed to in writing by Arranger, Administrative Agent and Requisite
Lenders.
R. Completion of Proceedings. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated hereby and all
documents incidental thereto not previously found acceptable by Administrative
Agent, acting on behalf of Lenders, or Arranger and its counsel shall be
satisfactory in form and substance to Administrative Agent and Arranger and such
counsel, and Administrative Agent, Arranger and such counsel shall have received
all such counterpart originals or certified copies of such documents as
Administrative Agent or Arranger may reasonably request.
S. Collateral Access Agreements. Company and each applicable Subsidiary
Guarantor shall have used its reasonable good faith efforts to obtain, in the
case of any Leasehold Property or any real property in which Company or any of
its Subsidiaries owns or holds a fee interest and which is subject to a mortgage
held by a third-party mortgagee holding inventory or equipment with an aggregate
fair market value exceeding $500,000, a Collateral Access Agreement with respect
thereto, in each case in form and substance reasonably satisfactory to Arranger
and Administrative Agent.
T. Revolving Credit Agreement. Arranger and Administrative Agent shall
each have received a fully executed or conformed copy of the Revolving Credit
Agreement satisfactory in form and substance to Arranger and Administrative
Agent. The Revolving Credit Agreement shall be in full force and effect and the
conditions to advances of the Revolving Loans thereunder shall have been
satisfied or waived by the Revolving Credit Lenders.
3.2 Additional Conditions to AXELs.
The obligations of Lenders to make AXELs on the Closing Date are subject
to the following further conditions precedent:
A. Administrative Agent shall have received before the Closing Date, in
accordance with the provisions of subsection 2.1B, an originally executed Notice
of Borrowing, in each case signed by the chief executive officer, the chief
financial officer or the treasurer or corporate controller of Company or by any
executive officer of Company designated by any of the above-described officers
on behalf of Company in a writing delivered to Administrative Agent.
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B. As of the Closing Date:
(i) The representations and warranties contained herein and in the
other AXEL Loan Documents shall be true, correct and complete in all
material respects on and as of the Closing Date to the same extent as
though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in
which case such representations and warranties shall have been true,
correct and complete in all material respects on and as of such earlier
date;
(ii) No event shall have occurred and be continuing or would result
from the consummation of the borrowing contemplated by such Notice of
Borrowing that would constitute an Event of Default or a Potential Event
of Default;
(iii) Each Loan Party shall have performed in all material respects
all agreements and satisfied all conditions which this Agreement provides
shall be performed or satisfied by it on or before the Closing Date;
(iv) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain any Lender from
making the AXELs to be made by it on the Closing Date;
(v) The making of the AXELs requested on the Closing Date shall not
violate any law including Regulation G, Regulation T, Regulation U or
Regulation X of the Board of Governors of the Federal Reserve System; and
(vi) There shall not be pending or, to the knowledge of Company,
threatened, any action, suit, proceeding, governmental investigation or
arbitration against or affecting Company or any of its Subsidiaries or any
property of Company or any of its Subsidiaries that has not been disclosed
by Company in writing prior to the execution of this Agreement), and there
shall have occurred no development not so disclosed in any such action,
suit, proceeding, governmental investigation or arbitration so disclosed,
that, in either event, in the opinion of Administrative Agent or of
Requisite Lenders, would be expected to have a Material Adverse Effect;
and no injunction or other restraining order shall have been issued and no
hearing to cause an injunction or other restraining order to be issued
shall be pending or noticed with respect to any action, suit or proceeding
seeking to enjoin or otherwise prevent the consummation of, or to recover
any damages or obtain relief as a result of, the transactions contemplated
by this Agreement or the making of AXELs hereunder.
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SECTION 4.
COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Agreement and to make the
AXELs, Company represents and warrants to each Lender, on the date of this
Agreement, that the following statements are true, correct and complete:
4.1 Organization, Powers, Qualification, Good Standing, Business and
Subsidiaries.
A. Organization and Powers. Each Loan Party is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation as specified in Schedule 4.1 annexed hereto as it
may be supplemented pursuant to subsection 5.1(xvi). Each Loan Party has all
requisite corporate power and authority to own and operate its properties, to
carry on its business as now conducted and as proposed to be conducted, to enter
into the AXEL Loan Documents and Related Agreements to which it is a party and
to carry out the transactions contemplated thereby.
B. Qualification and Good Standing. Each Loan Party is qualified to do
business and in good standing in every jurisdiction where its assets are located
and wherever necessary to carry out its business and operations, except in
jurisdictions where the failure to be so qualified or in good standing has not
had and could not reasonably be expected to have a Material Adverse Effect.
C. Conduct of Business. Company and its Subsidiaries are engaged only in
(i) the businesses engaged in by Company and its Subsidiaries on the Closing
Date and similar or related businesses and (ii) such other lines of business as
may be consented to be Requisite Lenders.
D. Subsidiaries. All of the Subsidiaries of Company as of the Closing Date
are identified in Schedule 4.1 annexed hereto, as said Schedule 4.1 may be
supplemented from time to time pursuant to the provisions of subsection
5.1(xvi). The capital stock of each of the Subsidiaries of Company identified in
Schedule 4.1 annexed hereto (as so supplemented) is duly authorized, validly
issued, fully paid and nonassessable and none of such capital stock constitutes
Margin Stock. Each of the Subsidiaries of Company identified in Schedule 4.1
annexed hereto (as so supplemented) is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation set forth therein, has all requisite corporate power and authority
to own and operate its properties and to carry on its business as now conducted
and as proposed to be conducted, and is qualified to do business and in good
standing in every jurisdiction where its assets are located and wherever
necessary to carry out its business and operations, in each case except where
failure to be so qualified or in good standing or a lack of such corporate power
and authority has not had and could not reasonably be expected to have a
Material Adverse Effect. Schedule 4.1 annexed hereto (as so supplemented)
correctly sets forth, as of the
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Closing Date, the ownership interest of Company and each of its Subsidiaries in
each of the Subsidiaries of Company identified therein.
4.2 Authorization of Borrowing, etc.
A. Authorization of Borrowing. The execution, delivery and performance of
the Loan Documents and the Related Agreements have been duly authorized by all
necessary corporate action on the part of each Loan Party that is a party
thereto.
B. No Conflict. The execution, delivery and performance by Loan Parties of
the AXEL Loan Documents and the Related Agreements to which they are parties and
the consummation of the transactions contemplated by the AXEL Loan Documents and
such Related Agreements do not and will not (i) violate any provision of any law
or any governmental rule or regulation applicable to Company or any of its
Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Company
or any of its Subsidiaries or any order, judgment or decree of any court or
other agency of government binding on Company or any of its Subsidiaries, (ii)
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any Contractual Obligation of Company or any of
its Subsidiaries, except for any breach or default which could not reasonably be
expected to have a Material Adverse Effect, (iii) result in or require the
creation or imposition of any Lien upon any of the properties or assets of
Company or any of its Subsidiaries (other than any Liens created under any of
the AXEL Loan Documents in favor of Administrative Agent on behalf of Lenders),
or (iv) require any approval of stockholders or any approval or consent of any
Person under any Contractual Obligation of Company or any of its Subsidiaries,
except for such approvals or consents which will be obtained on or before the
Closing Date and disclosed in writing to Lenders and such consents the failure
of which to receive could not reasonably be expected to have a Material Adverse
Effect.
C. Governmental Consents. The execution, delivery and performance by Loan
Parties of the AXEL Loan Documents and the Related Agreements to which they are
parties and the consummation of the transactions contemplated by the AXEL Loan
Documents and such Related Agreements do not and will not require any
registration with, consent or approval of, or notice to, or other action to,
with or by, any federal, state or other governmental authority or regulatory
body the failure of which to receive could not reasonably be expected to cause a
Material Adverse Effect.
D. Binding Obligation. Each of the AXEL Loan Documents and Related
Agreements has been duly executed and delivered by each Loan Party that is a
party thereto and is the legally valid and binding obligation of such Loan
Party, enforceable against such Loan Party in accordance with its respective
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability.
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E. Valid Issuance of Company Common Stock and Senior Subordinated Notes.
(i) Company Common Stock. The Company Common Stock to be issued in
the Merger on or before the Closing Date, when issued and delivered, will
be duly and validly issued, fully paid and nonassessable. No stockholder
of Company has or will have any preemptive rights to subscribe for any
additional equity Securities of Company. The issuance and sale of such
Company Common Stock, upon such issuance and sale, will either (a) have
been registered or qualified under applicable federal and state securities
laws or (b) be exempt therefrom.
(ii) Senior Subordinated Notes. Company has the corporate power and
authority to issue the Senior Subordinated Notes. The Senior Subordinated
Notes, when issued and paid for, will be the legally valid and binding
obligations of Company, enforceable against Company in accordance with
their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or
limiting creditors' rights generally or by equitable principles relating
to enforceability. The subordination provisions of the Senior Subordinated
Notes will be enforceable against the holders thereof and the AXELs and
all other monetary Obligations hereunder are and will be within the
definition of "Senior Debt" included in such provisions. The Senior
Subordinated Notes, when issued and sold, will either (a) have been
registered or qualified under applicable federal and state securities laws
or (b) be exempt therefrom.
4.3 Financial Condition.
Company has heretofore delivered to Lenders, at Lenders' request, the
following financial statements and information: (i) the audited consolidated
balance sheets of Company and its Subsidiaries as at December 31, 1996 and the
related consolidated statements of income, stockholders' equity and cash flows
of Company and its Subsidiaries for the Fiscal Year then ended and (ii) the
unaudited consolidated balance sheets of Company and its Subsidiaries as at
September 30, 1997 and the related unaudited consolidated statements of income,
stockholders' equity and cash flows of Company and its Subsidiaries for the
nine-months then ended. All such statements were prepared in conformity with
GAAP and fairly present, in all material respects, the financial position (on a
consolidated basis) of the entities described in such financial statements as at
the respective dates thereof and the results of operations and cash flows (on a
consolidated basis) of the entities described therein for each of the periods
then ended, subject, in the case of any such unaudited financial statements, to
changes resulting from audit and normal year-end adjustments. Company does not
(and will not following the funding of the initial AXELs) have any Guarantee,
contingent liability or liability for taxes, long-term lease or unusual forward
or long-term commitment that is not reflected in the foregoing financial
statements or the notes thereto and which in any such case is material in
relation to the business, operations, properties, assets, condition (financial
or otherwise) or prospects of Company or any of its Subsidiaries.
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4.4 No Material Adverse Change; No Restricted Payments.
Since December 31, 1996, no event or change has occurred that has caused
or evidences, either in any case or in the aggregate, a Material Adverse Effect.
Other than with respect to the Recapitalization Consideration and the repayment
of debt outstanding prior to the effectiveness of the Merger, neither Company
nor any of its Subsidiaries has directly or indirectly declared, ordered, or set
apart any sum or property which has not yet been paid for, any Restricted
Payment or agreed to do so except as permitted by subsection 6.3.
4.5 Title to Properties; Liens; Real Property.
A. Title to Properties; Liens. Except for Permitted Encumbrances and Liens
permitted under subsection 6.2, Company and its Subsidiaries have (i) good,
sufficient and legal title to (in the case of fee interests in real property),
(ii) valid leasehold interests in (in the case of leasehold interests in real or
personal property), or (iii) good title to (in the case of all other personal
property), all of their respective properties and assets reflected in the
financial statements referred to in subsection 4.3 or in the most recent
financial statements delivered pursuant to subsection 5.1, in each case except
for assets disposed of since the date of such financial statements in the
ordinary course of business or as otherwise permitted under subsection 6.5. All
such properties and assets are free and clear of Liens other than Permitted
Encumbrances and other Liens permitted under this Agreement.
B. Real Property. As of the Closing Date, Schedule 4.5 annexed hereto
contains a true, accurate and complete list of (i) all Fee Properties and (ii)
all leases, subleases or assignments of leases (together with all amendments,
modifications, supplements, renewals or extensions of any thereof) affecting
each Real Property Asset of any Loan Party, regardless of whether such Loan
Party is the landlord or tenant (whether directly or as an assignee or successor
in interest) under such lease, sublease or assignment. As of the Closing Date,
except as specified in Schedule 4.5 annexed hereto, each agreement listed in
clause (ii) of the immediately preceding sentence is in full force and effect
and Company does not have knowledge of any material default that has occurred
and is continuing thereunder, and each such agreement constitutes the legally
valid and binding obligation of each applicable Loan Party, enforceable against
such Loan Party in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or limiting creditors' rights generally or by equitable principles.
4.6 Litigation; Adverse Facts.
Except as set forth in Schedule 4.6 annexed hereto, there are no actions,
suits, proceedings, arbitrations or governmental investigations (whether or not
purportedly on behalf of Company or any of its Subsidiaries) at law or in
equity, or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign (including any Environmental Claims) that
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are pending or, to the knowledge of Company, threatened against or affecting
Company or any of its Subsidiaries or any property of Company or any of its
Subsidiaries and that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect. Neither Company nor any of its
Subsidiaries (i) is in violation of any applicable laws (including Environmental
Laws) that, individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect, or (ii) is subject to or in default with
respect to any final judgments, writs, injunctions, decrees, rules or
regulations of any court or any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, that, individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect.
4.7 Payment of Taxes.
Except to the extent permitted by subsection 5.3, all material tax returns
and reports of Company and its Subsidiaries required to be filed by any of them
have been timely filed, and all taxes shown on such tax returns to be due and
payable and all assessments, fees and other governmental charges upon Company
and its Subsidiaries and upon their respective properties, assets, income,
businesses and franchises which are due and payable have been paid when due and
payable. Company knows of no proposed material tax assessment against Company or
any of its Subsidiaries which is not being actively contested by Company or such
Subsidiary in good faith and by appropriate proceedings; provided that such
reserves or other appropriate provisions, if any, as shall be required in
conformity with GAAP shall have been made or provided therefor.
4.8 Performance of Agreements; Materially Adverse Agreements; Material
Contracts.
A. Neither Company nor any of its Subsidiaries is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any of its Contractual Obligations, and no condition
exists that, with the giving of notice or the lapse of time or both, would
constitute such a default, except where the consequences, direct or indirect, of
such default or defaults, if any, would not have a Material Adverse Effect.
B. Neither Company nor any of its Subsidiaries is a party to or is
otherwise subject to any agreements or instruments or any charter or other
internal restrictions which, individually or in the aggregate, could reasonably
be expected to result in a Material Adverse Effect.
C. Schedule 4.8 contains a true, correct and complete list of all the
Material Contracts in effect on the Closing Date. Except as described on
Schedule 4.8, all such Material Contracts are in full force and effect and no
defaults currently exist thereunder other than any such defaults or failure to
be in force and effect which could not reasonably be expected to result in a
Material Adverse Effect.
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4.9 Governmental Regulation.
Neither Company nor any of its Subsidiaries is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of 1940 or under any other
federal or state statute or regulation which may limit its ability to incur
Indebtedness or which may otherwise render all or any portion of the Obligations
unenforceable.
4.10 Securities Activities.
A. Neither Company nor any of its Subsidiaries is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying any Margin Stock.
B. Following application of the proceeds of each AXEL and the Revolving
Loan under the Revolving Credit Agreement, not more than 25% of the value of the
assets (either of Company only or of Company and its Subsidiaries on a
consolidated basis) subject to the provisions of subsection 6.2 or 6.5 or
subject to any restriction contained in any agreement or instrument, between
Company and any Lender or any Affiliate of any Lender, relating to Indebtedness
and within the scope of subsection 7.2, will be Margin Stock.
4.11 Employee Benefit Plans.
A. Company, each of its Subsidiaries and each of their respective ERISA
Affiliates are in compliance with all applicable provisions and requirements of
ERISA and the regulations and published interpretations thereunder with respect
to each Employee Benefit Plan, and have performed all their obligations under
each Employee Benefit Plan. Each Employee Benefit Plan which is intended to
qualify under Section 401(a) of the Internal Revenue Code is so qualified.
B. No ERISA Events have occurred or are reasonably expected to occur which
could reasonably be expected to result in liabilities to the Company or any of
its Subsidiaries in excess of $1,000,000 in the aggregate.
C. As of the most recent valuation date for any Pension Plan, the excess
of (1) the actuarial present value (determined on the basis of reasonable
assumptions employed by the independent actuary for each Pension Plan for
purposes of Section 412 of the Internal Revenue Code or Section 302 of ERISA) of
benefit liabilities (as defined in Section 4001(a)(16) of ERISA), over (2) the
fair market value of the assets of such Pension Plan, individually or in the
aggregate for all Pension Plans (excluding for purposes of such computation any
Pension Plans with respect to which assets exceed benefit liabilities), does not
exceed $5,000,000.
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D. As of the most recent valuation date for each Multiemployer Plan for
which the actuarial report is available, the potential liability of Company, its
Subsidiaries and their respective ERISA Affiliates for a complete withdrawal
from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when
aggregated with such potential liability for a complete withdrawal from all
Multiemployer Plans, based on information available pursuant to Section 4221(e)
of ERISA, does not exceed $5,000,000.
4.12 Certain Fees.
Except as described in the Confidential Information Memorandum, no
broker's or finder's fee or commission will be payable with respect to this
Agreement or any of the transactions contemplated hereby, and Company hereby
indemnifies Lenders against, and agrees that it will hold Lenders harmless from,
any claim, demand or liability for any such broker's or finder's fees alleged to
have been incurred in connection herewith or therewith and any expenses
(including reasonable fees, expenses and disbursements of counsel) arising in
connection with any such claim, demand or liability.
4.13 Environmental Protection.
Except as set forth in Schedule 4.13 annexed hereto:
(i) neither Company nor any of its Subsidiaries nor any of their
respective Facilities or operations are subject to any outstanding written
order, consent decree or settlement agreement with any Person relating to
(a) any Environmental Law, (b) any Environmental Claim, or (c) any
Hazardous Materials Activity;
(ii) neither Company nor any of its Subsidiaries has received any
letter or request for information under Section 104 of the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. ss.
9604) or any comparable state law;
(iii) there are and, to Company's knowledge, have been no
conditions, occurrences, or Hazardous Materials Activities which could
reasonably be expected to form the basis of an Environmental Claim against
Company or any of its Subsidiaries;
(iv) neither Company nor any of its Subsidiaries nor, to Company's
knowledge, any predecessor of Company or any of its Subsidiaries has filed
any notice under any Environmental Law indicating past or present
treatment of Hazardous Materials at any Facility, and none of Company's or
any of its Subsidiaries' operations involves the generation,
transportation, treatment, storage or disposal of hazardous waste, as
defined under 40 C.F.R. Parts 260-270 or any state equivalent;
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(v) compliance with all current or reasonably foreseeable future
requirements pursuant to or under Environmental Laws will not,
individually or in the aggregate, have a reasonable possibility of giving
rise to a Material Adverse Effect.
Notwithstanding anything in this subsection 4.13 to the contrary, no event
or condition has occurred or is occurring with respect to Company or any of its
Subsidiaries relating to any Environmental Law, any Release of Hazardous
Materials, or any Hazardous Materials Activity, including any matter disclosed
on Schedule 4.13 annexed hereto, which individually or in the aggregate has had
or could reasonably be expected to have a Material Adverse Effect.
4.14 Employee Matters.
There is no strike or work stoppage in existence or threatened involving
Company or any of its Subsidiaries that could reasonably be expected to have a
Material Adverse Effect.
4.15 Solvency.
Each Loan Party is and, upon the incurrence of any Obligations by such
Loan Party on any date on which this representation is made, will be, Solvent.
4.16 Matters Relating to Collateral.
A. Creation, Perfection and Priority of Liens. The execution and delivery
of the Collateral Documents by Loan Parties, together with (i) the actions taken
on or prior to the date hereof pursuant to subsections 3.1I, 5.8 and 5.9 and
(ii) the delivery to Collateral Agent of any Pledged Collateral not delivered to
Collateral Agent at the time of execution and delivery of the applicable
Collateral Document (all of which Pledged Collateral has been so delivered) are
effective to create in favor of Collateral Agent for the benefit of Secured
Parties, as security for the respective Secured Obligations (as defined in the
applicable Collateral Document in respect of any Collateral), a valid and
perfected First Priority Lien on all of the Collateral, and all filings and
other actions necessary or desirable to perfect and maintain the perfection and
First Priority status of such Liens have been duly made or taken and remain in
full force and effect, other than the filing of any UCC financing statements
delivered to Collateral Agent for filing (but not yet filed) and the periodic
filing of UCC continuation statements in respect of UCC financing statements
filed by or on behalf of Collateral Agent.
B. Governmental Authorizations. No authorization, approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for either (i) the pledge or grant by any Loan Party of the
Liens purported to be created in favor of Collateral Agent pursuant to any of
the Collateral Documents or (ii) the exercise by Collateral Agent of any rights
or remedies in respect of any Collateral (whether
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specifically granted or created pursuant to any of the Collateral Documents or
created or provided for by applicable law), except for filings or recordings
contemplated by subsection 4.16A and except as may be required, in connection
with the disposition of any Pledged Collateral, by laws generally affecting the
offering and sale of securities.
C. Absence of Third-Party Filings. Except such as may have been filed in
favor of Collateral Agent as contemplated by subsection 4.16A, no effective UCC
financing statement, fixture filing or other instrument similar in effect
covering all or any part of the Collateral is on file in any filing or recording
office.
D. Margin Regulations. The pledge of the Pledged Collateral pursuant to
the Collateral Documents does not violate Regulation G, T, U or X of the Board
of Governors of the Federal Reserve System.
E. Information Regarding Collateral. All information supplied to
Collateral Agent by or on behalf of any Loan Party with respect to any of the
Collateral (in each case taken as a whole with respect to any particular
Collateral) is accurate and complete in all material respects.
4.17 Related Agreements.
A. Delivery of Related Agreements. Company has delivered to Lenders
complete and correct copies of each Related Agreement and of all exhibits and
schedules thereto.
B. Warranties of Company. Except to the extent otherwise set forth herein
or in the schedules hereto, each of the representations and warranties given by
Company in the Recapitalization Agreement is true and correct in all material
respects as of the date hereof (or as of any earlier date to which such
representation and warranty specifically relates) and will be true and correct
in all material respects as of the Closing Date (or as of such earlier date, as
the case may be), in each case subject to the qualifications set forth in the
schedules to the Recapitalization Agreement.
C. Survival. Notwithstanding anything in the Recapitalization Agreement to
the contrary, the representations and warranties of Company set forth in
subsection 4.17B shall, solely for purposes of this Agreement, survive the
Closing Date for the benefit of Lenders.
4.18 Disclosure.
No representation or warranty of Company or any of its Subsidiaries
contained in the Confidential Information Memorandum or in any Loan Document or
in any other document, certificate or written statement furnished to Lenders by
or on behalf of Company or any of its Subsidiaries for use in connection with
the transactions contemplated by this Agreement contains any untrue statement of
a material fact or omits to state a material fact (known to Company, in the case
of any document not furnished by it) necessary in order to
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make the statements contained herein or therein not misleading in light of the
circumstances in which the same were made. Any projections and pro forma
financial information contained in such materials are based upon good faith
estimates and assumptions believed by Company to be reasonable at the time made,
it being recognized by Lenders that such projections as to future events are not
to be viewed as facts and that actual results during the period or periods
covered by any such projections may differ from the projected results. There are
no facts known (or which should upon the reasonable exercise of diligence be
known) to Company (other than matters of a general economic nature) that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect and that have not been disclosed herein or in such other
documents, certificates and statements furnished to Lenders for use in
connection with the transactions contemplated hereby.
4.19 Revolving Credit Agreement.
A. Delivery of Revolving Credit Agreement. Company has delivered to
Lenders complete and correct copies of the Revolving Credit Agreement and of all
exhibits and schedules thereto.
B. Warranties of Company. Except to the extent otherwise set forth herein
or in the schedule hereto, each of the representations and warranties given by
Company in the Revolving Credit Agreement is true and correct in all material
respects as of the date hereof (or as of any earlier date to which such
representation and warranty specifically relates) and will be true and correct
in all material respects as of the Closing Date (or as of such earlier date, as
the case may be), in each case subject to the qualifications set forth in the
schedules to the Revolving Credit Agreement.
SECTION 5.
COMPANY'S AFFIRMATIVE COVENANTS
Company covenants and agrees that, so long as any of the AXEL Commitments
hereunder shall remain in effect and until payment in full of all of the AXELs
and other Obligations unless Requisite Lenders shall otherwise give prior
written consent, Company shall perform, and shall cause each of its Subsidiaries
to perform, all covenants in this Section 5.
5.1 Financial Statements and Other Reports.
Company will maintain, and cause each of its Subsidiaries to maintain, a
system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in conformity
with GAAP. Company will deliver to Administrative Agent and Lenders:
(i) Monthly Financials: as soon as available and in any event within
30 days after the end of each month ending after the Closing Date (or
within 45 days
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after the end of each month which ends a Fiscal Quarter), the consolidated
balance sheets of Company and its Subsidiaries as at the end of such month
and the related consolidated statements of income, stockholders' equity
and cash flows of Company and its Subsidiaries for such month and for the
period from the beginning of the then current Fiscal Year to the end of
such month, setting forth in each case in comparative form the
corresponding figures for the corresponding periods of the previous Fiscal
Year and the corresponding figures from the Financial Plan for the current
Fiscal Year, to the extent prepared on a monthly basis, all in reasonable
detail and certified by the chief financial officer of Company that they
fairly present, in all material respects, the financial condition of
Company and its Subsidiaries as at the dates indicated and the results of
their operations and their cash flows for the periods indicated, subject
to changes resulting from audit and normal year-end adjustments, for such
month and for the period from the beginning of the then current Fiscal
Year to the end of such month;
(ii) Quarterly Financials: as soon as available and in any event
within 45 days after the end of each of first three Fiscal Quarters of
each year, (a) the consolidated balance sheets of Company and its
Subsidiaries as at the end of such Fiscal Quarter and the related
consolidated statements of income, stockholders' equity and cash flows of
Company and its Subsidiaries for such Fiscal Quarter and for the period
from the beginning of the then current Fiscal Year to the end of such
Fiscal Quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding periods of the previous Fiscal
Year and the corresponding figures from the Financial Plan for the current
Fiscal Year, all in reasonable detail and certified by the chief financial
officer of Company that they fairly present, in all material respects, the
financial condition of Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for the
periods indicated, subject to changes resulting from audit and normal
year-end adjustments, and (b) a narrative report describing the operations
of Company and its Subsidiaries in the form of the MD&A, which is prepared
by the Company for public filing for such Fiscal Quarter and for the
period from the beginning of the then current Fiscal Year to the end of
such Fiscal Quarter;
(iii) Year-End Financials: as soon as available and in any event
within 90 days after the end of each Fiscal Year, (a) the consolidated
balance sheets of Company and its Subsidiaries as at the end of such
Fiscal Year and the related consolidated statements of income,
stockholders' equity and cash flows of Company and its Subsidiaries for
such Fiscal Year, setting forth in each case in comparative form the
corresponding figures for the previous Fiscal Year and the corresponding
figures from the Financial Plan for the Fiscal Year covered by such
financial statements, all in reasonable detail and certified by the chief
financial officer of Company that they fairly present, in all material
respects, the financial condition of Company and its Subsidiaries as at
the dates indicated and the results of their operations and their cash
flows for the periods indicated, (b) a narrative report
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describing the operations of Company and its Subsidiaries in the form
prepared for presentation to senior management for such Fiscal Year, and
(c) a report thereon of independent certified public accountants of
recognized national standing selected by Company and satisfactory to
Administrative Agent, which report shall be unqualified, shall express no
doubts about the ability of Company and its Subsidiaries to continue as a
going concern, and shall state that such consolidated financial statements
fairly present, in all material respects, the consolidated financial
position of Company and its Subsidiaries as at the dates indicated and the
results of their operations and their cash flows for the periods indicated
in conformity with GAAP applied on a basis consistent with prior years
(except as otherwise disclosed in such financial statements) and that the
examination by such accountants in connection with such consolidated
financial statements has been made in accordance with generally accepted
auditing standards;
(iv) Officers' and Compliance Certificates: together with each
delivery of financial statements of Company and its Subsidiaries pursuant
to subdivisions (ii) and (iii) above, (a) an Officers' Certificate of
Company stating that the signers have reviewed the terms of this Agreement
and have made, or caused to be made under their supervision, a review in
reasonable detail of the transactions and condition of Company and its
Subsidiaries during the accounting period covered by such financial
statements and that such review has not disclosed the existence during or
at the end of such accounting period, and that the signers do not have
knowledge of the existence as at the date of such Officers' Certificate,
of any condition or event that constitutes an Event of Default or
Potential Event of Default, or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what
action Company has taken, is taking and proposes to take with respect
thereto; and (b) a Compliance Certificate demonstrating in reasonable
detail (1) compliance during and at the end of the applicable accounting
periods with the restrictions contained in Section 6, in each case to the
extent compliance with such restrictions is required to be tested at the
end of the applicable accounting period and (2) with respect to any Net
Asset Sale Proceeds received by Company or any of its Subsidiaries during
the second Fiscal Quarter immediately preceding the Fiscal Quarter in
which the applicable accounting period ends, whether or not all or any
portion of such Net Asset Sale Proceeds shall have become Unreinvested
Asset Sale Proceeds;
(v) Reconciliation Statements: if, as a result of any change in
accounting principles and policies from those used in the preparation of
the audited financial statements referred to in subsection 4.3, the
consolidated financial statements of Company and its Subsidiaries
delivered pursuant to subdivisions (ii), (iii) or (xiii) of this
subsection 5.1 will differ in any material respect from the consolidated
financial statements that would have been delivered pursuant to such
subdivisions had no such change in accounting principles and policies been
made, then (a) together with the first delivery of financial statements
pursuant to subdivision (ii), (iii) or (xiii) of this
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subsection 5.1 following such change, consolidated financial statements
of Company and its Subsidiaries for (y) the current Fiscal Year to the
effective date of such change and (z) the two full Fiscal Years
immediately preceding the Fiscal Year in which such change is made, in
each case prepared on a pro forma basis as if such change had been in
effect during such periods, and (b) together with each delivery of
financial statements pursuant to subdivision (ii), (iii) or (xiii) of
this subsection 5.1 following such change, a written statement of the
chief accounting officer or chief financial officer of Company setting
forth the differences which would have resulted if such financial
statements had been prepared without giving effect to such change;
(vi) Accountants' Certification: together with each delivery of
consolidated financial statements of Company and its Subsidiaries pursuant
to subdivision (iii) above, a written statement by the independent
certified public accountants giving the report thereon (a) stating that
their audit examination has included a review of the terms of this
Agreement and the other AXEL Loan Documents as they relate to accounting
matters, (b) stating whether, in connection with their audit examination,
any condition or event that constitutes an Event of Default or Potential
Event of Default has come to their attention and, if such a condition or
event has come to their attention, specifying the nature and period of
existence thereof; provided that such accountants shall not be liable by
reason of any failure to obtain knowledge of any such Event of Default or
Potential Event of Default that would not be disclosed in the course of
their audit examination, and (c) stating that based on their audit
examination nothing has come to their attention that causes them to
believe either or both that the information contained in the certificates
delivered therewith pursuant to subdivision (iv) above is not correct or
that the matters set forth in the Compliance Certificates delivered
therewith pursuant to clause (b) of subdivision (iv) above for the
applicable Fiscal Year are not stated in accordance with the terms of this
Agreement;
(vii) Accountants' Reports: promptly upon receipt thereof (unless
restricted by applicable professional standards), copies of all reports
submitted to Company by independent certified public accountants in
connection with each annual, interim or special audit of the financial
statements of Company and its Subsidiaries made by such accountants,
including any comment letter submitted by such accountants to management
in connection with their annual audit;
(viii) SEC Filings and Press Releases: promptly upon their becoming
available, copies of (a) all financial statements, reports, notices and
proxy statements sent or made available generally by Company to its
security holders or by any Subsidiary of Company to its security holders
other than Company or another Subsidiary of Company, (b) all regular and
periodic reports and all registration statements (other than on Form S-8
or a similar form) and prospectuses, if any, filed by Company or any of
its Subsidiaries with any securities exchange or with the Securities and
Exchange Commission or any governmental or private regulatory authority,
and
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(c) all press releases and other statements made available generally by
Company or any of its Subsidiaries to the public concerning material
developments in the business of Company or any of its Subsidiaries;
(ix) Events of Default, etc.: promptly upon any officer of Company
obtaining knowledge (a) of any condition or event that constitutes an
Event of Default or Potential Event of Default, or becoming aware that any
Lender has given any notice (other than to Administrative Agent) or taken
any other action with respect to a claimed Event of Default or Potential
Event of Default, (b) that any Person has given any notice to Company or
any of its Subsidiaries or taken any other action with respect to a
claimed default or event or condition of the type referred to in
subsection 7.2, (c) of any condition or event that would be required to be
disclosed in a current report filed by Company with the Securities and
Exchange Commission on Form 8-K (Items 1, 2, 4, 5 and 6 of such Form as in
effect on the date hereof) if Company were required to file such reports
under the Exchange Act, or (d) of the occurrence of any event or change
that has caused or evidences, either in any case or in the aggregate, a
Material Adverse Effect, an Officers' Certificate specifying the nature
and period of existence of such condition, event or change, or specifying
the notice given or action taken by any such Person and the nature of such
claimed Event of Default, Potential Event of Default, default, event or
condition, and what action Company has taken, is taking and proposes to
take with respect thereto;
(x) Litigation or Other Proceedings: (a) promptly upon any officer
of Company obtaining knowledge of (X) the institution of, or non-frivolous
threat of, any action, suit, proceeding (whether administrative, judicial
or otherwise), governmental investigation or arbitration against or
affecting Company or any of its Subsidiaries or any property of Company or
any of its Subsidiaries (collectively, "Proceedings") not previously
disclosed in writing by Company to Lenders or (Y) any material development
in any Proceeding that, in any case:
(1) if adversely determined, has a reasonable possibility of
giving rise to a Material Adverse Effect; or
(2) seeks to enjoin or otherwise prevent the consummation of,
or to recover any damages or obtain relief as a result of, the
transactions contemplated hereby;
written notice thereof together with such other information as may be
reasonably available to Company to enable Lenders and their counsel to
evaluate such matters; and (b) within twenty days after the end of each
Fiscal Quarter, a schedule of all Proceedings involving an alleged
liability of, or claims against or affecting, Company or any of its
Subsidiaries equal to or greater than $500,000, and promptly after request
by Administrative Agent such other information as may be reasonably
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requested by Administrative Agent to enable Administrative Agent and its
counsel to evaluate any of such Proceedings;
(xi) ERISA Events: promptly upon becoming aware of the occurrence of
or forthcoming occurrence of any ERISA Event, a written notice specifying
the nature thereof, what action Company, any of its Subsidiaries or any of
their respective ERISA Affiliates has taken, is taking or proposes to take
with respect thereto and, when known, any action taken or threatened by
the Internal Revenue Service, the Department of Labor or the PBGC with
respect thereto;
(xii) ERISA Notices: with reasonable promptness, copies of (a) each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series)
filed by Company, any of its Subsidiaries or any of their respective ERISA
Affiliates with the Internal Revenue Service with respect to each Pension
Plan; (b) all notices received by Company or any of its Subsidiaries from
a Multiemployer Plan sponsor concerning an ERISA Event; and (c) copies of
such other documents or governmental reports or filings relating to any
Employee Benefit Plan as Administrative Agent shall reasonably request;
(xiii) Financial Plans: as soon as practicable and in any event no
later than 30 days prior to the beginning of each Fiscal Year, a
consolidated plan and financial forecast for such Fiscal Year and each
succeeding Fiscal Year through the date of the last scheduled payment
relating to the AXELs (the "Financial Plan" for such Fiscal Years),
including (a) forecasted consolidated balance sheets and forecasted
consolidated statements of income and cash flows of Company and its
Subsidiaries for each such Fiscal Year, together with pro forma Compliance
Certificates for each such Fiscal Year and an explanation of the
assumptions on which such forecasts are based, (b) forecasted consolidated
statements of income and cash flows of Company and its Subsidiaries for
each month of the first such Fiscal Year, together with an explanation of
the assumptions on which such forecasts are based, and (c) such other
information and projections as any Lender may reasonably request;
(xiv) Insurance: as soon as practicable and in any event by the last
day of each Fiscal Year, a report in form and substance satisfactory to
Administrative Agent outlining all material insurance coverage maintained
as of the date of such report by Company and its Subsidiaries and all
material insurance coverage planned to be maintained by Company and its
Subsidiaries in the immediately succeeding Fiscal Year;
(xv) Board of Directors: with reasonable promptness, written notice
of any change in the Board of Directors of Company;
(xvi) New Subsidiaries: promptly upon any Person becoming a
Subsidiary of Company, a written notice setting forth with respect to such
Person (a) the date
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on which such Person became a Subsidiary of Company and (b) all of the
data required to be set forth in Schedule 4.1 annexed hereto with respect
to all Subsidiaries of Company (it being understood that such written
notice shall be deemed to supplement Schedule 4.1 annexed hereto for all
purposes of this Agreement);
(xvii) Material Contracts: promptly, and in any event within ten
Business Days after any Material Contract of Company or any of its
Subsidiaries is terminated or amended in a manner that is materially
adverse to Company or such Subsidiary, as the case may be, or any new
Material Contract is entered into, a written statement describing such
event with copies of such material amendments or new contracts, and an
explanation of any actions being taken with respect thereto; and
(xviii) Other Information: with reasonable promptness, such other
information and data with respect to Company or any of its Subsidiaries
as from time to time may be reasonably requested by any Lender.
5.2 Corporate Existence, etc.
Except as permitted under subsection 6.5, Company will, and will cause
each of its Subsidiaries to, at all times preserve and keep in full force and
effect its corporate existence and all rights and franchises material to its
business; provided, however that neither Company nor any of its Subsidiaries
shall be required to preserve any such right or franchise if the Board of
Directors of Company or such Subsidiary shall determine that the preservation
thereof is no longer desirable in the conduct of the business of Company or such
Subsidiary, as the case may be, and that the loss thereof is not disadvantageous
in any material respect to Company, such Subsidiary or Lenders.
5.3 Payment of Taxes and Claims; Tax Consolidation.
A. Company will, and will cause each of its Subsidiaries to, pay all
material taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or in respect of any of its income, businesses
or franchises before any penalty accrues thereon, and all claims (including
claims for labor, services, materials and supplies) for sums that have become
due and payable and that by law have or may become a Lien upon any of its
properties or assets, prior to the time when any penalty or fine shall be
incurred with respect thereto; provided that no such charge or claim need be
paid if it is being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted, so long as (1) such reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor and (2) in the case of a charge or claim which has
or may become a Lien against any of the Collateral, such contest proceedings
conclusively operate to stay the sale of any portion of the Collateral to
satisfy such charge or claim.
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B. Company will not, nor will it permit any of its Subsidiaries to, file
or consent to the filing of any consolidated income tax return with any Person
(other than Company or any of its Subsidiaries).
5.4 Maintenance of Properties; Insurance; Application of Net
Insurance/Condemnation Proceeds.
A. Maintenance of Properties. Company will, and will cause each of its
Subsidiaries to, maintain or cause to be maintained in good repair, working
order and condition, ordinary wear and tear excepted, all material properties
used or useful in the business of Company and its Subsidiaries (including all
Intellectual Property) and from time to time will make or cause to be made all
appropriate repairs, renewals and replacements thereof except where the failure
to maintain such properties could not reasonably be expected in any individual
case or in the aggregate to have a Material Adverse Effect.
B. Insurance. Company will maintain or cause to be maintained, with
financially sound and reputable insurers, such public liability insurance, third
party property damage insurance, business interruption insurance and casualty
insurance with respect to liabilities, losses or damage in respect of the
assets, properties and businesses of Company and its Subsidiaries as may
customarily be carried or maintained under similar circumstances by corporations
of established reputation engaged in similar businesses, in each case in such
amounts (giving effect to self-insurance), with such deductibles, covering such
risks and otherwise on such terms and conditions as shall be customary for
corporations similarly situated in the industry. Without limiting the generality
of the foregoing, Company will maintain or cause to be maintained (i) flood
insurance with respect to each Flood Hazard Property that is located in a
community that participates in the National Flood Insurance Program, in each
case in compliance with any applicable regulations of the Board of Governors of
the Federal Reserve System, and (ii) replacement value casualty insurance on the
Collateral under such policies of insurance, with such insurance companies, in
such amounts, with such deductibles, and covering such risks as are at all times
satisfactory to Administrative Agent in its commercially reasonable judgment.
Each such policy of insurance shall (a) name Collateral Agent for the benefit of
Secured Parties as an additional insured thereunder as its interests may appear
and (b) in the case of each business interruption and casualty insurance policy,
contain a loss payable clause or endorsement, satisfactory in form and substance
to Collateral Agent, that names Collateral Agent for the benefit of Secured
Parties as the loss payee thereunder for any covered loss in excess of
$1,500,000 and provides for at least 30 days prior written notice to
Administrative Agent of any modification or cancellation of such policy.
C. Application of Net Insurance/Condemnation Proceeds.
(i) Business Interruption Insurance. Upon receipt by Company or any
of its Subsidiaries of any business interruption insurance proceeds
constituting Net Insurance/Condemnation Proceeds, (a) so long as no Event
of Default shall have
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occurred and be continuing, Company or such Subsidiary may retain and
apply such Net Insurance/Condemnation Proceeds for working capital
purposes, and (b) if an Event of Default shall have occurred and be
continuing, Company shall apply an amount equal to such Net
Insurance/Condemnation Proceeds to prepay the AXELs as provided in
subsection 2.4B(ii)(b);
(ii) Casualty Insurance/Condemnation Proceeds. Upon receipt by
Company or any of its Subsidiaries of any Net Insurance/Condemnation
Proceeds other than from business interruption insurance, (a) so long as
no Event of Default shall have occurred and be continuing, Company shall,
or shall cause one or more of its Subsidiaries to, (1) subject to clause
(iv) below, promptly and diligently and in any event within six months of
receipt apply such Net Insurance/Condemnation Proceeds to pay or reimburse
the costs of repairing, restoring or replacing the assets in respect of
which such Net Insurance/Condemnation Proceeds were received or, (2) to
the extent not so applied, or applied pursuant to clause (iv) below within
six months of receipt by Company or any of its Subsidiaries to prepay the
AXELs as provided in subsection 2.4B(ii)(b), and (b) if an Event of
Default shall have occurred and be continuing, Company shall apply an
amount equal to such Net Insurance/Condemnation Proceeds to prepay the
AXELs as provided in subsection 2.4B(ii)(b).
(iii) Net Insurance/Condemnation Proceeds Received by Collateral
Agent. Upon receipt by Collateral Agent of any Net Insurance/Condemnation
Proceeds as loss payee, such loss proceeds shall be held and applied in
accordance with the terms of the Intercreditor Agreement.
(iv) Reinvestment of Insurance Proceeds. So long as no Event of
Default or Potential Event of Default shall have occurred and be
continuing Company and its Subsidiaries may reinvest in the business of
Company and its Subsidiaries up to $1,000,000 per year of Net
Insurance/Condemnation Proceeds recovered by the Company or any of its
Subsidiaries provided that such funds are reinvested within six months of
receipt by Company or any of its Subsidiaries.
5.5 Inspection Rights; Lender Meeting.
A. Inspection Rights. Company shall, and shall cause each of its
Subsidiaries to, permit any authorized representatives designated by any Lender
to visit and inspect any of the properties of Company or of any of its
Subsidiaries, to inspect, copy and take extracts from its and their financial
and accounting records, and to discuss its and their affairs, finances and
accounts with its and their officers and independent public accountants
(provided that Company may, if it so chooses, be present at or participate in
any such discussion), all upon reasonable notice and at such reasonable times
during normal business hours and as often as may reasonably be requested.
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B. Lender Meeting. Company will, upon the request of Arranger,
Administrative Agent or Requisite Lenders, participate in a meeting of
Administrative Agent and Lenders once during each Fiscal Year to be held at
Company's corporate offices (or at such other location as may be agreed to by
Company and Administrative Agent) at such time as may be agreed to by Company
and Administrative Agent.
5.6 Compliance with Laws, etc.
Company shall comply, and shall cause each of its Subsidiaries and all
other Persons on or occupying any Facilities to comply, with the requirements of
all applicable laws, rules, regulations and orders of any governmental authority
(including all Environmental Laws), noncompliance with which could reasonably be
expected to cause, individually or in the aggregate, a Material Adverse Effect.
5.7 Environmental Review and Investigation, Disclosure, Etc.; Company's
Actions Regarding Hazardous Materials Activities, Environmental Claims and
Violations of Environmental Laws.
A. Environmental Review and Investigation. Company agrees that
Administrative Agent may, from time to time and in its reasonable discretion,
(i) retain, at Company's expense, an independent professional consultant to
review any environmental audits, investigations, analyses and reports relating
to Hazardous Materials prepared by or for Company and (ii) conduct its own
investigation of any Facility; provided that, in the case of any Facility no
longer owned, leased, operated or used by Company or any of its Subsidiaries,
Company shall only be obligated to use its good faith and reasonable efforts to
obtain permission for Administrative Agent's professional consultant to conduct
an investigation of such Facility. For purposes of conducting such a review
and/or investigation, Company hereby grants to Administrative Agent and its
agents, employees, consultants and contractors the right to enter into or onto
any Facilities currently owned, leased, operated or used by Company or any of
its Subsidiaries and to perform such tests on such property (including taking
samples of soil, groundwater and suspected asbestoscontaining materials) as are
reasonably necessary in connection therewith. Any such investigation of any
Facility shall be conducted, unless otherwise agreed to by Company and
Administrative Agent, during normal business hours and, to the extent reasonably
practicable, shall be conducted so as not to interfere with the ongoing
operations at such Facility or to cause any damage or loss to any property at
such Facility. Company and Administrative Agent hereby acknowledge and agree
that any report of any investigation conducted at the request of Administrative
Agent pursuant to this subsection 5.7A will be obtained and shall be used by
Administrative Agent and Lenders for the purposes of Lenders' internal credit
decisions, to monitor and police the AXELs and to protect Lenders' security
interests, if any, created by the AXEL Loan Documents. Administrative Agent
agrees to deliver a copy of any such report to Company with the understanding
that Company acknowledges and agrees that (x) it will indemnify and hold
harmless Administrative Agent and each Lender from any costs, losses or
liabilities relating to
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Company's use of or reliance on such report, (y) neither Administrative Agent
nor any Lender makes any representation or warranty with respect to such report,
and (z) by delivering such report to Company, neither Administrative Agent nor
any Lender is requiring or recommending the implementation of any suggestions or
recommendations contained in such report.
B. Environmental Disclosure. Company will deliver to Administrative Agent
and Lenders:
(i) Environmental Audits and Reports. As soon as practicable
following receipt thereof, copies of all environmental audits,
investigations, analyses and reports of any kind or character, whether
prepared by personnel of Company or any of its Subsidiaries or by
independent consultants, governmental authorities or any other Persons,
with respect to significant environmental matters at any Facility or with
respect to any Environmental Claims;
(ii) Notice of Certain Releases, Remedial Actions, Etc. Promptly
upon the occurrence thereof, written notice describing in reasonable
detail (a) any Release required to be reported by Company or any of its
Subsidiaries to any federal, state or local governmental or regulatory
agency under any applicable Environmental Laws, (b) any remedial action
taken by Company or any of its Subsidiaries or any other Person of which
Company has knowledge in response to (1) any Hazardous Materials
Activities the existence of which has a reasonable possibility of
resulting in one or more Environmental Claims having, individually or in
the aggregate, a Material Adverse Effect, or (2) any Environmental Claims
that, individually or in the aggregate, have a reasonable possibility of
resulting in a Material Adverse Effect, and (c) Company's discovery of any
occurrence or condition on any real property adjoining or in the vicinity
of any Facility that could reasonably be expected to cause such Facility
or any part thereof to be subject to any material restrictions on the
ownership, occupancy, transferability or use thereof under any
Environmental Laws.
(iii) Written Communications Regarding Environmental Claims,
Releases, Etc. As soon as practicable following the sending or receipt
thereof,by Company or any of its Subsidiaries, a copy of any and all
written communications with respect to (a) any Environmental Claims that,
individually or in the aggregate, are reasonably expected to have a
Material Adverse Effect, (b) any Release required to be reported by
Company or any of its Subsidiaries to any federal, state or local
governmental or regulatory agency, and (c) any request made to Company or
any of its Subsidiaries for information from any governmental agency that
suggests such agency is investigating whether Company or any of its
Subsidiaries may be potentially responsible for any Hazardous Materials
Activity.
(iv) Notice of Certain Proposed Actions Having Environmental Impact.
Prompt written notice describing in reasonable detail (a) any proposed
acquisition
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of stock, assets, or property by Company or any of its Subsidiaries that
could reasonably be expected to (1) expose Company or any of its
Subsidiaries to, or result in, Environmental Claims that would have,
individually or in the aggregate, a Material Adverse Effect or (2) result
in Company or any of its Subsidiaries failing to maintain in full force
and effect all material Governmental Authorizations required under any
Environmental Laws for their respective operations and (b) any proposed
action to be taken by Company or any of its Subsidiaries to modify current
operations in a manner that could reasonably be expected to subject
Company or any of its Subsidiaries to any additional obligations or
requirements under any Environmental Laws.
(v) Other Information. With reasonable promptness, such other
documents and information as from time to time may be reasonably requested
by Administrative Agent in relation to any matters disclosed pursuant to
this subsection 5.7.
C. Company's Actions Regarding Hazardous Materials Activities,
Environmental Claims and Violations of Environmental Laws.
(i) Remedial Actions Relating to Hazardous Materials Activities.
Company shall promptly undertake, and shall cause each of its Subsidiaries
promptly to undertake, any and all investigations, studies, sampling,
testing, abatement, cleanup, removal, remediation or other response
actions necessary to remove, remediate, clean up or abate any Hazardous
Materials Activity on, under or about any Facility that is in violation of
any Environmental Laws or that presents a material risk of giving rise to
an Environmental Claim. In the event Company or any of its Subsidiaries
undertakes any such action with respect to any Hazardous Materials,
Company or such Subsidiary shall conduct and complete such action in
compliance with all applicable Environmental Laws and in accordance with
the policies, orders and directives of all federal, state and local
governmental authorities except when, and only to the extent that,
Company's or such Subsidiary's liability with respect to such Hazardous
Materials Activity is being contested in good faith by Company or such
Subsidiary.
(ii) Actions with Respect to Environmental Claims and Violations of
Environmental Laws. Company shall promptly take, and shall cause each of
its Subsidiaries promptly to take, any and all actions necessary to (i)
cure any violation of applicable Environmental Laws by Company or its
Subsidiaries and (ii) make an appropriate response to any Environmental
Claim against Company or any of its Subsidiaries and discharge any
obligations it may have to any Person thereunder.
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5.8 Execution of Subsidiary Guaranty and Personal Property Collateral
Documents by Certain Subsidiaries and Future Subsidiaries.
A. Execution of Subsidiary Guaranty and Personal Property Collateral
Documents. In the event that any Domestic Subsidiary existing on the Closing
Date that has not previously executed the Subsidiary Guaranty hereafter owns or
acquires assets with an aggregate fair market value (without netting such fair
market value against any liability of such Subsidiary) exceeding $500,000, or in
the event that any Person becomes a Material Domestic Subsidiary after the date
hereof, Company will promptly notify Collateral Agent of that fact and cause
such Subsidiary to execute and deliver to Collateral Agent a counterpart of the
Subsidiary Guaranty and a Subsidiary Pledge Agreement and a Subsidiary Security
Agreement and to take all such further actions and execute all such further
documents and instruments (including actions, documents and instruments
comparable to those described in subsection 3.1I) as may be necessary or, in the
opinion of Collateral Agent, desirable to create in favor of Collateral Agent,
for the benefit of Secured Parties, a valid and perfected First Priority Lien on
all of the personal and mixed property assets of such Subsidiary described in
the applicable forms of Collateral Documents.
B. Subsidiary Charter Documents, Legal Opinions, Etc. Company shall
deliver to Collateral Agent, together with such AXEL Loan Documents, (i)
certified copies of such Subsidiary's Certificate or Articles of Incorporation,
together with a good standing certificate from the Secretary of State of the
jurisdiction of its incorporation and each other state in which such Person is
qualified as a foreign corporation to do business and, to the extent generally
available, a certificate or other evidence of good standing as to payment of any
applicable franchise or similar taxes from the appropriate taxing authority of
each of such jurisdictions, each to be dated a recent date prior to their
delivery to Collateral Agent, (ii) a copy of such Subsidiary's Bylaws, certified
by its corporate secretary or an assistant secretary as of a recent date prior
to their delivery to Collateral Agent, (iii) a certificate executed by the
secretary or an assistant secretary of such Subsidiary as to (a) the fact that
the attached resolutions of the Board of Directors of such Subsidiary approving
and authorizing the execution, delivery and performance of such AXEL Loan
Documents are in full force and effect and have not been modified or amended and
(b) the incumbency and signatures of the officers of such Subsidiary executing
such AXEL Loan Documents, and (iv) a favorable opinion of counsel to such
Subsidiary, in form and substance satisfactory to Collateral Agent and its
counsel, as to (a) the due organization and good standing of such Subsidiary,
(b) the due authorization, execution and delivery by such Subsidiary of such
AXEL Loan Documents, (c) the enforceability of such AXEL Loan Documents against
such Subsidiary, (d) such other matters (including matters relating to the
creation and perfection of Liens in any Collateral pursuant to such AXEL Loan
Documents) as Collateral Agent may reasonably request, all of the foregoing to
be satisfactory in form and substance to Administrative Agent and its counsel.
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C. Foreign Subsidiary Loan Documents. In the event that any Foreign
Subsidiary existing on the Closing Date whose shares have not been pledged
pursuant to an Auxiliary Pledge Agreement owns or acquires assets with an
aggregate fair market value (without netting such fair market value against any
liability of such Subsidiary) exceeding $1,500,000, or in the event that any
person becomes a Foreign Subsidiary which owns assets with an aggregate fair
market value (without netting such fair market value against any liability of
such Subsidiary) exceeding $1,500,000, Company will promptly notify Collateral
Agent of that fact and shall or cause the applicable subsidiary which owns
equity in such Foreign Subsidiary to execute and deliver to Collateral Agent an
Auxiliary Pledge Agreement in form and substance satisfactory to Collateral
Agent; to take all such further actions and execute such further documents and
instruments as may be necessary or, in the opinion of Collateral Agent
reasonably desirable, to perfect a Lien on the equity interests of such Foreign
Subsidiary for the benefit of Secured Parties and to deliver to Collateral Agent
an opinion of counsel (which counsel shall be reasonably acceptable to
Collateral Agent) as to the enforceability of the Auxiliary Pledge Agreement
under the laws of such Foreign Subsidiary's jurisdiction of organization and
such other matters as Collateral Agent may reasonably request (including as to
the perfection of liens on such equity interests)
D. If at any time JCS Realty acquires any personal property assets
with an aggregate fair market value (without netting such fair market value
against any liability of JCS Realty) in excess of $500,000, Company will
promptly notify Collateral Agent of that fact and cause JCS Realty to execute
and deliver all documents and to take all such further actions as may be
necessary or, in the opinion of Collateral Agent, desirable to create in favor
of Collateral Agent, for the benefit of Secured Parties, a valid and perfected
First Priority Lien on such property in all relevant jurisdictions.
5.9 Conforming Leasehold Interests; Matters Relating to Real Property
Collateral.
A. Conforming Leasehold Interests. If Company or any of its Subsidiaries
acquires any Leasehold Property, Company shall, or shall cause such Subsidiary
to, use its reasonable and good faith efforts (without requiring Company or such
Subsidiary to relinquish any material rights or incur any material obligations
or to expend more than a nominal amount of money over and above the
reimbursement, if required, of the Landlord's reasonable out-of-pocket costs,
including attorneys' fees) to cause such Leasehold Property to be a Conforming
Leasehold Interest.
B. Mortgages, Etc. From and after the Closing Date, in the event that (i)
Company or any Subsidiary Guarantor acquires any fee interest in real property
or any Material Leasehold Property, (ii) with respect to any Material Leasehold
Property or any real property in which Company has a fee interest in on or prior
to the Closing Date, any first priority mortgage existing on or prior to the
Closing Date on such property is removed or (iii) at the time any Person becomes
a Subsidiary Guarantor, such Person owns or holds any fee interest in real
property or any Material Leasehold Property, in all cases excluding any such
Real Property Asset the encumbrancing of which requires the consent of any
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applicable lessor or (in the case of clause (iii) above) then-existing senior
lienholder, where Company and its Subsidiaries are unable to obtain such
lessor's or senior lienholder's consent (any such non-excluded Real Property
Asset described in the foregoing clause (i), (ii) or (iii) being a "Mortgaged
Property"), Company or such Subsidiary Guarantor shall promptly notify
Collateral Agent, and shall deliver upon Collateral Agent's written request, as
soon as practicable after such Person acquires such Mortgaged Property or
becomes a Subsidiary Guarantor, as the case may be, the following:
(i) Mortgage. A fully executed and notarized Mortgage duly recorded
in all
appropriate places in all applicable jurisdictions, encumbering the
interest of such Loan Party in such Mortgaged Property;
(ii) Opinions of Counsel. (a) A favorable opinion of counsel to such
Loan Party, in form and substance satisfactory to Collateral Agent and its
counsel, as to the due authorization, execution and delivery by such Loan
Party of such Mortgage and such other matters as Collateral Agent may
reasonably request, and (b) if required by Collateral Agent, an opinion of
counsel (which counsel shall be reasonably satisfactory to Collateral
Agent) in the state in which such Mortgaged Property is located with
respect to the enforceability of such Mortgage and such other matters
(including any matters governed by the laws of such state regarding
personal property security interests in respect of any Collateral) as
Collateral Agent may reasonably request, in each case in form and
substance reasonably satisfactory to Collateral Agent;
(iii) Landlord Consent and Estoppel; Recorded Leasehold Interest. In
the case of a Mortgaged Property consisting of a Leasehold Property, (a)
if such Leasehold Property is holding or will hold inventory or equipment
with an aggregate fair market value exceeding $500,000, a Landlord Consent
and Estoppel provided that Company shall only be required to use
reasonable and good faith efforts to obtain such Landlord Consent and
Estoppel and in no event shall Company be obligated to pay any fee, charge
or other consideration to any landlord in order to obtain such Landlord
Consent and Estoppel, other than, if required, the landlord's reasonable
out-of-pocket costs, including attorneys' fees and (b) if such Leasehold
Property is a Recorded Leasehold Interest, evidence to that effect
(iv) Title Insurance. (a) If reasonably requested by Collateral
Agent, an ALTA mortgagee title insurance policy or an unconditional
commitment therefor (a "Mortgage Policy") issued by the Title Company with
respect to such Mortgaged Property, in an amount satisfactory to
Collateral Agent, insuring fee simple title to, or a valid leasehold
interest in, such Mortgaged Property vested in such Loan Party and
assuring Collateral Agent that such Mortgage creates a valid and
enforceable First Priority mortgage Lien on such Mortgaged Property,
subject only to, if available in the state in which such Mortgaged
Property is located, a standard survey exception and to Permitted
Encumbrances, which Mortgage Policy (1) shall include, if available
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in the state in which such Mortgaged Property is located, an endorsement
for mechanics' liens, for future advances under this Agreement and for any
other matters reasonably requested by Collateral Agent and (2) shall
provide for such affirmative insurance and such reinsurance as Collateral
Agent may reasonably request, all of the foregoing in form and substance
reasonably satisfactory to Collateral Agent; and (b) evidence satisfactory
to Collateral Agent that such Loan Party has (i) delivered to the Title
Company all certificates and affidavits customarily required by the Title
Company in connection with the issuance of the Mortgage Policy and (ii)
paid to the Title Company or to the appropriate governmental authorities
all expenses and premiums of the Title Company in connection with the
issuance of the Mortgage Policy and all recording and stamp taxes
(including mortgage recording and intangible taxes) payable in connection
with recording the Mortgage in the appropriate real estate records;
provided however, that Administrative Agent shall allow for such
reasonable revisions to the applicable mortgage and shall otherwise take
such steps as are reasonable and customary to minimize recording, mortgage
recording, stamp, documentary and intangible taxes, at Company's cost;
(v) Title Report. If no Mortgage Policy is required with respect to
such Mortgaged Property, a title report issued by the Title Company with
respect thereto, dated not more than 30 days prior to the date such
Mortgage is to be recorded and satisfactory in form and substance to
Collateral Agent;
(vi) Copies of Documents Relating to Title Exceptions. Copies of all
recorded documents listed as exceptions to title or otherwise referred to
in the Mortgage Policy or title report delivered pursuant to clause (iv)
or (v) above;
(vii) Matters Relating to Flood Hazard Properties. (a) Evidence,
which may be in the form of a letter from an insurance broker or a
municipal engineer, as to (1) whether such Mortgaged Property is a Flood
Hazard Property and (2) if so, whether the community in which such Flood
Hazard Property is located is participating in the National Flood
Insurance Program, (b) if such Mortgaged Property is a Flood Hazard
Property, such Loan Party's written acknowledgement of receipt of written
notification from Collateral Agent (1) that such Mortgaged Property is a
Flood Hazard Property and (2) as to whether the community in which such
Flood Hazard Property is located is participating in the National Flood
Insurance Program, and (c) in the event such Mortgaged Property is a Flood
Hazard Property that is located in a community that participates in the
National Flood Insurance Program, evidence that Company has obtained flood
insurance in respect of such Flood Hazard Property to the extent required
under the applicable regulations of the Board of Governors of the Federal
Reserve System; and
(viii) Environmental Audit. If required by Collateral Agent, reports
and other information, in form, scope and substance satisfactory to
Collateral Agent and prepared by environmental consultants satisfactory to
Collateral Agent, concerning
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any environmental hazards or liabilities to which Company or any of its
Subsidiaries may be subject with respect to such Mortgaged Property.
C. Real Estate Appraisals. Company shall, and shall cause each of its
Subsidiaries to, permit an independent real estate appraiser satisfactory to
Collateral Agent, upon reasonable notice, to visit and inspect any Additional
Mortgaged Property for the purpose of preparing an appraisal of such Mortgaged
Property satisfying the requirements of any applicable laws and regulations (in
each case to the extent required under such laws and regulations as determined
by Collateral Agent in its discretion).
5.10 Interest Rate Protection.
At all times after the date which is 45 days after the Closing Date,
Company shall maintain in effect one or more Interest Rate Agreements with
respect to the AXELs and the Revolving Loans, each such Interest Rate Agreement
to be for a term of not less than three years from the Closing Date and in form
and substance reasonably satisfactory to Administrative Agent, which Interest
Rate Agreements shall effectively limit the Unadjusted Eurodollar Rate Component
(as hereinafter defined) of the interest costs to Company (i) with respect to an
aggregate notional principal amount of not less than 25% of the aggregate
principal amount of the AXELs outstanding on the Closing Date (based on the
assumption that such notional principal amount was a Eurodollar Rate AXEL with
an Interest Period of three months) to a rate equal to not more than 9% per
annum and (ii) with respect to an aggregate notional principal amount of not
less than 25% of the aggregate principal amount of the AXELs outstanding on the
Closing Date (based on the assumption that such notional principal amount was a
Eurodollar Rate AXEL with an Interest Period of three months) to a rate equal to
not more than 10% per annum. For purposes of this subsection 5.10, the term
"Unadjusted Eurodollar Rate Component" means that component of the interest
costs to Company in respect of a Eurodollar Rate AXEL that is based upon the
rate obtained pursuant to the definition of Adjusted Eurodollar Rate (without
giving effect to the last paragraph thereof).
5.11 Cash Management System.
Company shall establish and thereafter maintain a cash management system
for the Loan Parties in form and substance reasonably satisfactory to the
Arranger and the Administrative Agent. The terms and conditions of such cash
management system shall be as set forth in Schedule 5.11 annexed hereto.
5.12 Trademarks and Patents.
If Company or any of its Subsidiaries acquires any material patents,
trademarks or copyrights, Company shall promptly notify the Collateral Agent of
that fact and, if requested by Administrative Agent, Company shall, or cause the
applicable Subsidiary to, execute and deliver to Collateral Agent supplemental
security agreements and take such other actions
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as the Collateral Agent may reasonably request to create in favor of Collateral
Agent, for the benefit of Secured Parties a valid and perfected First Priority
Lien on such patents, trademarks or copyrights.
SECTION 6.
COMPANY'S NEGATIVE COVENANTS
Company covenants and agrees that, so long as any of the AXEL Commitments
hereunder shall remain in effect and until payment in full of all of the AXELs
and other Obligations unless Requisite Lenders shall otherwise give prior
written consent, Company shall perform, and shall cause each of its Subsidiaries
to perform, all covenants in this Section 6.
6.1 Indebtedness and Issuance of Disqualified Stock.
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or guaranty, or otherwise become
or remain directly or indirectly liable with respect to, (collectively, "incur"
and correlatively, an "incurrence" of) any Indebtedness (including Acquired
Debt) and that the Company will not issue any Disqualified Stock; provided,
however, that the Company may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the
Company for the most recent four full fiscal quarters for which internal
financial statements are available at the time of such incurrence would have
been at least 2.0 to 1.0, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred or the Disqualified Stock had been issued, as the case may be,
and the application of the proceeds therefrom had occurred at the beginning of
such four-quarter period.
The foregoing provision will not apply to:
(i) the incurrence by the Company (and the Guarantee thereof
by the Guarantors) of Obligations under this Agreement;
(ii) the incurrence by Company (and the Guarantee thereof by
the Guarantors) of Indebtedness under the Revolving Credit Agreement
and the issuance of letters of credit under the Revolving Credit
Agreement (with letters of credit being deemed to have a principal
amount equal to the aggregate maximum amount available to be drawn
thereunder, assuming compliance with all conditions for drawing) up
to an aggregate principal amount of $50,000,000 outstanding at any
one time, less permanent commitment reductions with respect to
Revolving Loans and letters of credit under the Revolving Credit
Agreement (in each case, other than in connection with an amendment,
refinancing, refunding, replacement, renewal or modification) made
after the date hereof;
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(iii) the incurrence by the Company or any of its Restricted
Subsidiaries of any Existing Indebtedness;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by the Senior Subordinated
Notes (but, with respect to this clause (iv), only up to the
aggregate principal amount thereof issued on the Closing Date);
(v) Indebtedness (including Acquired Debt) incurred by the
Company or any of its Restricted Subsidiaries to finance the
purchase, lease or improvement of property (real or personal),
assets or equipment (whether through the direct purchase of assets
or the Capital Stock of any Person owning such assets), in an
aggregate principal amount not to exceed $15,000,000 plus 5% of the
increase in Total Assets since the Closing Date;
(vi) Indebtedness incurred by the Company or any of its
Restricted Subsidiaries constituting reimbursement obligations with
respect to letters of credit issued in the ordinary course of
business, including, without limitation, letters of credit in
respect of workers' compensation claims or self-insurance, or other
Indebtedness with respect to reimbursement type obligations
regarding workers' compensation claims;
(vii) intercompany Indebtedness between or among the Company
and any of its Restricted Subsidiaries and Guarantees by the Company
of Indebtedness of any Restricted Subsidiary of the Company or by a
Restricted Subsidiary of the Company of Indebtedness of any other
Restricted Subsidiary of the Company or the Company; provided that
(a) all such intercompany Indebtedness shall be evidenced by
promissory notes subject to a first priority perfected pledge in
favor of Lenders, (b) all such intercompany Indebtedness owed by
Company to or in respect of any of its Subsidiaries and all such
Guarantees shall be subordinated in right of payment to the payment
in full of the Obligations pursuant to the terms of the applicable
promissory notes or an intercompany subordination agreement and (c)
any payment by any Subsidiary of Company under any guaranty of the
Obligations shall result in a pro tanto reduction of the amount of
any intercompany Indebtedness owed by such Subsidiary to Company or
to any of its Subsidiaries for whose benefit such payment is made;
(viii) Hedging Obligations that are incurred (1) for the
purpose of fixing or hedging interest rate or currency exchange rate
risk with respect to any Indebtedness that is permitted by the terms
of this Agreement to be outstanding or (2) for the purpose of fixing
or hedging currency exchange rate risk with respect to any purchases
or sales of goods or other transactions or expenditures made or to
be made in the ordinary course of business and
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consistent with past practices as to which the payment therefor or
proceeds therefrom, as the case may be, are denominated in a
currency other than U.S. dollars;
(ix) obligations in respect of performance and surety bonds
and completion guarantees provided by the Company or any Restricted
Subsidiary in the ordinary course of business;
(x) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for,
or the net proceeds of which are used to extend, refinance, renew,
replace, defease or refund, Indebtedness that was permitted by this
Agreement to be incurred;
(xi) the incurrence by the Company's Unrestricted Subsidiaries
of Non-Recourse Debt, provided, however, that if any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted
Subsidiary, such event shall be deemed to constitute an incurrence
of Indebtedness by a Restricted Subsidiary of the Company; and
(xii) the incurrence by the Company of additional Indebtedness
(including any increase in the AXEL Commitment under this Agreement
or any increase in the Revolving Loan Commitment under the Revolving
Credit Agreement) not otherwise permitted hereunder in an amount
under this clause (xii) not to exceed $25,000,000 in aggregate
principal amount (or accreted value, as applicable) outstanding at
any one time.
6.2 Liens and Related Matters.
A. Company shall not and shall not permit any of its Subsidiaries to
directly or indirectly, create, incur, assume or suffer to exist any Lien that
secures obligations under any Indebtedness on any asset or property now owned or
hereafter acquired by the Company or any of its Subsidiaries, or on any income
or profits therefrom, or assign or convey any right to receive income therefrom
to secure any Indebtedness other than (i) Permitted Encumbrances, (ii) Liens
securing (a) purchase money Indebtedness incurred to finance the purchase price
of specific assets and Capital Leases, so long as, upon default, the holder of
such Indebtedness may seek recourse or payment against Company and its
Subsidiaries only through the return or sale of the assets financed thereby or
(b) Indebtedness assumed or acquired in connection with any acquisition to the
extent attaching only to assets acquired and so long as the Indebtedness secured
thereby is recourse only to the Person acquired or acquiring such assets
provided in each case that the aggregate amount of Indebtedness secured by such
Liens does not exceed $10,000,000 in the aggregate and (iii) any other Liens
permitted under subsection 7.2A of the Revolving Credit Agreement (as in effect
on the date hereof) other than clause (iv) thereof.
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B. If the Company or any of its Subsidiaries shall create or assume any
Lien upon any of its properties or assets, whether now owned or hereafter
acquired, other than as permitted under subsection 6.2A, it shall make or cause
to be made effective provision whereby the obligations of the Company and the
Subsidiaries under the AXEL Loan Documents will be secured by such Lien equally
and ratably with any and all other Indebtedness secured thereby as long as any
such Indebtedness shall be so secured; provided that, notwithstanding the
foregoing, this provision shall not be construed as a consent by the Lenders to
the creation or assumption of any Lien other than Liens permitted under
subsection 6.2A.
6.3 Restricted Payments.
A. Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any other payment or distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Interests (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or
dividends or distributions payable to the Company or any Restricted Subsidiary
of the Company); (ii) purchase, redeem, defease or otherwise acquire or retire
for value any Equity Interests of the Company; (iii) make any payment on or with
respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Subordinated Indebtedness, except for a payment of principal or
interest at Stated Maturity; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Potential Event of Default or Event of Default shall have
occurred and be continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
immediately after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable four-quarter
period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
subsection 6.1; and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries permitted by clause (i) of the next succeeding paragraph, but
excluding all other Restricted Payments permitted by the next succeeding
paragraph), is less than the sum of (i) 50% of the Consolidated Net Income
of the Company for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the date hereof to
the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit,
less 100% of such deficit), plus (ii) 100% of the aggregate net cash
proceeds and the fair
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market value, as determined in good faith by the Board of Directors, of
marketable securities received by the Company from the issue or sale since
the date hereof of Equity Interests (including Retired Capital Stock (as
defined below)) of the Company (except in connection with the Merger) or
of debt securities of the Company that have been converted into such
Equity Interests (other than Refunding Capital Stock (as defined below) or
Equity Interests or convertible debt securities of the Company sold to a
Restricted Subsidiary of the Company and other than Disqualified Stock or
debt securities that have been converted into Disqualified Stock), plus
(iii) 100% of the aggregate amounts contributed to the common equity
capital of the Company since the date hereof, (except amounts contributed
to finance the Merger), plus (iv) 100% of the aggregate amounts received
in cash and the fair market value of marketable securities (other than
Restricted Investments) received from (x) the sale or other disposition of
Restricted Investments made by the Company and its Restricted Subsidiaries
since the date hereof or (y) the sale of the stock of an Unrestricted
Subsidiary or the sale of all or substantially all of the assets of an
Unrestricted Subsidiary to the extent that a liquidating dividend is paid
to the Company or any Subsidiary from the proceeds of such sale, plus (v)
100% of any dividends received by the Company or a Wholly Owned Restricted
Subsidiary of the Company after the date hereof from an Unrestricted
Subsidiary of the Company, plus (vi) $10,000,000.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of this Agreement;
(ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Restricted Subsidiary (the
"Retired Capital Stock") or any Subordinated Indebtedness, in each case,
in exchange for, or out of the proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of Equity
Interests of the Company (other than any Disqualified Stock) (the
"Refunding Capital Stock"); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition shall be excluded from clause (c)(ii) of the
immediately preceding paragraph;
(iii) the defeasance, redemption or repurchase of Subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness;
(iv) the redemption, repurchase or other acquisition or retirement
for value of any Equity Interests of the Company or any Restricted
Subsidiary of the Company held by any member of the Company's (or any of
its Subsidiaries') management
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pursuant to any management equity subscription agreement or stock option
or similar agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed the sum of $5,000,000 in any twelve-month period plus the aggregate
cash proceeds received by the Company during such twelve-month period from
any issuance of Equity Interests by the Company to members of management
of the Company and its Subsidiaries; provided that the amount of any such
net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of
the immediately preceding paragraph;
(v) Investments in Unrestricted Subsidiaries or in Joint Ventures
having an aggregate fair market value, taken together with all other
Investments made pursuant to this clause (v) that are at that time
outstanding, not to exceed $15,000,000 plus 5% of the increase in Total
Assets since the Closing Date at the time of such Investment (with the
fair market value of each Investment being measured at the time made and
without giving effect to subsequent changes in value);
(vi) repurchase of Equity Interests deemed to occur upon exercise or
conversion of stock options, warrants, convertible securities or other
similar Equity Interests if such Equity Interests represent a portion of
the exercise or conversion price of such options, warrants, convertible
securities or other similar Equity Interests;
(vii) any dividend or distribution payable on or in respect of any
class of Equity Interests issued by a Restricted Subsidiary of the
Company; provided that such dividend or distribution is paid on a pro rata
basis to all of the holders of such Equity Interests in accordance with
their respective holdings of such Equity Interests;
provided, further, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (iv) or (v) above, no Potential Event
of Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof. The amount of all Restricted Payments (other
than cash) shall be the fair market value on the date of the Restricted Payment
of the asset(s) proposed to be transferred by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment.
6.4 Dividends and Other Payment Restrictions Affecting Subsidiaries.
Company shall not, and shall not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) (a) pay dividends or make any other distributions to the
Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2)
with respect to any other interest or participation
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in, or measured by, its profits, or (b) pay any Indebtedness owed to the Company
or any of its Restricted Subsidiaries, (ii) make loans or advances to the
Company or any of its Restricted Subsidiaries or (iii) sell, lease or transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) Existing Indebtedness as in effect on the date hereof, (b) this
Agreement or the Revolving Credit Agreement and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that this Agreement and the Revolving Credit
Agreement and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings thereof are no more
restrictive taken as a whole with respect to such dividend and other payment
restrictions than those terms included in this Agreement and the Revolving
Credit Agreement, as applicable, on the date hereof, (c) the Senior Subordinated
Note Indenture and the Senior Subordinated Notes, (d) applicable law, (e) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of this Agreement to be incurred, (f) customary non-assignment or net
worth provisions in leases and other agreements entered into in the ordinary
course of business and consistent with past practices, (g) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, (h) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive than those contained in the agreements governing the
Indebtedness being refinanced, (i) any Mortgage Financing or Mortgage
Refinancing that imposes restrictions on the real property securing such
Indebtedness, (j) any Permitted Investment, (k) contracts for the sale of
assets, including, without limitation customary restrictions with respect to a
Restricted Subsidiary of the Company pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary or (1) customary
provisions in joint venture agreements and other similar agreements.
6.5 Restrictions on Fundamental Changes; Asset Sales.
Company shall not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer,lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another Person unless (i) the Company is
the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the Person formed by or
surviving any such consolidation
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or merger (if other than the Company) or Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made assumes
all the obligations of the Company under this Agreement pursuant to
documentation in form and substance satisfactory to Administrative Agent; (iii)
immediately after such transaction no Potential Event of Default or Event of
Default exists; and (iv) except in the case of a merger of the Company with or
into a Wholly Owned Restricted Subsidiary of the Company, the Company or the
Person formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in subsection 6.1. Notwithstanding the foregoing clauses (iii)
and (iv), (a) any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company and (b) the
Company may merge with an Affiliate incorporated solely for the purpose of
reincorporating the Company in another jurisdiction.
6.6 Transactions with Affiliates.
Company shall not, and shall not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that
are no less favorable to the Company or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by the Company
or such Restricted Subsidiary with an unrelated Person and (ii) the Company
delivers to the Administrative Agent (a) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $5,000,000, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above and (if there are any disinterested members of
the Board of Directors) that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $10,000,000, or with respect to
any Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5,000,000 as to which there are no
disinterested members of the Board of Directors, an opinion as to the fairness
of such Affiliate Transaction (as required by the Senior Subordinated Note
Indenture) from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing.
The foregoing provisions will not apply to the following: (i) transactions
between or among the Company and/or any of its Restricted Subsidiaries; (ii)
Restricted Payments or Permitted Investments permitted under subsection 6.3;
(iii) the payment of all fees, expenses
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and other amounts as disclosed in the Offering Circular relating to the Merger;
(iv) the payment of reasonable and customary regular fees to, and indemnity
provided on behalf of, officer, directors, employees or consultants of the
Company or any Restricted Subsidiary of the Company; (v) the transfer or
provision of inventory, goods or services by the Company or any Restricted
Subsidiary of the Company in the ordinary course of business to any Affiliate of
the Company on terms that are customary in the industry or consistent with past
practices, including with respect to price and volume discounts; (vi) the
execution of, or the performance by the Company or any of its Restricted
Subsidiaries of its obligations under the terms of, any financial advisory,
financing, underwriting or placement agreement or any other agreement relating
to investment banking or financing activities with Goldman, Sachs & Co. or any
of its Affiliates including, without limitation, in connection with acquisitions
or divestitures, in each case to the extent that such agreement was approved by
a majority of the disinterested members of the Board of Directors in good faith;
(vii) payments, advances or loans to employees that are approved by a majority
of the disinterested members of the Board of Directors of the Company in good
faith; (viii) the performance of any agreement as in effect as of the date
hereof or any transaction contemplated thereby (including pursuant to any
amendment thereto so long as any such amendment is not disadvantageous to the
Lenders in any material respect); (ix) the existence of, or the performance by
the Company or any of its Restricted Subsidiaries of its obligations under the
terms of, any stockholders agreement (including any registration rights
agreement or purchase agreement related thereto) to which it is a party as of
the date hereof and any similar agreements which it may enter into thereafter,
provided, however, that the existence of, or the performance by the Company or
any of its Restricted Subsidiaries of obligations under, any future amendment to
any such existing agreement or under any similar agreement entered into after
the date hereof shall only be permitted by this clause (ix) to the extent that
the terms of any such amendment or new agreement are not otherwise
disadvantageous to the Lenders in any material respect; (x) transactions
permitted by, and complying with, the provisions of the covenant described under
subsection 6.5; and (xi) transactions with suppliers or other purchases or sales
of goods or services, in each case in the ordinary course of business
(including, without limitation, pursuant to joint venture agreements) and
otherwise in compliance with the terms of this Agreement which are fair to the
Company or its Restricted Subsidiaries, in the reasonable determination of a
majority of the disinterested members of the Board of Directors of the Company
or an executive officer thereof, or are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated party.
6.7 Asset Sales. Company shall not, and shall not permit any of its Restricted
Subsidiaries to, cause, make or suffer to exist an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) received
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee (as defined in the Indenture as
in effect as of the date hereof)) of the assets or Equity Interests issued or
sold or otherwise disposed of and (ii) at least 80% of the consideration
therefor received by Company or such Restricted Subsidiary is in the form of
cash or Cash Equivalents; provided
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that the amount of (x) any liabilities (as shown on Company's or such Restricted
Subsidiary's most recent balance sheet) of Company or any Restricted Subsidiary
(other than contingent liabilities and liabilities that are by their terms
subordinated to the Senior Subordinated Notes or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases Company or such Restricted Subsidiary from further
liability, (y) any Excludable Current Liabilities and (z) any notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this provision.
6.8 Amendments of Documents Relating to Subordinated Indebtedness.
Company shall not, and shall not permit any of its Subsidiaries to, amend
or otherwise change the terms of any Subordinated Indebtedness, or make any
payment consistent with an amendment thereof or change thereto, if the effect of
such amendment or change is to increase the interest rate on such Subordinated
Indebtedness, change (to earlier dates) any dates upon which payments of
principal or interest are due thereon, change any event of default or condition
to an event of default with respect thereto (other than to eliminate any such
event of default or increase any grace period related thereto), change the
redemption, prepayment or defeasance provisions thereof, change the
subordination provisions of such Subordinated Indebtedness (or of any guaranty
thereof), or change any collateral therefor (other than to release such
collateral), or if the effect of such amendment or change, together with all
other amendments or changes made, is to increase materially the obligations of
the obligor thereunder or to confer any additional rights on the holders of such
Subordinated Indebtedness (or a trustee or other representative on their behalf)
which would be adverse to Company or Lenders.
SECTION 7.
EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default") shall
occur:
7.1 Failure to Make Payments When Due.
Failure by Company to pay any installment of principal of any AXEL when
due, and payable whether at stated maturity, by acceleration, by notice of
voluntary prepayment, by mandatory prepayment or otherwise; or failure by
Company to pay any interest on any fee or any other amount due under this
Agreement within three days after the date due; or
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7.2 Default in Other Agreements.
Failure of Company or any of its Subsidiaries to pay when due any
principal of or interest on or any other amount payable in respect of one or
more items of Indebtedness (other than Indebtedness referred to in subsection
7.1) or Guarantees with an aggregate principal amount of $5,000,000 or more, in
each case beyond the end of any grace period provided therefor; or (ii) breach
or default by Company or any of its Subsidiaries with respect to any other
material term of (a) one or more items of Indebtedness or Guarantees in the
individual or aggregate principal amounts referred to in clause (i) above or (b)
any loan agreement (including the Revolving Credit Agreement), mortgage,
indenture or other agreement relating to such item(s) of Indebtedness or
Guarantee(s), if the effect of such breach or default is to cause, or to permit
the holder or holders of that Indebtedness or Guarantee(s) (or a trustee on
behalf of such holder or holders) to cause, that Indebtedness or Guarantee(s) to
become or be declared due and payable prior to its stated maturity or the stated
maturity of any underlying obligation, as the case may be (upon the giving or
receiving of notice, lapse of time, both, or otherwise) and in either case such
breach or default shall continue for 20 days beyond any applicable grace period;
or
7.3 Breach of Certain Covenants.
The Company fails, and such failure continues for 30 days after notice
from the Administrative Agent or Lenders holding at least 25% in principal
amount of the then outstanding AXELs, to observe or perform any covenant,
condition or agreement on the part of the Company to be observed or performed
pursuant to Sections 6.1, 6.3 and 6.5 hereof; or
7.4 Breach of Warranty.
Any representation, warranty, certification or other statement made by
Company or any of its Subsidiaries in any AXEL Loan Document or in any statement
or certificate at any time given by Company or any of its Subsidiaries in
writing pursuant hereto or thereto or in connection herewith or therewith shall
be false in any material respect on the date as of which made; or
7.5 Other Defaults under AXEL Loan Documents.
The Company fails, and such failure continues for 60 days after notice
from the Administrative Agent or Lenders holding at least 25% in principal
amount of the then outstanding AXELs, to comply with any of its other agreements
or covenants in, or provisions of, this Agreement or any other AXEL Loan
Document; or
7.6 Judgments.
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The Company or any of its Restricted Subsidiaries fails to pay final
judgments aggregating in excess of $15,000,000, which judgments are not paid,
discharged or stayed for a period of 60 days; or
7.7 Bankruptcy; Appointment of Custodian.
A. The Company or any of its Restricted Subsidiaries pursuant to or within
the meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an
involuntary case,
(iii) consents to the appointment of a receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law (each, a
"Custodian"),
(iv) makes a general assignment for the benefit of its creditors, or
(v) admits in writing its inability to pay is debts as they become
due.
B. A court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(i) is for relief against the Company or any Restricted Subsidiary
in an involuntary case,
(ii) appoints a Custodian of the Company or any Restricted
Subsidiary or for all or substantially all of the property of the Company
or any Restricted Subsidiary, or
(iii) orders the liquidation of the Company or any Restricted
Subsidiary,
and the order or decree remains unstayed and in effect for 60 consecutive days;
or
7.8 Invalidity of Subsidiary Guaranty.
Except as otherwise permitted under the provisions of this Agreement or
the Intercreditor Agreement, the Subsidiary Guaranty is held in any judicial
proceeding to be unenforceable or invalid or ceases for any reason to be in full
force and effect (except by its terms) or any Subsidiary Guarantor, or any
Person acting on behalf of any Subsidiary Guarantor, denies or disaffirms such
Subsidiary Guarantor's obligations under the Subsidiary Guaranty; or
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7.9 Change in Control.
If (i) prior to a Qualified Public Offering GSII together with any
Affiliates of GSII shall cease to beneficially own and control 51% or more of
the combined voting power of all Securities of the Company, (ii) following
consummation of a Qualified Public Offering any Person or any two or more
Persons acting in concert shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission under the
Exchange Act), directly or indirectly, of Securities of Company (or other
Securities convertible into such Securities) representing more of the combined
voting power of all Securities of Company than is owned by GSII and its
Affiliates at such time or (iii) a "Change of Control" as defined in the Senior
Subordinated Notes Indenture occurs;
THEN (i) upon the occurrence of any Event of Default described in subsection
7.7, each of (a) the unpaid principal amount of and accrued interest on the
AXELs, and (b) all other Obligations shall automatically become immediately due
and payable, without presentment, demand, protest or other requirements of any
kind, all of which are hereby expressly waived by Company, and (ii) upon the
occurrence and during the continuation of any other Event of Default,
Administrative Agent shall, upon the written request or with the written consent
of Requisite Lenders, by written notice to Company, declare all or any portion
of the amounts described in clauses (a) and (b) above to be, and the same shall
forthwith become, immediately due and payable.
Notwithstanding anything contained in the preceding paragraph, if at any
time within 60 days after an acceleration of the AXELs pursuant to clause (ii)
of such paragraph Company shall pay all arrears of interest and all payments on
account of principal which shall have become due otherwise than as a result of
such acceleration (with interest on principal and, to the extent permitted by
law, on overdue interest, at the rates specified in this Agreement) and all
Events of Default and Potential Events of Default (other than non-payment of the
principal of and accrued interest on the AXELS, in each case which is due and
payable solely by virtue of acceleration) shall be remedied or waived pursuant
to subsection 9.6, then Requisite Lenders, by written notice to Company, may at
their option rescind and annul such acceleration and its consequences; but such
action shall not affect any subsequent Event of Default or Potential Event of
Default or impair any right consequent thereon. The provisions of this paragraph
are intended merely to bind Lenders to a decision which may be made at the
election of Requisite Lenders and are not intended, directly or indirectly, to
benefit Company, and such provisions shall not at any time be construed so as to
grant Company the right to require Lenders to rescind or annul any acceleration
hereunder or to preclude Administrative Agent or Lenders from exercising any of
the rights or remedies available to them under any of the AXEL Loan Documents,
even if the conditions set forth in this paragraph are met.
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SECTION 8.
AGENTS
8.1 Appointment.
A. Appointment of Agents. GSCP is hereby appointed Arranger and
Syndication Agent hereunder, and each Lender hereby authorizes Arranger and
Syndication Agent to act as its agent in accordance with the terms of this
Agreement and the other AXEL Loan Documents. Fleet is hereby appointed
Administrative Agent hereunder and under the other AXEL Loan Documents and each
Lender hereby authorizes Administrative Agent to act as its agent in accordance
with the terms of this Agreement and the other Loan Documents. Fleet is also
being appointed Collateral Agent under the Intercreditor Agreement and each
Lender hereby authorizes Collateral Agent to act as its agent in accordance with
the terms of the Intercreditor Agreement and the other AXEL Loan Documents. Each
Agent hereby agrees to act upon the express conditions contained in this
Agreement and the other AXEL Loan Documents, as applicable. The provisions of
this Section 8 are solely for the benefit of Agents and Lenders and Company
shall have no rights as a third party beneficiary of any of the provisions
thereof. In performing its functions and duties under this Agreement, each Agent
shall act solely as an agent of Lenders and does not assume and shall not be
deemed to have assumed any obligation towards or relationship of agency or trust
with or for Company or any of its Subsidiaries. Each of Arranger and Syndication
Agent, without consent of or notice to any party hereto, may assign any and all
of its rights or obligations hereunder to any of its Affiliates. As of the
Closing Date, all obligations of Arranger and Syndication Agent hereunder shall
terminate.
B. Appointment of Supplemental Collateral Agents. It is the purpose of
this Agreement and the other AXEL Loan Documents that there shall be no
violation of any law of any jurisdiction denying or restricting the right of
banking corporations or associations to transact business as agent or trustee in
such jurisdiction. It is recognized that in case of litigation under this
Agreement or any of the other AXEL Loan Documents, and in particular in case of
the enforcement of any of the AXEL Loan Documents, or in case Administrative
Agent deems that by reason of any present or future law of any jurisdiction it
may not exercise any of the rights, powers or remedies granted herein or in any
of the other AXEL Loan Documents or take any other action which may be desirable
or necessary in connection therewith, it may be necessary that Administrative
Agent appoint an additional individual or institution as a separate trustee,
co-trustee, collateral agent or collateral co-agent (any such additional
individual or institution being referred to herein individually as a
"Supplemental Collateral Agent" and collectively as "Supplemental Collateral
Agents").
In the event that Administrative Agent appoints a Supplemental Collateral
Agent with respect to any Collateral, (i) each and every right, power, privilege
or duty expressed or intended by this Agreement or any of the other AXEL Loan
Documents to be exercised by or vested in or conveyed to Administrative Agent
with respect to such Collateral shall
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be exercisable by and vest in such Supplemental Collateral Agent to the extent,
and only to the extent, necessary to enable such Supplemental Collateral Agent
to exercise such rights, powers and privileges with respect to such Collateral
and to perform such duties with respect to such Collateral, and every covenant
and obligation contained in the AXEL Loan Documents and necessary to the
exercise or performance thereof by such Supplemental Collateral Agent shall run
to and be enforceable by either Agent or such Supplemental Collateral Agent, and
(ii) the provisions of this Section 8 and of subsections 9.2 and 9.3 that refer
to Administrative Agent shall inure to the benefit of such Supplemental
Collateral Agent and all references therein to Administrative Agent shall be
deemed to be references to Administrative Agent and/or such Supplemental
Collateral Agent, as the context may require.
Should any instrument in writing from Company or any other Loan Party be
required by any Supplemental Collateral Agent so appointed by Administrative
Agent for more fully and certainly vesting in and confirming to him or it such
rights, powers, privileges and duties, Company shall, or shall cause such Loan
Party to, execute, acknowledge and deliver any and all such instruments promptly
upon request by Administrative Agent. In case any Supplemental Collateral Agent,
or a successor thereto, shall die, become incapable of acting, resign or be
removed, all the rights, powers, privileges and duties of such Supplemental
Collateral Agent, to the extent permitted by law, shall vest in and be exercised
by Administrative Agent until the appointment of a new Supplemental Collateral
Agent.
8.2 Powers and Duties; General Immunity.
A. Powers; Duties Specified. Each Lender irrevocably authorizes each Agent
to take such action on such Lender's behalf and to exercise such powers, rights
and remedies hereunder and under the other AXEL Loan Documents as are
specifically delegated or granted to such Agent by the terms hereof and thereof,
together with such powers, rights and remedies as are reasonably incidental
thereto. Each Agent shall have only those duties and responsibilities that are
expressly specified in this Agreement and the other AXEL Loan Documents. Each
Agent may exercise such powers, rights and remedies and perform such duties by
or through its agents or employees. No Agent shall have, by reason of this
Agreement or any of the other AXEL Loan Documents, a fiduciary relationship in
respect of any Lender; and nothing in this Agreement or any of the other AXEL
Loan Documents, expressed or implied, is intended to or shall be so construed as
to impose upon any Agent any obligations in respect of this Agreement or any of
the other AXEL Loan Documents except as expressly set forth herein or therein.
B. No Responsibility for Certain Matters. No Agent shall be responsible to
any Lender for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any other
AXEL Loan Document or for any representations, warranties, recitals or
statements made herein or therein or made in any written or oral statements or
in any financial or other statements, instruments, reports or certificates or
any other documents furnished or made by any of Agent to Lenders or by or
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on behalf of Company to any Agent or any Lender in connection with the AXEL Loan
Documents and the transactions contemplated thereby or for the financial
condition or business affairs of Company or any other Person liable for the
payment of any Obligations, nor shall any Agent be required to ascertain or
inquire as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained in any of the AXEL Loan Documents
or as to the use of the proceeds of the AXELs or as to the existence or possible
existence of any Event of Default or Potential Event of Default. Anything
contained in this Agreement to the contrary notwithstanding, Administrative
Agent shall not have any liability arising from confirmations of the amount of
outstanding AXELs.
C. Exculpatory Provisions. None of Agents nor any of their respective
officers, partners, directors, employees or agents shall be liable to Lenders
for any action taken or omitted by any Agent under or in connection with any of
the AXEL Loan Documents except to the extent caused by such Agent's gross
negligence or willful misconduct. Each Agent shall be entitled to refrain from
any act or the taking of any action (including the failure to take an action) in
connection with this Agreement or any of the other Loan Documents or from the
exercise of any power, discretion or authority vested in it hereunder or
thereunder unless and until such Agent shall have received instructions in
respect thereof from Requisite Lenders (or such other Lenders as may be required
to give such instructions under subsection 9.6) and, upon receipt of such
instructions from Requisite Lenders (or such other Lenders, as the case may be),
such Agent shall be entitled to act or (where so instructed) refrain from
acting, or to exercise such power, discretion or authority, in accordance with
such instructions. Without prejudice to the generality of the foregoing, (i)
each Agent shall be entitled to rely, and shall be fully protected in relying,
upon any communication, instrument or document believed by it to be genuine and
correct and to have been signed or sent by the proper person or persons, and
shall be entitled to rely and shall be protected in relying on opinions and
judgments of attorneys (who may be attorneys for Company and its Subsidiaries),
accountants, experts and other professional advisors selected by it; and (ii) no
Lender shall have any right of action whatsoever against any Agent as a result
of such Agent acting or (where so instructed) refraining from acting under this
Agreement or any of the other AXEL Loan Documents in accordance with the
instructions of Requisite Lenders (or such other Lenders as may be required to
give such instructions under subsection 9.6).
D. Agent Entitled to Act as Lender. The agency hereby created shall in no
way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, any Agent in its individual capacity as a Lender hereunder.
With respect to its participation in the AXELs, each Agent shall have the same
rights and powers hereunder as any other Lender and may exercise the same as
though it were not performing the duties and functions delegated to it
hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless
the context clearly otherwise indicates, include each Agent in its individual
capacity. Any Agent and its Affiliates may accept deposits from, lend money to
and generally engage in any kind of banking, trust, financial advisory or other
business with Company or any of its Affiliates as if it were not performing the
duties specified herein, and
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may accept fees and other consideration from Company for services in connection
with this Agreement and otherwise without having to account for the same to
Lenders.
8.3 Representations and Warranties; No Responsibility For Appraisal of
Creditworthiness.
Each Lender represents and warrants that it has made its own independent
investigation of the financial condition and affairs of Company and its
Subsidiaries in connection with the making of the AXELs hereunder and that it
has made and shall continue to make its own appraisal of the creditworthiness of
Company and its Subsidiaries. No Agent shall have any duty or responsibility,
either initially or on a continuing basis, to make any such investigation or any
such appraisal on behalf of Lenders or to provide any Lender with any credit or
other information with respect thereto, whether coming into its possession
before the making of the AXELs or at any time or times thereafter, and no Agent
shall have any responsibility with respect to the accuracy of or the
completeness of any information provided to Lenders.
8.4 Right to Indemnity.
Each Lender, in proportion to its Pro Rata Share, severally agrees to
indemnify each Agent, to the extent that such Agent shall not have been
reimbursed by Company, for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including counsel fees and disbursements) or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against such
Agent in exercising its powers, rights and remedies or performing its duties
hereunder or under the other AXEL Loan Documents or otherwise in its capacity as
such Agent in any way relating to or arising out of this Agreement or the other
AXEL Loan Documents; provided that no Lender shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from such Agent's gross
negligence or willful misconduct and provided further that any such
indemnification of the Collateral Agent shall be on the terms described in
section 6(c) of the Intercreditor Agreement. If any indemnity furnished to any
Agent for any purpose shall, in the opinion of such Agent, be insufficient or
become impaired, such Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished (excluding any indemnity for its gross negligence or will misconduct).
8.5 Successor Administrative Agent.
Successor Administrative Agent. Administrative Agent may resign at
any time by giving 30 days' prior written notice thereof to Lenders and Company,
and Administrative Agent may be removed at any time with or without cause by an
instrument or concurrent instruments in writing delivered to Company and
Administrative Agent and signed by Requisite Lenders. Upon any such notice of
resignation or any such removal,
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Requisite Lenders shall have the right, upon five Business Days' notice to
Company, to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed by Requisite Lenders and shall
have accepted such appointment within 30 days after the notice of the intent of
the Administrative Agent to resign, then the retiring Administrative Agent may,
on behalf of the Lenders, appoint a successor Administrative Agent. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, that successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Administrative Agent and the retiring or removed
Administrative Agent shall be discharged from its duties and obligations under
this Agreement. After any retiring or removed Administrative Agent's resignation
or removal hereunder as Administrative Agent, the provisions of this Section 8
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.
8.6 Collateral Documents and Guaranties.
Each Lender hereby further authorizes Administrative Agent, on behalf of
and for the benefit of Lenders, to enter into the Intercreditor Agreement and to
appoint the Collateral Agent thereunder as agent for and representative of
Lenders. Under the terms of the Intercreditor Agreement, the Collateral Agent is
authorized to enter into each Collateral Document as secured party and to be the
agent for and representative of Secured Parties under the Subsidiary Guaranty,
and each Lender agrees to be bound by the terms of the Intercreditor Agreement,
each Collateral Document and the Subsidiary Guaranty. Administrative Agent shall
not enter into or consent to any material amendment, modification or termination
of the Intercreditor Agreement without the prior consent of Requisite Lenders.
Each Lender acknowledges that under the terms of the Intercreditor Agreement
without further written consent or authorization from Lenders, Collateral Agent
may execute any documents or instruments necessary to (a) release any Lien
encumbering any item of Collateral that is the subject of a sale or other
disposition of assets permitted by this Agreement or to which Requisite Lenders
have otherwise consented or (b) release any Subsidiary Guarantor from the
Subsidiary Guaranty if all of the capital stock of such Subsidiary Guarantor is
sold to any Person (other than an Affiliate of Company) pursuant to a sale or
other disposition permitted hereunder or to which Requisite Lenders or Lenders
(as applicable) have otherwise consented. Anything contained in any of the AXEL
Loan Documents to the contrary notwithstanding, Company, Administrative Agent
and each Lender hereby agree that (X) no Lender shall have any right
individually to realize upon any of the Collateral under any Collateral Document
or to enforce the Subsidiary Guaranty, it being understood and agreed that all
powers, rights and remedies under the Collateral Documents and the Subsidiary
Guaranty may be exercised solely by Collateral Agent for the benefit of Secured
Parties in accordance with the terms thereof, and (Y) in the event of a
foreclosure by Collateral Agent on any of the Collateral pursuant to a public or
private sale, Collateral Agent or any Secured Party may be the purchaser of any
or all of such Collateral at any such sale and Collateral Agent, as agent for
and representative of Secured Parties (but not any Secured Party or Secured
Parties in its or their respective individual capacities
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unless Requisite Lenders shall otherwise agree in writing) shall be entitled,
for the purpose of bidding and making settlement or payment of the purchase
price for all or any portion of the Collateral sold at any such public sale, to
use and apply any of the Obligations as a credit on account of the purchase
price for any collateral payable by Collateral Agent at such sale. The Lenders
each further acknowledge and agree that pursuant to the Intercreditor Agreement
and the Collateral Documents, Collateral Agent will act as the fonde de pouvoir
(holder of the power of attorney) of the holders from time to time of Notes
issued pursuant hereto to the extent necessary or desirable for the purposes of
creating, maintaining or enforcing any Liens or guarantees created or
established under any Collateral Documents contemplated hereby to be executed
under the laws of the Province of Quebec, Canada including, without limiting the
generality of the foregoing, entering into any such Collateral Documents and
exercising all or any of the rights, powers, trusts or duties conferred upon the
Collateral Agent therein and in the Intercreditor Agreement and each holder of
Notes by receiving and holding same accepts and confirms the appointment of the
Collateral Agent as fonde de pouvoir (holder of the power of attorney) of such
holder for such purposes.
SECTION 9.
MISCELLANEOUS
9.1 Assignments and Participations in AXELs.
A. General. Subject to subsection 9.1B, each Lender shall have the right
at any time to (i) sell, assign or transfer to any Eligible Assignee, or (ii)
sell participations to any Person in, all or any part of its AXEL Commitments or
the AXEL or AXELs made by it or any other interest herein or in any other
Obligations owed to it; provided that no such sale, assignment, transfer or
participation shall, without the consent of Company, require Company to file a
registration statement with the Securities and Exchange Commission or apply to
qualify such sale, assignment, transfer or participation under the securities
laws of any state; provided, further that no such sale, assignment or transfer
described in clause (i) above shall be effective unless and until an Assignment
Agreement effecting such sale, assignment or transfer shall have been accepted
by Administrative Agent and recorded in the Register as provided in subsection
9.1B(ii). Except as otherwise provided in this subsection 9.1, no Lender shall,
as between Company and such Lender, be relieved of any of its obligations
hereunder as a result of any sale, assignment or transfer of, or any granting of
participations in, all or any part of its AXEL Commitments or the AXELs, or the
other Obligations owed to such Lender.
B. Assignments.
(i) Amounts and Terms of Assignments. Each AXEL Commitment, AXEL or
other Obligation may (a) be assigned in any amount to another Lender, or
to an Affiliate or a Related Fund of the assigning Lender or another
Lender, with
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the giving of notice to Company, Syndication Agent and Administrative
Agent or (b) be assigned in an aggregate amount of not less than
$5,000,000 (or such lesser amount as shall constitute the aggregate amount
of the AXEL Commitments, AXEL, and other Obligations of the assigning
Lender) to any other Eligible Assignee with the giving of notice to
Company and with the consent of Administrative Agent and Syndication Agent
(which consent shall not be unreasonably withheld or delayed). To the
extent of any such assignment in accordance with either clause (a) or (b)
above, the assigning Lender shall be relieved of its obligations with
respect to its AXEL Commitments, AXELs, or other Obligations or the
portion thereof so assigned. The parties to each such assignment shall
execute and deliver to Administrative Agent, for its acceptance and
recording in the Register, an Assignment Agreement, together with a
processing and recordation fee of $500 if such assignment is to another
Lender or an Affiliate or Related Fund of the assigning Lender, or $2,000,
if such assignment is to any other Eligible Assignee, and such forms,
certificates or other evidence, if any, with respect to United States
federal income tax withholding matters as the assignee under such
Assignment Agreement may be required to deliver to Administrative Agent
pursuant to subsection 2.7B(iii)(a). Upon such execution, delivery,
acceptance and recordation, from and after the effective date specified in
such Assignment Agreement, (y) the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment Agreement, shall have the
rights and obligations of a Lender hereunder and (z) the assigning Lender
thereunder shall, to the extent that rights and obligations hereunder have
been assigned by it pursuant to such Assignment Agreement, relinquish its
rights (other than any rights which survive the termination of this
Agreement under subsection 9.9B) and be released from its obligations
under this Agreement and, in the case of an Assignment Agreement covering
all or the remaining portion of an assigning Lender's rights and
obligations under this Agreement, such Lender shall cease to be a party
hereto. The AXEL Commitments hereunder shall be modified to reflect the
AXEL Commitment of such assignee and any remaining AXEL Commitment of such
assigning Lender and, if any such assignment occurs after the issuance of
the AXEL Notes hereunder, the assigning Lender shall, upon the
effectiveness of such assignment or as promptly thereafter as practicable,
surrender its applicable AXEL Notes to Administrative Agent for
cancellation, and thereupon new AXEL Notes shall be issued to the assignee
and/or to the assigning Lender, substantially in the form of Exhibit III
annexed hereto with appropriate insertions, to reflect the new AXEL
Commitments and/or outstanding AXELs, the case may be, of the assignee
and/or the assigning Lender.
(ii) Acceptance by Administrative Agent; Recordation in Register.
Upon its receipt of an Assignment Agreement executed by an assigning
Lender and an assignee representing that it is an Eligible Assignee,
together with the processing and recordation fee referred to in subsection
9.1B(i) and any forms, certificates or other evidence with respect to
United States federal income tax withholding matters that
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such assignee may be required to deliver to Administrative Agent pursuant
to subsection 2.7B(iii)(a), Administrative Agent shall, if Administrative
Agent has consented to the assignment evidenced thereby (to the extent
such consent is required pursuant to subsection 9.1B(i)), (a) accept such
Assignment Agreement by executing a counterpart thereof as provided
therein (which acceptance shall evidence any required consent of
Administrative Agent to such assignment), (b) record the information
contained therein in the Register, and (c) give prompt notice thereof to
Company. Administrative Agent shall maintain a copy of each Assignment
Agreement delivered to and accepted by it as provided in this subsection
9.1B(ii).
C. Participations. The holder of any participation, other than an
Affiliate of the Lender granting such participation, shall not be entitled to
require such Lender to take or omit to take any action hereunder except action
directly affecting (i) the extension of the regularly scheduled maturity of any
portion of the principal amount of or interest on any AXEL allocated to such
participation or (ii) a reduction of the principal amount of or the rate of
interest payable on any AXEL allocated to such participation, and all amounts
payable by Company hereunder (including amounts payable to such Lender pursuant
to subsections 2.6D and 2.7) shall be determined as if such Lender had not sold
such participation. Company and each Lender hereby acknowledge and agree that,
solely for purposes of subsections 9.4 and 9.5, (a) any participation will give
rise to a direct obligation of Company to the participant and (b) the
participant shall be considered to be a "Lender".
D. Assignments to Federal Reserve Banks. In addition to the assignments
and participations permitted under the foregoing provisions of this subsection
9.1, any Lender may assign and pledge all or any portion of its AXELs, the other
Obligations owed to such Lender, and its AXEL Notes to any Federal Reserve Bank
as collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any operating circular issued by such Federal Reserve
Bank; provided that (i) no Lender shall, as between Company and such Lender, be
relieved of any of its obligations hereunder as a result of any such assignment
and pledge and (ii) in no event shall such Federal Reserve Bank be considered to
be a "Lender" or be entitled to require the assigning Lender to take or omit to
take any action hereunder.
E. Information. Each Lender may furnish any information concerning Company
and its Subsidiaries in the possession of that Lender from time to time to
assignees and participants (including prospective assignees and participants),
subject to subsection 9.19.
F. Representations of Lenders. Each Lender listed on the signature pages
hereof hereby represents and warrants (i) that it is an Eligible Assignee
described in clause (A) of the definition thereof; (ii) that it has experience
and expertise in the making of or investing in loans such as the AXELs; and
(iii) that it will make its AXELs for its own account in the ordinary course of
its business and without a view to distribution of such AXELs within the meaning
of the Securities Act or the Exchange Act or other federal securities laws (it
being understood that, subject to the provisions of this subsection 9.1, the
disposition of such
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AXELs or any interests therein shall at all times remain within its exclusive
control). Each Lender that becomes a party hereto pursuant to an Assignment
Agreement shall be deemed to agree that the representations and warranties of
such Lender contained in Section 2(c) of such Assignment Agreement are
incorporated herein by this reference.
9.2 Expenses.
Whether or not the transactions contemplated hereby shall be consummated,
Company agrees to pay promptly (i) all the actual and reasonable costs and
expenses of preparation of the AXEL Loan Documents and any consents, amendments,
waivers or other modifications thereto; (ii) all the costs of furnishing all
opinions by counsel for Company (including any opinions requested by Lenders as
to any legal matters arising hereunder) and of Company's performance of and
compliance with all agreements and conditions on its part to be performed or
complied with under this Agreement and the other AXEL Loan Documents including
with respect to confirming compliance with environmental, insurance and solvency
requirements; (iii) the reasonable fees, expenses and disbursements of counsel
to Arranger and counsel to Administrative Agent (in each case including
allocated costs of internal counsel) in connection with the negotiation,
preparation, execution and administration of the AXEL Loan Documents and any
consents, amendments, waivers or other modifications thereto and any other
documents or matters requested by Company; (iv) all the actual costs and
reasonable expenses of creating and perfecting Liens in favor of Collateral
Agent on behalf of Secured Parties pursuant to any Collateral Document,
including filing and recording fees, expenses and taxes, stamp or documentary
taxes, search fees, title insurance premiums, and reasonable fees, expenses and
disbursements of counsel to Arranger and counsel to Administrative Agent and of
counsel providing any opinions that Arranger, Administrative Agent or Requisite
Lenders may request in respect of the Collateral Documents or the Liens created
pursuant thereto; (v) all the actual costs and reasonable expenses (including
the reasonable fees, expenses and disbursements of any auditors, accountants or
appraisers and any environmental or other consultants, advisors and agents
employed or retained by Administrative Agent or Arranger and its counsel) of
obtaining and reviewing any appraisals provided for under subsection 3.1L or
5.9C, any environmental audits or reports provided for under subsection 3.1M or
5.9B(viii) and any reports provided for under subsection 3.1K; (vi) all the
actual costs and reasonable expenses (including the reasonable fees, expenses
and disbursements of any consultants, advisors and agents employed or retained
by Administrative Agent and its counsel) in connection with the custody or
preservation of any of the Collateral; (vii) all other actual and reasonable
costs and expenses incurred by Syndication Agent, Arranger or Administrative
Agent in connection with the syndication of the AXEL Commitments and the
negotiation, preparation and execution of the AXEL Loan Documents and any
consents, amendments, waivers or other modifications thereto and the
transactions contemplated thereby; and (viii) after the occurrence of an Event
of Default, all costs and expenses, including reasonable attorneys' fees
(including allocated costs of internal counsel) and costs of settlement,
incurred by Arranger, Administrative Agent and Lenders in enforcing any
Obligations of or in collecting any payments due from any Loan Party hereunder
or under the other AXEL Loan
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Documents by reason of such Event of Default (including in connection with the
sale of, collection from, or other realization upon any of the Collateral or the
enforcement of the Subsidiary Guaranty) or in connection with any refinancing or
restructuring of the credit arrangements provided under this Agreement in the
nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings.
9.3 Indemnity.
In addition to the payment of expenses pursuant to subsection 9.2, whether
or not the transactions contemplated hereby shall be consummated, Company agrees
to defend (subject to Indemnitees' selection of counsel), indemnify, pay and
hold harmless Agents and Lenders, and the officers, partners, directors,
employees, agents and affiliates of any of Agents and Lenders (collectively
called the "Indemnitees"), from and against any and all Indemnified Liabilities
(as hereinafter defined); provided that Company shall not have any obligation to
any Indemnitee hereunder with respect to any Indemnified Liabilities to the
extent such Indemnified Liabilities arise solely from the gross negligence or
willful misconduct of that Indemnitee as determined by a final, non-appealable
judgment of a court of competent jurisdiction.
As used herein, "Indemnified Liabilities" means, collectively, any and all
liabilities, obligations, losses, damages (including natural resource damages),
penalties, actions, judgments, suits, claims (including Environmental Claims),
costs (including the costs of any investigation, study, sampling, testing,
abatement, cleanup, removal, remediation or other response action necessary to
remove, remediate, clean up or abate any Hazardous Materials Activity), expenses
and disbursements of any kind or nature whatsoever (including the reasonable
fees and disbursements of counsel for Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened by
any Person, whether or not any such Indemnitee shall be designated as a party or
a potential party thereto, and any fees or expenses incurred by Indemnitees in
enforcing this indemnity), whether direct, indirect or consequential and whether
based on any federal, state or foreign laws, statutes, rules or regulations
(including securities and commercial laws, statutes, rules or regulations and
Environmental Laws), on common law or equitable cause or on contract or
otherwise, that may be imposed on, incurred by, or asserted against any such
Indemnitee, in any manner relating to or arising out of (i) this Agreement or
the other AXEL Loan Documents or the Related Agreements or the transactions
contemplated hereby or thereby (including Lenders' agreement to make the AXELs
hereunder or the use or intended use of the proceeds thereof or any enforcement
of any of the AXEL Loan Documents (including any sale of, collection from, or
other realization upon any of the Collateral or the enforcement of the
Subsidiary Guaranty)), (ii) the statements contained in the commitment letter
delivered by any Lender to Company with respect thereto, or (iii) any
Environmental Claim or any Hazardous Materials Activity relating to or arising
from, directly or indirectly, any past or present activity, operation, land
ownership, or practice of Company or any of its Subsidiaries.
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To the extent that the undertakings to defend, indemnify, pay and hold
harmless set forth in this subsection 9.3 may be unenforceable in whole or in
part because they are violative of any law or public policy, Company shall
contribute the maximum portion that it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all Indemnified Liabilities
incurred by Indemnitees or any of them.
9.4 Set-Off; Security Interest in Deposit Accounts.
In addition to any rights now or hereafter granted under applicable law
and not by way of limitation of any such rights, upon the occurrence of any
Event of Default each Lender is hereby authorized by Company at any time or from
time to time, subject to the consent of Administrative Agent, without notice to
Company or to any other Person (other than Administrative Agent), any such
notice being hereby expressly waived, to set off and to appropriate and to apply
any and all deposits (general or special, including Indebtedness evidenced by
certificates of deposit, whether matured or unmatured, but not including trust
accounts) and any other Indebtedness at any time held or owing by that Lender to
or for the credit or the account of Company against and on account of the
obligations and liabilities of Company to that Lender under this Agreement, and
the other AXEL Loan Documents, including all claims of any nature or description
arising out of or connected with this Agreement any other Loan Document,
irrespective of whether or not (i) that Lender shall have made any demand
hereunder or (ii) the principal of or the interest on the AXELs or any other
amounts due hereunder shall have become due and payable pursuant to Section 7
and although said obligations and liabilities, or any of them, may be contingent
or unmatured. Company hereby further grants to Collateral Agent and each Lender
a security interest in all deposits and accounts maintained with Administrative
Agent or such Lender as security for the Obligations.
9.5 Ratable Sharing.
Lenders hereby agree among themselves that if any of them shall, whether
by voluntary payment (other than a voluntary prepayment of AXELs made and
applied in accordance with the terms of this Agreement), by realization upon
security, through the exercise of any right of set-off or banker's lien, by
counterclaim or cross action or by the enforcement of any right under the AXEL
Loan Documents or otherwise, or as adequate protection of a deposit treated as
cash collateral under the Bankruptcy Code, receive payment or reduction of a
proportion of the aggregate amount of principal, interest, amounts payable in
respect of, fees and other amounts then due and owing to that Lender hereunder
or under the other AXEL Loan Documents (collectively, the "Aggregate Amounts
Due" to such Lender) which is greater than the proportion received by any other
Lender in respect of the Aggregate Amounts Due to such other Lender, then the
Lender receiving such proportionately greater payment shall (i) notify
Administrative Agent and each other Lender of the receipt of such payment and
(ii) apply a portion of such payment to purchase participations (which it shall
be deemed to have purchased from each seller of a participation simultaneously
upon the receipt by such seller of its portion of such payment)
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in the Aggregate Amounts Due to the other Lenders so that all such recoveries of
Aggregate Amounts Due shall be shared by all Lenders in proportion to the
Aggregate Amounts Due to them; provided that if all or part of such
proportionately greater payment received by such purchasing Lender is thereafter
recovered from such Lender upon the bankruptcy or reorganization of Company or
otherwise, those purchases shall be rescinded and the purchase prices paid for
such participations shall be returned to such purchasing Lender ratably to the
extent of such recovery, but without interest. Company expressly consents to the
foregoing arrangement and agrees that any holder of a participation so purchased
may exercise any and all rights of banker's lien, set-off or counterclaim with
respect to any and all monies owing by Company to that holder with respect
thereto as fully as if that holder were owed the amount of the participation
held by that holder.
9.6 Amendments and Waivers.
A. No amendment, modification, termination or waiver of any provision of
the AXEL Loan Documents, or consent to any departure by the Company therefrom,
shall in any event be effective without the written concurrence of Requisite
Lenders; provided that no such amendment, modification, termination, waiver or
consent shall, without the consent of each Lender (with Obligations directly
affected in the case of the following clause (i)): (i) extend the scheduled
final maturity of any AXEL or AXEL Note, or extend the due date or reduce the
amount of any scheduled principal payment in the case of AXELs or AXELs Notes,
or reduce the rate of interest on any AXEL (other than any waiver of any
increase in the interest rate applicable to any AXEL pursuant to subsection
2.2E) or any commitment fees payable hereunder, or extend the time for payment
of any such interest or fees, or reduce the principal amount of any AXEL, (ii)
amend, modify, terminate or waive any provision of this subsection 9.6, (iii)
reduce the percentage specified in the definition of "Requisite Lenders" (it
being understood that, with the consent of Requisite Lenders, additional
extensions of credit pursuant to this Agreement may be included in the
determination of "Requisite Lenders" on substantially the same basis as the AXEL
Commitments and the AXELs Commitments Loans are included on the Closing Date),
(iv) consent to the assignment or transfer by the Company of any of its rights
and obligations under this Agreement or (v) release all or substantially all the
Liens granted pursuant to the Collateral Documents (including Liens on real
property) or release any Subsidiary from the Subsidiary Guaranty if such release
would constitute a release of all or substantially all of the Collateral;
provided, further that no such amendment, modification, termination or waiver
shall (1) increase the AXEL Commitments of any Lender over the amount thereof
then in effect without the consent of such Lender (it being understood that no
amendment, modification or waiver of any condition precedent, covenant,
Potential Event of Default or Event of Default shall constitute an increase in
the AXEL Commitment of any Lender, and that no increase in the available portion
of any AXEL Commitment of any Lender shall constitute an increase in such AXEL
Commitment of such Lender); or (2) amend, modify, terminate or waive any
provision of Section 8 as the same applies to any Agent, or any other provision
of this Agreement as the same applies to the rights or obligations of any Agent,
in each case without the consent of such Agent.
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B. Administrative Agent may, but shall have no obligation to, with the
concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of that Lender. Any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it was given. No
notice to or demand on the Company in any case shall entitle Company to any
other or further notice or demand in similar or other circumstances. Any
amendment, modification, termination, waiver or consent effected in accordance
with this subsection 9.6 shall be binding upon each Lender at the time
outstanding, each future Lender and, if signed by Company, the Company.
9.7 Independence of Covenants.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another covenant shall not avoid the occurrence of an Event
of Default or Potential Event of Default if such action is taken or condition
exists.
9.8 Notices.
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served, telexed or sent by telefacsimile or United States mail
or courier service and shall be deemed to have been given when delivered in
person or by courier service, upon receipt of telefacsimile or telex, or three
Business Days after depositing it in the United States mail with postage prepaid
and properly addressed; provided that notices to Arranger, Syndication Agent or
Administrative Agent shall not be effective until received. For the purposes
hereof, the address of each party hereto shall be as set forth under such
party's name on the signature pages hereof or (i) as to Company and
Administrative Agent, such other address as shall be designated by such Person
in a written notice delivered to the other parties hereto and (ii) as to each
other party, such other address as shall be designated by such party in a
written notice delivered to Administrative Agent and Company.
9.9 Survival of Representations, Warranties and Agreements.
A. All representations, warranties and agreements made herein shall
survive the execution and delivery of this Agreement and the making of the AXELs
hereunder.
B. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of Company set forth in subsections 2.6D, 2.7, 9.2, 9.3
and 9.4 and the agreements of Lenders set forth in subsections 8.2C, 8.4 and 9.5
shall survive the payment of the AXELs, and the termination of this Agreement.
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9.10 Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of Administrative Agent or any Lender in
the exercise of any power, right or privilege hereunder or under any other AXEL
Loan Document shall impair such power, right or privilege or be construed to be
a waiver of any default or acquiescence therein, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other power, right or privilege. All rights and
remedies existing under this Agreement and the other Loan Documents are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
9.11 Marshalling; Payments Set Aside.
Neither Administrative Agent nor any Lender shall be under any obligation
to marshal any assets in favor of Company or any other party or against or in
payment of any or all of the Obligations. To the extent that Company makes a
payment or payments to Administrative Agent or Lenders (or to Administrative
Agent for the benefit of Lenders), or Administrative Agent or Lenders enforce
any security interests or exercise their rights of setoff, and such payment or
payments or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, any other state or federal law, common law or any equitable
cause, then, to the extent of such recovery, the obligation or part thereof
originally intended to be satisfied, and all Liens, rights and remedies therefor
or related thereto, shall be revived and continued in full force and effect as
if such payment or payments had not been made or such enforcement or setoff had
not occurred.
9.12 Severability.
In case any provision in or obligation under this Agreement or the AXEL
Notes shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
9.13 Obligations Several; Independent Nature of Lenders' Rights.
The obligations of Lenders hereunder are several and no Lender shall be
responsible for the obligations or AXEL Commitments of any other Lender
hereunder. Nothing contained herein or in any other Loan Document, and no action
taken by Lenders pursuant hereto or thereto, shall be deemed to constitute
Lenders as a partnership, an association, a joint venture or any other kind of
entity. The amounts payable at any time hereunder to each Lender shall be a
separate and independent debt, and each Lender shall be entitled to protect and
enforce its rights arising out of this Agreement and it shall not be necessary
for any other Lender to be joined as an additional party in any proceeding for
such purpose.
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9.14 Headings.
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
9.15 Applicable Law.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES.
9.16 Successors and Assigns.
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of Lenders (it being understood that
Lenders' rights of assignment are subject to subsection 9.1). Neither Company's
rights or obligations hereunder nor any interest therein may be assigned or
delegated by Company without the prior written consent of all Lenders.
9.17 Consent to Jurisdiction and Service of Process.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS
THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND
DELIVERING THIS AGREEMENT, COMPANY, FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO COMPANY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
SUBSECTION 9.8;
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(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST COMPANY IN
THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 9.17 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402
OR OTHERWISE.
9.18 Waiver of Jury Trial.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER AXEL LOAN DOCUMENTS OR ANY
DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR
THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this
waiver is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including contract claims, tort claims, breach of duty claims and all other
common law and statutory claims. Each party hereto acknowledges that this waiver
is a material inducement to enter into a business relationship, that each has
already relied on this waiver in entering into this Agreement, and that each
will continue to rely on this waiver in their related future dealings. Each
party hereto further warrants and represents that it has reviewed this waiver
with its legal counsel and that it knowingly and voluntarily waives its jury
trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION
9.18 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT OR ANY OF THE OTHER AXEL LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR
AGREEMENTS RELATING TO THE OBLIGATIONS MADE HEREUNDER. In the event of
litigation, this Agreement may be filed as a written consent to a trial by the
court.
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9.19 Confidentiality.
Each Lender shall hold all non-public information obtained pursuant to the
requirements of this Agreement in accordance with such Lender's customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices (and any Lender without such
customary procedures agrees to keep such information confidential), it being
understood and agreed by Company that in any event a Lender may make disclosures
to Affiliates or Related Funds of such Lender or disclosures reasonably required
by any bona fide assignee, transferee or participant in connection with the
contemplated assignment or transfer by such Lender of any AXELs (so long as such
Persons agree in advance in writing to keep such information confidential) or
disclosures required or requested by any governmental agency or representative
thereof or pursuant to legal process; provided that, unless specifically
prohibited by applicable law or court order, each Lender shall notify Company of
any request by any governmental agency or representative thereof (other than any
such request in connection with any examination of such Lender by such
governmental agency) for disclosure of any such non-public information prior to
disclosure of such information; and provided, further that in no event shall any
Lender be obligated or required to return any materials furnished by Company or
any of its Subsidiaries.
9.20 Counterparts; Effectiveness.
This Agreement and any amendments, waivers, consents or supplements hereto
or in connection herewith may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document. This Agreement shall become effective upon the execution of a
counterpart hereof by each of the parties hereto and receipt by Company and
Administrative Agent of written or telephonic authorization of delivery thereof.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
COMPANY:
AMSCAN HOLDINGS, INC.
By: /s/ Gerald C. Rittenberg
---------------------------
Name:
Title:
Notice Address:
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
Attention: James M. Harrison
Telecopy: (914) 345-2056
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AGENTS AND LENDERS:
GOLDMAN SACHS CREDIT PARTNERS L.P.
individually and as Arranger and Syndication Agent
By: /s/
---------------------------
Authorized Signatory
Notice Address:
Goldman Sachs Credit Partners L.P.
16th Floor
85 Broad Street
New York, New York 10004
Attention: Stephen King (Credit)
Telecopy: (212) 902-2417
With a copy to:
Goldman Sachs Credit Partners L.P.
27th Floor
85 Broad Street
New York, New York 10004
Attention: Kathy King (Operations)
Telecopy: (212) 902-3757
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FLEET NATIONAL BANK,
as Administrative Agent
By: /s/ Robert H. Dial
---------------------------
Name:
Title:
Notice Address:
Fleet National Bank
One Federal Street, 5th Floor
Mail Stop MAOFD05P
Boston, Massachusetts 02110
Attention: John Mann
Telecopy: (617) 346-4682
with a copy to:
Fleet National Bank
One Federal Street, 3rd Floor
Mail Stop MAOFD03C
Boston, Massachusetts 02110
Attention: Steve Curran
Telecopy: (617) 346-5093
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GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Murry K. Stegelmann
---------------------------
Name: Murry K. Stegelmann
Title: Duly Authorized Signatory
Notice Address:
GE Capital
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Joseph Badini,
Associate
Telecopy: (203) 316-7978
With a copy to:
GE Capital
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Janet K. Williams,
Senior Vice President
Telecopy: (203) 316-7978
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SOUTHERN PACIFIC BANK
By: /s/ Charles D. Martorane
---------------------------
Name: Charles D. Martorane
Title: Senior Vice President
Notice Address:
Southern Pacific Bank
12300 Wilshire Blvd.
Los Angeles, CA 90025
Attention: Chris Kelleher
Telecopy: (310) 207-4067
With a copy to:
Southern Pacific Bank
12300 Wilshire Blvd.
Los Angeles, CA 90025
Attention: Chuck Martorano
Telecopy: (310) 207-4067
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TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ Perry Vavcoles
---------------------------
Name: Perry Vavcoles
Title: Senior Vice President
Notice Address:
Transamerica Business Credit Corporation
555 Theodore Fremd Avenue, Suite C-301
Rye, New York 10580
Attention: Ron Walker (Credit)
Telecopy: (914) 921-0110
With a copy to:
Transamerica Business Credit Corporation
555 Theodore Fremd Avenue, Suite C-301
Rye, New York 10580
Attention: Maria Bellizzi
Telecopy: (914) 925-7248
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CREDIT AGRICOLE INDOSUEZ
By: /s/ Kenneth Kencel
---------------------------
Name: Kenneth Kencel
Title: MD
By: /s/ Francoise Berthelot
---------------------------
Name: Francoise Berthelot
Title: Vice President
Notice Address:
Credit Agricole Indosuez
1211 Avenue of the Americas
New York, NY 10036-8701
Attention: Francoise Berthelot/
Isabelle Pradel (Credit)
Telecopy: (212) 278-2254
With a copy to:
Credit Agricole Indosuez
1211 Avenue of the Americas
New York, NY 10036-8701
Attention: Raymond Wright/
Michelle Sciaraffo (Loans)
Telecopy: (212) 278-2502
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MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By: /s/ Anne McCarthy
---------------------------
Name: Anne McCarthy
Title: Authorized Signatory
Notice Address:
Merrill Lynch Senior Floating Rate Fund,
Inc.
200 Scudders Mill Road - Area 1B
Plainsboro, New Jersey 08536
Attention: AnnMarie Smith
Telecopy: (609) 282-3542
With a copy to:
Merrill Lynch Senior Floating Rate Fund,
Inc.
200 Scudders Mill Road - Area 1B
Plainsboro, New Jersey 08536
Attention: Colleen Wade
Telecopy: (609) 282-3542
AXEL CREDIT AGREEMENT EXECUTION
S-8
<PAGE> 138
PILGRIM AMERICA PRIME RATE TRUST
By: /s/ Thomas C. Hunt
---------------------------
Name: Thomas C. Hunt
Title: Assistant Portfolio Manager
Notice Address:
Pilgrim America Prime Rate Trust
Two Renaissance Square
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004-3444
Attention: Tim Hunt (Credit)
Telecopy: (602) 417-8327
With a copy to:
Pilgrim America Prime Rate Trust
Two Renaissance Square
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004-3444
Attention: Melina Dempsey
Telecopy: (602) 417-8321
With a copy to:
State Street Bank and Trust Company
Alternative Structures Unit
Boston, Massachusetts
Attention: Wayne Elpus
Reference: Pilgrim America Prime Rate Trust
Telecopy: (617) 664-5366/5367/5368
AXEL CREDIT AGREEMENT EXECUTION
S-9
<PAGE> 139
CRESCENT/MACH I PARTNERS, L.P.
by: TCW Asset Management Company,
its Investment Manager
By: /s/ Justin L. Driscoll
---------------------------
Name: Justin L. Driscoll
Title: Senior Vice President
Notice Address:
TCW Asset Management Company
200 Park Avenue, Suite 2200
New York, New York 10166-0228
Attention: Mark L Gold/Justin Driscoll
Telecopy: (212) 297-4159
With a copy to:
Crescent/Mach I Partners, L.P.
c/o State Street Bank & Trust Co.
Two International Place
Boston, Massachusetts 02110
Attention: Howie Gorman
Telecopy: (617) 664-5367
AXEL CREDIT AGREEMENT EXECUTION
S-10
<PAGE> 140
PRIME INCOME TRUST
By: /s/ Rafael Scolari
---------------------------
Name: Rafael Scolari
Title: S.V.P. Portfolio Manager
Notice Address:
Prime Income Trust
c/o Dean Witter InterCapital
2 World Trade Center - 72nd Floor
New York, New York 10048
Attention: Louis Pistecchia (Credit)
Telecopy: (212) 392-5345
With a copy to:
Prime Income Trust
c/o Dean Witter InterCapital
2 World Trade Center - 72nd Floor
New York, New York 10048
Attention: April Chrysostomas
(Administration)
Telecopy: (212) 392-5709
AXEL CREDIT AGREEMENT EXECUTION
S-11
<PAGE> 141
BDC FINANCE LLC
By: /s/ Richard Ehrlich
---------------------------
Name: Richard Ehrlich
Title: Senior Analyst
Notice Address:
BDC Finance LLC
c/o Black Diamond Capital Market
100 Field Drive, Suite 330
Lake Forest, Illinois 60045
Attention: James J. Zenni (Credit)
Telecopy: (847) 615-9064
With a copy to:
BDC Finance LLC
c/o Black Diamond Capital Market
100 Field Drive, Suite 330
Lake Forest, Illinois 60045
Attention: Jon Schmugge
Telecopy: (847) 615-9064
AXEL CREDIT AGREEMENT EXECUTION
S-12
<PAGE> 1
Exhibit 10.4
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of December 19, 1997 (the
"Agreement"), by and among AMSCAN HOLDINGS, INC., a Delaware corporation (the
"Company"), GS CAPITAL PARTNERS II, L.P., a Delaware limited partnership ("GSCP
II"), GS CAPITAL PARTNERS II OFFSHORE, L.P., a Cayman Islands exempt limited
partnership ("GSCP II Offshore"), GOLDMAN, SACHS & CO. VERWAL-TUNGS GMBH, a
corporation recorded in the Commercial Register Frankfurt, as nominee for GS
Capital Partners II Germany C.L.P. ("GSCP II Germany"), STONE STREET FUND 1997,
L.P., a Delaware limited partnership ("Stone Street"), BRIDGE STREET FUND 1997,
L.P., a Delaware limited partnership ("Bridge Street" and, together with GSCP
II, GSCP II Offshore, GSCP II Germany and Stone Street, "GSCP") and each of the
individuals and the Estate of John A. Svenningsen (the "Estate") listed on
Schedule I hereto (collectively, including the Estate, the "Management
Investors"). References herein to the Company shall mean the Company as the
surviving corporation in the Merger (as defined below). Employees, directors,
consultants and certain other Persons (as defined below) having significant
business relationships with the Company and its Affiliates (as defined below)
may be issued shares of Common Stock (as defined below) (or other equity
securities of the Company) or securities convertible into or exchangeable for
Common Stock (or other equity securities of the Company) subject to the terms of
this Agreement and, if so issued, the Company, without the consent of any other
party hereto, may amend this Agreement to allow any such Person the Company so
chooses to become an additional Management Investor hereunder, subject to such
Person becoming a signatory to this Agreement. The parties hereto (other than
the Company) and any other Person who shall hereafter acquire shares of Common
Stock of the Company (or other equity securities of the Company) or securities
convertible into or exchangeable for Common Stock (or other equity securities of
the Company) pursuant to the provisions of, and/or subject to the restrictions
and rights set forth in, this Agreement (including through participation in
certain Company stock or option plans) are sometimes hereinafter referred to
individually as a "Stockholder" or collectively as the "Stockholders."
RECITALS
A. The Company, as of the Effective Date (as defined herein), will
have an authorized capital stock consisting of 50,000,000 shares of Common
Stock, par value $0.10 per share (the "Common Stock"), each share of which is
entitled to one vote on all stockholder matters as more specifically provided
<PAGE> 2
in the amended certificate of incorporation of the Company (the "Amended
Certificate"), and of which 1,010 shares will be issued and outstanding
immediately after the Effective Date. As used in this Agreement, Common Stock
shall include any shares of Restricted Stock (as defined below) of the Company
granted to Management Investors; provided, however, that to the extent the
Transfer (as defined herein) thereof is otherwise prohibited or restricted, no
rights to Transfer, including pursuant to Section 2.4 or Article III, shall be
granted hereunder. In addition, the Company will have reserved, as of the
Effective Date, 120 shares of Common Stock for issuance pursuant to the Company
1997 Stock Incentive Plan (the "Stock Incentive Plan").
B. An Agreement and Plan of Merger, dated August 10, 1997 (the
"Merger Agreement"), has been executed by and among Confetti Acquisition, Inc.,
a Delaware corporation ("Confetti"), and the Company, pursuant to which Confetti
was merged with and into the Company (the "Merger") with the Company as the
surviving corporation in the Merger.
C. In connection with the Merger, Confetti entered into employment
and/or equity agreements with certain Management Investors (the "Employment
Agreements") that provide for, among other things, the investment by such
Management Investors in the Common Stock and the grant and/or rollover of
Options to such Management Investors. As of or immediately following the
Effective Date, the Company has executed or shall execute and become a party to
the Employment Agreements.
D. In connection with the Merger, Confetti entered into a Voting
Agreement, dated August 10, 1997 (the "Voting Agreement"), by and among
Confetti, the Estate and a certain individual.
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<PAGE> 3
E. The individual holdings of Common Stock of each Stockholder,
immediately after the closing of the transactions contemplated in the Merger
Agreement and the Employment Agreements (not assuming the exercise of any
Options) are as follows:
Number of Shares
of Common Stock
Name Held After Closing
---- ------------------
GSCP II 517.6286775
GSCP II Offshore 205.7786775
GSCP II Germany 19.0926450
Stone Street 55.5348750
Bridge Street 26.9651250
Estate of John A. Svenningsen 100.0000000
Gerald C. Rittenberg 60.0000000
James M. Harrison 15.0000000
William Wilkey 6.6666667
Diane D. Spaar 1.3333333
Katherine A. Kusnierz 2.0000000
-------------------------- -------------
Total 1,010.0000000
F. The individual holdings of Options to purchase shares of Common
Stock of each Stockholder, immediately after the closing of the transactions
contemplated in the Merger Agreement and the Employment Agreements are as set
forth as follows:
Number of Shares
of Common Stock
Subject to Options
Name Held After Closing
---- ------------------
Gerald C. Rittenberg 16.648
James M. Harrison 16.268
William S. Wilkey 16.441
Diane D. Spaar 11.827
Katherine A. Kusnierz 11.577
Morton Fisher 2.383
William Mark 1.280
Angelo Giummarra 2.477
Karen McKenzie 1.477
Keith Johnson 1.280
Howard Harding 1.280
Walter Thompson 1.144
Charles Phillips 0.478
Susan Scott 1.144
-3-
<PAGE> 4
Rose Giagrande 1.238
Randy Harris 0.718
Eric Stollman 1.238
Kathleen Rooney 1.238
James Dotti 1.238
Vincent Anastasi 0.794
Michael A. Correale 2.570
Mark Irvine 0.555
Scott Lametto 0.999
Joseph Walter 0.555
Cheryl Considine 0.999
Patrick Venuti 0.555
Dallas Hartman 0.555
Robert Yedowitz 0.555
Nigel Keane 0.555
Connie Weckman 0.555
Ken Danforth 0.555
-------------------------- -----------
Total 101.179
G. The parties hereto desire to restrict the sale, assignment,
transfer, encumbrance or other disposition of the Common Stock which the parties
hereto own or may hereafter acquire, and to provide for certain rights and
obligations in respect thereof as hereinafter provided.
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<PAGE> 5
NOW, THEREFORE, in consideration of the premises and of the terms and
conditions contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings ascribed to them below:
"Affected Holder" shall have the meaning ascribed to it in Section 5.10
hereof.
"Affiliate" of a Person shall mean a Person directly or indirectly
controlled by, controlling or under common control with such Person.
"Agreement" shall have the meaning ascribed to it in the Introduction
hereof.
"Amended Certificate" shall have the meaning ascribed to it in the
Recitals hereof.
"Bridge Street" shall have the meaning ascribed to it in the Introduction
hereof.
"Buy-Out Note" shall mean an unsecured promissory note of the Company, or
a direct or indirect subsidiary thereof, which shall have a stated maturity of
five (5) years, shall accrue interest at seven (7) percent per annum, shall be
prepayable at the option of the Company or such subsidiary at any time, in whole
or in part, at its principal amount plus any accrued and unpaid interest, shall
provide for the reimbursement of reasonable expenses incurred by the holder to
enforce the note and shall accelerate upon the earlier of a Change of Control or
the consummation of an IPO.
"Change of Control" shall mean (1) the acquisition by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) other than GSCP and their Affiliates of a majority of the
outstanding voting stock of the Company or (2) the sale of or other disposition
(other than by way of merger or consolidation) of all or substantially all of
the assets of the Company and its subsidiaries taken as a whole to any Person or
group of Persons, other than to a Person (or group of Persons) a majority of the
outstanding voting stock (or other interests) of which are beneficially owned by
GSCP and their Affiliates.
<PAGE> 6
"Claims" shall mean losses, claims, damages or liabilities, joint or
several, actions or proceedings (whether commenced or threatened).
"Common Stock" shall have the meaning ascribed to it in the Recitals
hereof.
"Company" shall have the meaning ascribed to it in the Introduction
hereof.
"Confetti" shall have the meaning ascribed to it in the Recitals hereof.
"Demand Registration" shall have the meaning ascribed to it in Section
3.1(b) hereof.
"Drag-Along Right" shall have the meaning ascribed to it in Section 2.5.1
hereof.
"Drag-Along Seller" shall have the meaning ascribed to it in Section 2.5.2
hereof.
"Effective Date" shall have the meaning ascribed to it in Section 5.1(a)
hereof.
"Employment Agreements" shall have the meaning ascribed to it in the
Recitals hereof.
"Estate" shall have the meaning ascribed to it in the Introduction
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean fair value as reasonably determined by
Goldman Sachs in light of all circumstances including comparable recent bona
fide third party sales.
"Goldman Sachs" shall mean Goldman, Sachs & Co.
"GSCP", "GSCP II", "GSCP II Germany" and "GSCP II Offshore" shall have the
meanings ascribed to them in the Introduction hereof.
"IPO" shall mean an underwritten initial public offering or public
offerings (on a cumulative basis) of shares of Common Stock pursuant to a
registration statement or registration statements under the Securities Act with
aggregate gross proceeds to the Company of at least $50 million.
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<PAGE> 7
"Management Investors" shall have the meaning ascribed to it in the
Introduction hereof.
"Merger" shall have the meaning ascribed to it in the Recitals hereof.
"Merger Agreement" shall have the meaning ascribed to it in the Recitals
hereof.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq" shall mean The Nasdaq Stock Market, Inc.
"New Cost Per Share" shall have the meaning ascribed to it in the
Employment Agreement, by and between James M. Harrison and Confetti, dated as of
August 10, 1997, as in effect on the date hereof.
"Offer Shares" shall have the meaning ascribed to it in Section 2.4.1.
"Offeree Stockholders" shall have the meaning ascribed to it in Section
2.4.1.
"Options" shall mean options to purchase shares of Common Stock from the
Company, whether granted pursuant to the Stock Incentive Plan or otherwise.
"Permitted Transferee" shall have the meaning ascribed to it in Sections
2.3.3 and 2.3.4 hereof.
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, unincorporated organization, government (or any department or
agency thereof) or other entity.
"Piggyback Notice" shall have the meaning ascribed to it in Section 3.1(a)
hereof.
"Piggyback Registration" shall have the meaning ascribed to it in Section
3.1(a) hereof.
"Proposed Transferee" means a Person or group as defined in Section
13(d)(3) of the Exchange Act, other than any Stockholders or their Affiliates
(whether any such Affiliate is such prior to or upon consummation of the
proposed Transfer, but not solely by virtue of becoming a party to this
Agreement), to whom Common Stock is proposed to be Transferred pursuant to the
terms of Section 2.4.3(a) or 2.5 of this Agreement.
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<PAGE> 8
"Registrable Securities" shall mean the shares of Common Stock; provided,
however, as to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (ii) such securities shall
have been sold pursuant to Rule 144 (or any successor provision) under the
Securities Act, (iii) such securities shall have been otherwise transferred and
new certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by the Company, (iv) such securities shall
have ceased to be outstanding (and, in the case of shares of Common Stock
underlying options granted under the Stock Incentive Plan or underlying options
or warrants granted otherwise, such shares of Common Stock shall have ceased to
be outstanding after issuance pursuant to the exercise of such options or
warrants), or (v) in the case of shares of Common Stock held by a Management
Investor, such securities shall have been transferred to any Person other than a
Management Investor or a Permitted Transferee.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance with Article III of this Agreement, including
without limitation, (i) all SEC and stock exchange or the NASD registration and
filing fees, (ii) all fees and expenses of complying with securities or "blue
sky" laws (including reasonable fees and disbursements of counsel for the
underwriters in connection with "blue sky" qualifications of the Registrable
Securities), (iii) all printing, messenger and delivery expenses, (iv) the fees
and disbursements of counsel for the Company and of the Company's independent
public accountants, including the expenses of any special audits and/or "cold
comfort" letters required by or incident to such performance and compliance, (v)
the reasonable fees and disbursements of one counsel retained by the
Stockholders (if GSCP is one of the selling Stockholders, such counsel to be
selected by GSCP) as a group in connection with each such registration, (vi) any
fees and disbursements of underwriters customarily paid by issuers or sellers of
securities and the reasonable fees and expenses of any special experts retained
in connection with the requested registration, including any fee payable to a
qualified independent underwriter within the meaning of the rules of the NASD,
but excluding underwriting discounts and commissions and transfer taxes, if any,
(vii) internal expenses of the Company (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties) and (viii) securities acts liability insurance (if the
Company elects to obtain such insurance).
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<PAGE> 9
"Restricted Stock" shall have the meaning ascribed to it in the Employment
Agreements.
"Rule 144" shall mean Rule 144 under the Securities Act.
"Sale Notice" shall have the meaning ascribed to it is Section 2.4.1.
"SEC" shall mean the Securities and Exchange Commission.
"Section 3.1 Sale Number" shall have the meaning ascribed to it in Section
3.1(d) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stock Incentive Plan" shall have the meaning ascribed to it in the
Recitals hereof.
"Stone Street" shall have the meaning ascribed to it in the Introduction
hereof.
"Subsidiary Dividend" shall have the meaning ascribed to it in Section 4.1
hereof.
"Tag-Along Right" shall have the meaning ascribed to it in Section
2.4.3(a) hereof.
"Tag-Along Seller" shall have the meaning ascribed to it in Section
2.4.3(b) hereof.
"Tag-Along Shares" shall have the meaning ascribed to it in Section 2.4.2
hereof.
"Transfer" shall mean to sell, assign, pledge or encumber or otherwise
transfer, directly or indirectly, whether or not for consideration.
"Transferee" shall mean any Person to whom a Transfer is made, regardless
of the method of Transfer.
"Transferor" shall mean any Person by whom a Transfer is made, regardless
of the method of Transfer.
"Violation" shall have the meaning ascribed to it in Section 3.3(a)
hereof.
"Voting Agreement" shall have the meaning ascribed to it in the Recitals
hereof.
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<PAGE> 10
ARTICLE II
RESTRICTIONS ON TRANSFERS OF STOCK
2.1 General Prohibition on Transfers.
(a) Prohibition on Transfers Generally. No Management Investor
shall, at any time prior to an IPO, Transfer any shares of Common Stock, unless
such Transfer is made in accordance with Section 2.3, 2.4 or 2.5 or pursuant to
a Piggyback Registration, and any Transfer by any Management Investor of any
shares of Common Stock owned as of the date hereof or hereafter acquired not in
accordance with such provisions shall be null and void.
(b) Recordation. The Company shall not record upon its books any
Transfer of shares of Common Stock held or owned by any of the Management
Investors to any other Person except Transfers in accordance with this
Agreement.
(c) Obligations of Transferees. No Transfer of shares of Common
Stock by a Management Investor otherwise permitted pursuant to this Agreement
(other than pursuant to a Piggyback Registration or pursuant to a Tag-Along
Right or Drag-Along Right) shall be effective unless (x) the Transferee
(including a Permitted Transferee pursuant to Section 2.3) shall have executed
an appropriate document in form and substance reasonably satisfactory to the
Company confirming that (i) the Transferee takes such shares subject to all the
terms and conditions of this Agreement to the same extent as its Transferor was
bound by and entitled to the benefits of such provisions and (ii) the shares
shall bear legends, substantially in the forms required by Section 2.6, and (y)
such document shall have been delivered to and approved (as described above) by
the Company prior to such Transferee's acquisition of shares of Common Stock.
(d) Transfers to Competitors. Notwithstanding anything to the
contrary in this Agreement, no Management Investor shall, at any time, directly
or indirectly, Transfer any shares of Common Stock to any Person who is a
competitor of the Company or to any Affiliate of such a competitor (other than
Transfers to the Company and its Affiliates), unless such Transfer (i) is made
in connection with the exercise of a Tag-Along Right pursuant to Section 2.4 or
in connection with the exercise of a Drag-Along Right pursuant to Section 2.5,
in which event such sale may be effected only in accordance with such Section
2.4 or Section 2.5, as applicable, or (ii) is made
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<PAGE> 11
in accordance with the terms of this Agreement and is made pursuant to a widely
distributed, underwritten public offering registered under the Securities Act
(or an underwritten offering pursuant to the exercise of such Management
Investor's piggyback registration rights pursuant to Section 3.1(a) hereof) or
pursuant to a sale effected through an open market, nondirected broker's
transaction pursuant to Rule 144 in which the seller does not know that the
buyer is a competitor. For purposes of this provision, the good faith
determination of a majority of the entire Board that a proposed Transferee is a
"competitor," made within thirty (30) days of written notice to the Board of the
proposed Transfer, shall in all respects be conclusive.
2.2 Compliance with Securities Laws. No Management Investor shall Transfer
any shares of Common Stock unless the Transfer is made in accordance with the
terms of this Agreement and (i) the Transfer is pursuant to an effective
registration statement under the Securities Act and in compliance with any other
applicable federal securities laws and state securities or "blue sky" laws or
(ii) such Management Investor shall have furnished the Company with an opinion
of counsel, if reasonably requested by the Company, which opinion and counsel
shall be reasonably satisfactory to the Company, to the effect that no such
registration is required because of the availability of an exemption from
registration under the Securities Act and under any applicable state securities
or "blue sky" laws and that the Transfer otherwise complies with this Agreement
and any other applicable federal securities laws and state securities or "blue
sky" laws.
2.3 Permitted Transfers.
2.3.1 GSCP Transfers. (a) GSCP and any Affiliate of GSCP shall be
free to Transfer shares of Common Stock to any Person, in whole at any time, or
in part from time to time; provided, however, that if such Person is not
Affiliate of GSCP, such Transfer shall be subject to Section 2.4 and Section 2.5
hereof. In any Transfer made pursuant to the foregoing to an Affiliate of GSCP,
the Transferee shall agree, in connection with such Transfer, for the benefit of
the Company, that such Transferee will Transfer back to the Transferor or
another continuing Affiliate of GSCP (that will be similarly bound by this
sentence) any shares of Common Stock so Transferred, if the Transferee at any
time is no longer an Affiliate of GSCP.
(b) No Transfer of shares of Common Stock by GSCP or an Affiliate of
GSCP otherwise permitted pursuant to this Section 2.3.1 shall be effective
unless the Transferee (whether or not an Affiliate of GSCP) shall have executed
an appropriate
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<PAGE> 12
document in form and substance reasonably satisfactory to the Company confirming
that the Transferee takes such shares subject to all the terms and conditions of
this Agreement to the same extent as its Transferor was bound by and entitled to
the benefits of such provisions.
2.3.2 Management Investors. (a) The restrictions contained in
Sections 2.1(a) of this Agreement with respect to Transfers by Management
Investors (other than the Estate) of shares of Common Stock shall not apply to
any Transfer by a Management Investor (other than the Estate): (i) to or among
such Management Investor's spouse, children, grandchildren or other living
descendants, or to a trust or family partnership of which there are no principal
(i.e., corpus) beneficiaries or partners other than the grantor or one or more
of such Management Investor, spouse or described relatives, and provided, in the
case of a trust, that the existing beneficiaries and/or trustee(s) and/or
grantor(s) of such trust have the power to act with respect to the trust's
assets without court approval and, in the case of a family partnership, that the
partners thereof have the power to act with respect to the partnership's assets
without court approval and the partnership is not permitted to (x) distribute
assets to Persons who are not among the relatives listed above or (y) have
partners who are not among the relatives listed above, and, in any case, all the
partners agree, for the benefit of the Company and GSCP, not to amend such
provisions; (ii) to a legal representative of such Management Investor in the
event such Management Investor becomes mentally incompetent or to such
Management Investor's personal representative following the death of such
Management Investor; (iii) with the prior written approval of the Company, which
approval may be granted or withheld by the Board of Directors of the Company in
its sole and absolute discretion; and (iv) pursuant to any pledge by a
Management Investor to the Company or an Affiliate thereof for money borrowed to
purchase shares of Common Stock pursuant to the Employment Agreements, if
applicable.
(b) The restrictions contained in Section 2.1(a) of this Agreement
with respect to Transfers by the Estate shall not apply to any of the following
Transfers by the Estate: (i) to a qualified terminable interest property trust
in accordance with the terms of the will of the decedent of the Estate or (ii)
with the prior written approval of the Company which approval may be granted or
withheld by the Board of Directors of the Company in its sole and absolute
discretion.
2.3.3 Permitted Transferees. Transferees to whom Transfers are
permitted pursuant to clauses (i), (ii) and (iii) of Section 2.3.2(a) and
clauses (i) and (ii) of Section
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<PAGE> 13
2.3.2(b) are referred to herein as "Permitted Transferees." Any such permitted
Transfer shall be subject to the terms of this Agreement, including compliance
with Section 2.1(c).
2.3.4 Transfer by Permitted Transferees. The restrictions contained
in Section 2.1(a) of this Agreement with respect to Transfers by Management
Investors of shares of Common Stock shall not apply to any Transfer by a
Permitted Transferee of a Management Investor to such Management Investor or to
another Permitted Transferee of such Stockholder, and any such Transferee shall
also be a "Permitted Transferee," subject to the provisions of Section 2.3.3.
2.3.5 Other Transfer Restrictions. The restrictions contained in
Sections 2.1(a), 2.4 and 2.5 hereof and the provisions regarding Permitted
Transferees contained in this Section 2.3 shall be in addition to and not in
lieu or limitation of any restrictions on the ownership or Transfer of shares of
Common Stock (including with respect to any Restricted Stock) contained in any
Employment Agreement or any analogous provision of any employment, compensation
or benefit agreement or arrangement or other agreement between Confetti or the
Company and any Stockholder; provided, however, that upon the termination of any
such Employment Agreement or other such agreement or arrangement or lapsing of
such restrictions, the restrictions and provisions contained herein shall
continue in full force and effect pursuant to this Agreement.
2.4 Tag-Along Rights.
2.4.1 Sale Notice. If GSCP proposes to sell any of the Common Stock
owned by it, other than (a) to an Affiliate of GSCP, (b) pursuant to the
exercise of a Drag-Along Right pursuant to Section 2.5 of this Agreement, (c)
pursuant to a Demand Registration (which affords piggyback registration rights
pursuant to Section 3.1) or Piggyback Registration, or (d) following an IPO,
sales effected through open market, nondirected broker's transactions pursuant
to Rule 144, then GSCP shall first give written notice (the "Sale Notice") to
the Company and to each of the Management Investors (such Management Investors,
being referred to herein as the "Offeree Stockholders"), stating that GSCP
desires to make such sale, referring to Section 2.4 of this Agreement,
specifying the number of shares of Common Stock proposed to be sold by GSCP
pursuant to the offer (the "Offer Shares"), and specifying the price, the form
of consideration and the material terms pursuant to which such sale is proposed
to be made.
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<PAGE> 14
2.4.2 Tag-Along Election. Within seven (7) days of the date of
receipt of the Sale Notice, each Offeree Stockholder, other than GSCP, shall
deliver to GSCP and to the Company a written notice stating whether the Offeree
Stockholder elects to sell a pro rata portion of its Common Stock (equal to (A)
the total number of shares of Common Stock owned by such Offeree Stockholder,
plus the total number of shares of Common Stock then issuable upon exercise of
vested Options then exercisable by such Offeree Stockholder, multiplied by (B) a
fraction, (i) the numerator of which is the number of Offer Shares and (ii) the
denominator of which is the total number of shares of Common Stock held by GSCP
plus the total number of shares of Common Stock then issuable upon exercise or
conversion of any convertible securities, if applicable, then exercisable or
convertible by GSCP) to such Proposed Transferee on the same terms and
conditions as GSCP (with respect to each Offeree Stockholder, its "Tag-Along
Shares"). An election pursuant to the first sentence of this Section 2.4.2 shall
constitute an irrevocable commitment by the Offeree Stockholder making such
election to sell such Common Stock to the Proposed Transferee if the sale of
Offer Shares to the Proposed Transferee occurs on the terms contemplated hereby.
2.4.3 Seller's Rights to Transfer.
(a) Third Party Sale; Tag-Along Buyer. A sale to a Proposed
Transferee pursuant to Section 2.4 shall only be consummated if the Proposed
Transferee shall purchase, within 120 days of the date of the Sale Notice,
concurrently with and on the same terms and conditions and at the same price as
the Offer Shares, all of each Offeree Stockholder's Tag-Along Shares with
respect to such sale, in accordance with their elections pursuant to Section
2.4.2 (the "Tag-Along Right").
(b) Sale Agreement. Each Offeree Stockholder electing to sell
Tag-Along Shares (a "Tag-Along Seller") agrees to cooperate in consummating such
a sale, including, without limitation, by becoming a party to the sales
agreement and all other appropriate related agreements (other than any amendment
to such Tag-Along Seller's Employment Agreement, if any), delivering at the
consummation of such sale, stock certificates and other instruments for such
Common Stock duly endorsed for transfer, free and clear of all liens and
encumbrances, and voting or consenting in favor of such transaction (to the
extent a vote or consent is required) and taking any other necessary or
appropriate action in furtherance thereof, including the execution and delivery
of any other appropriate agreements, certificates, instruments and other
documents. The foregoing notwithstanding, in connection with such sale, a
Tag-Along
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Seller, as such, shall not be required to make any representations and
warranties with respect to the Company or the Company's business or with respect
to any other seller. In addition, each Tag-Along Seller shall be severally
responsible for its proportionate share of the expenses of sale incurred by the
sellers in connection with such sale and the obligations and liabilities
incurred by the sellers in connection with such sale. Such obligations and
liabilities shall include (to the extent such obligations are incurred)
obligations and liabilities for indemnification (including for (x) breaches of
representations and warranties made in connection with such sale by the Company
or any other seller with respect to the Company or the Company's business, (y)
breaches of covenants and (z) other matters), and shall also include amounts
paid into escrow or subject to holdbacks, and amounts subject to post-closing
purchase price adjustments. The foregoing notwithstanding, (1) without the
written consent of a Tag-Along Seller, the amount of such obligations and
liabilities for which such Tag-Along Seller shall be responsible shall not
exceed the gross proceeds received by such Tag-Along Seller in such sale and (2)
a Tag-Along Seller shall not be responsible for the fraud of any other seller or
for any indemnification obligations and liabilities for breaches of
representations and warranties made by any other seller with respect to such
other seller's (i) ownership of and title to shares of capital stock of the
Company, (ii) organization, (iii) authority and (iv) conflicts and consents.
(c) No Liability. Notwithstanding any other provision contained in
this Section 2.4.3, there shall be no liability on the part of the Company or
GSCP in the event that the sale pursuant to this Section 2.4.3 is not
consummated for any reason whatsoever. The decision whether to effect a Transfer
pursuant to this Section 2.4.3 shall be in the sole and absolute discretion of
GSCP.
2.5 Drag-Along Right.
2.5.1 Exercise. If GSCP proposes to make a bona fide sale of all of
its shares of Common Stock to a Proposed Transferee, pursuant to a stock sale,
merger, business combination, recapitalization, consolidation, reorganization,
restructuring or similar transaction, GSCP shall have the right (a "Drag-Along
Right"), exercisable upon fifteen (15) days' prior written notice to the other
Stockholders, to require the other Stockholders to sell all of their shares of
Common Stock and, at the election of GSCP, Options (whether vested or unvested)
to the Proposed Transferee on the same terms and conditions and at the same
price (in the case of Options the purchase price of each Option shall be equal
to the purchase price attributable
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to the number of shares of Common Stock issuable upon exercise of such Option
less the exercise price thereof) as GSCP.
2.5.2 Sale Agreement. Each Stockholder selling shares of Common
Stock pursuant to a transaction contemplated by this Section 2.5 (a "Drag-Along
Seller") agrees to cooperate in consummating such a sale, including, without
limitation, by becoming a party to the sales agreement and all other appropriate
related agreements (other than any amendment to such Drag-Along Seller's
Employment Agreement, if any), delivering at the consummation of such sale,
stock certificates and other instruments for such shares of Common Stock duly
endorsed for transfer, free and clear of all liens and encumbrances, and voting
or consenting in favor of such transaction (to the extent a vote or consent is
required) and taking any other necessary or appropriate action in furtherance
thereof, including the execution and delivery of any other appropriate
agreements, certificates, instruments and other documents. The foregoing
notwithstanding, in connection with such sale, a Drag-Along Seller, as such,
shall not be required to make any representations and warranties with respect to
the Company or the Company's business or with respect to any other seller. In
addition, each Drag-Along Seller shall be severally responsible for its
proportionate share of the expenses of sale incurred by GSCP in connection with
such sale and the obligations and liabilities incurred by the seller in
connection with such sale. Such obligations and liabilities shall include (to
the extent such obligations are incurred) obligations and liabilities for
indemnification (including for (x) breaches of representations and warranties
made in connection with such sale by the Company or any other seller with
respect to the Company or the Company's business, (y) breaches of covenants and
(z) other matters), and shall also include amounts paid into escrow or subject
to holdbacks, and amounts subject to post-closing purchase price adjustments.
The foregoing notwithstanding, (1) without the written consent of a Drag-Along
Seller, the amount of such obligations and liabilities for which such Drag-Along
Seller shall be responsible shall not exceed the gross proceeds received by such
Drag-Along Seller in such sale and (2) a Drag-Along Seller shall not be
responsible for the fraud of any other seller or any indemnification obligations
and liabilities for breaches of representations and warranties made by any other
seller with respect to such other seller's (i) ownership of and title to shares
of capital stock of the Company, (ii) organization, (iii) authority and (iv)
conflicts and consents.
2.5.3 No Liability. Notwithstanding any other provision contained in
this Section 2.5, there shall be no liability on the part of the Company or GSCP
in the event that the sale pursuant to this Section 2.5 is not consummated for
any
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reason whatsoever. The decision whether to effect a Transfer pursuant to this
Section 2.5 shall be in the sole and absolute discretion of GSCP.
2.6 Additional Provisions Relating to Restrictions on Transfers.
2.6.1 Legends. Each of the Stockholders hereby agrees that each
outstanding certificate representing shares of Common Stock held or owned by
such Stockholder or its Transferee, including any certificate representing
shares of Common Stock acquired in accordance with the provisions of this
Agreement or the Employment Agreements and any certificates representing shares
of Common Stock issued upon exercise of the Options, in any case, subject to the
provisions of this Agreement and issued prior to the date when the applicable
restrictions are terminated pursuant to Section 2.6.3, shall bear endorsements
reading substantially as follows:
(a) The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended, or under the
securities laws of any state and may not be transferred, sold or otherwise
disposed of except while such a registration is in effect or pursuant to
an exemption from registration under said Act and applicable state
securities laws.
(b) The securities represented by this certificate are subject
to the terms and conditions set forth in a Stockholders' Agreement, dated
as of December 19, 1997, copies of which may be obtained from the issuer
or from the holder of this security. No transfer of such securities will
be made on the books of the issuer unless accompanied by evidence of
compliance with the terms of such agreement.
Each outstanding certificate representing shares of Common Stock
shall also bear any legend required by the terms of the Employment Agreements or
the Stock Incentive Plan or as the Company may otherwise deem appropriate.
2.6.2 Copy of Agreement. A copy of this Agreement shall be filed
with the corporate secretary of the Company and kept with the records of the
Company and shall be made available for inspection by any stockholder of the
Company at the principal executive offices of the Company.
2.6.3 Termination of Restrictions. The restriction referred to in
the endorsement required pursuant to Section 2.6.1(a) shall cease and terminate
as to any particular shares
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of Common Stock when, in the reasonable opinion of counsel for the Company, such
restriction is no longer required in order to assure compliance with the
Securities Act. The Company or the Company's counsel, at their election, may
request from any Stockholder a certificate or an opinion of such Stockholder's
counsel with respect to any relevant matters in connection with the removal of
the endorsement set forth in Section 2.6.1(a) from such Stockholder's stock
certificates, any such certificate or opinion of counsel to be reasonably
satisfactory to the Company and its counsel. The restrictions referred to in
Section 2.6.1(b) shall cease and terminate as to any particular shares of Common
Stock when, in the reasonable opinion of counsel for the Company, the provisions
of this Agreement are no longer applicable to such shares or this Agreement
shall have terminated in accordance with its terms. Any other restrictions
referred to in any other legends required pursuant to Section 2.6.1 shall cease
and terminate when, in the reasonable opinion of counsel for the Company, such
restrictions are no longer applicable. Whenever such restrictions shall cease
and terminate as to any shares of Common Stock, the Stockholder holding such
shares shall be entitled to receive from the Company, without expense (other
than applicable transfer taxes, if any, if such unlegended shares are being
delivered and transferred to any Person other than the registered holder
thereof), new certificates for a like number of shares of Common Stock not
bearing the relevant legend(s) set forth or referred to in Section 2.6.1.
ARTICLE III
REGISTRATION RIGHTS
3.1 Piggyback and Demand Registrations.
(a) Piggyback Registrations. If at any time the Company proposes to
register for sale by the Company under the Securities Act any of its equity
securities (other than a registration on Form S-4 or Form S-8, or any successor
or similar forms), or any shares of Common Stock held by GSCP pursuant to
Section 3.1(b), in a manner that would permit registration of Registrable
Securities for sale to the public under the Securities Act and in an
underwritten offering, the Company will each such time promptly give written
notice to all Stockholders who beneficially own any Registrable Securities of
its intention to do so, of the registration form of the SEC that has been
selected by the Company and of such holders' rights under this Section 3.1 (the
"Piggyback Notice"). The Company will use its reasonable best efforts to
include, and to cause the underwriter or underwriters to include, in the
proposed offering, on
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the same terms and conditions as the securities of the Company included in such
offering, all Registrable Securities that the Company has been requested in
writing, within fifteen (15) calendar days after the Piggyback Notice is given,
to register by the Stockholders thereof (each such registration pursuant to this
Section 3.1(a), a "Piggyback Registration"); provided, however, that (i) if, at
any time after giving a Piggyback Notice and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such equity securities (or, in
the case of a Demand Registration (as defined below), GSCP so determines), the
Company may, at its election (or, in the case of a Demand Registration where
GSCP so determines, the Company shall), give written notice of such
determination to all Stockholders who beneficially own any Registrable
Securities and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such abandoned registration, and (ii)
in case of a determination by the Company to delay registration of its equity
securities (or, in the case of a Demand Registration, GSCP so determines), the
Company shall be permitted to (or, in the case of a Demand Registration where
GSCP so determines, the Company shall) delay the registration of such
Registrable Securities for the same period as the delay in registering such
other equity securities (provided that clauses (i) and (ii) shall not relieve
the Company of its obligations under Section 3.1(b)). In the case of any
registration of Registrable Securities in an underwritten offering pursuant to
this Section 3.1(a), all Stockholders proposing to distribute their securities
pursuant to this Section 3.1(a) shall, at the request of the Company (or, in the
case of a Demand Registration, GSCP), enter into an agreement in customary form
with the underwriter or underwriters selected by the Company (or, in the case of
a Demand Registration, selected by GSCP). Notwithstanding the foregoing,
following an IPO, the Company shall not be obligated to effect registration of
Registrable Securities for which Piggyback Registration is requested by a
Management Investor if, at the time of such request, all such Registrable
Securities are eligible for sale to the public by the requesting Management
Investor without registration under Rule 144 under the Securities Act, with such
sale not being limited by the volume restrictions thereunder.
(b) Demand Registrations. The Company, upon the reasonable request
of GSCP, shall, from time to time, use its reasonable best efforts to register
under the Securities Act any reasonable portion of Registrable Securities held
by GSCP (including, at the election of GSCP, in an underwritten offering) and
bear all expenses in connection with such offering in a manner consistent with
paragraph (c) below and shall enter into such other agreements in furtherance
thereof (including
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with underwriters selected by GSCP, including, in any case, Affiliates of GSCP
as lead underwriters, if requested by GSCP) (each such registration pursuant to
this Section 3.1(b), a "Demand Registration"), and the Company shall provide
customary indemnifications in such instances (in a manner consistent with the
indemnification provisions of this Article III) to GSCP and any such
underwriters; provided, however, that the Company shall not be obligated to
effect more than four Demand Registrations. A registration shall not count as a
Demand Registration unless and until the registration statement relating thereto
has been declared effective by the SEC and not withdrawn.
(c) Expenses. The Company shall pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Section 3.1; provided, however, that each Stockholder shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Stockholder's Registrable Securities pursuant to
a registration statement effected pursuant to this Section 3.1.
(d) Priority in Piggyback and Demand Registrations. If the managing
underwriter for a registration pursuant to this Section 3.1 shall advise the
Company in writing that, in its opinion, the number of securities requested to
be included in such registration exceeds the number (the "Section 3.1 Sale
Number") that can be sold in an orderly manner in such offering within a price
range acceptable to the Company (or, in the case of a Demand Registration, to
GSCP), the Company shall include in such offering (i) first, all the securities
the Company proposes to register for its own sale, and (ii) second, to the
extent that the securities the Company proposes to register are less than the
Section 3.1 Sale Number, all Registrable Securities requested to be included by
all Stockholders; provided, however, that if the number of such Registrable
Securities exceeds (x) the Section 3.1 Sale Number less (y) the number of
securities included pursuant to clause (i) hereof, then the number of such
Registrable Securities included in such registration shall be allocated pro rata
among all requesting Stockholders, on the basis of the relative number of shares
of such Registrable Securities each such Stockholder then holds. If there is any
reduction or exclusion of Registrable Securities pursuant to this Section 3.1(d)
in connection with a Demand Registration, such registration shall not be deemed
to be a Demand Registration for purposes of determining the maximum number of
Demand Registrations the Company is obligated to effect pursuant to Section
3.1(b) hereof.
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(e) Underwriting Requirements. In connection with any offering
involving any underwriting of securities in a Piggyback Registration, the
Company shall not be required to include any Stockholder's Registrable
Securities in such underwriting unless such Stockholder accepts the terms of the
underwriting as agreed upon between the Company and the underwriters in such
quantities and on such terms as set forth in Section 3.1(a) hereof, and such
Management Investor agrees to sell such Management Investor's securities on the
basis provided therein and completes and/or executes all questionnaires,
indemnities, lock-ups, underwriting agreements and other documents (including
powers of attorney and custody arrangements) required generally of all selling
Stockholders, in each case in customary form and substance, which are requested
to be executed in connection therewith.
3.2 Registration Procedures. If and whenever the Company is required to
use its reasonable best efforts to effect or cause the registration of any
Registrable Securities under the Securities Act as provided in this Article III,
the Company will, as soon as practicable:
(a) prepare and file with the SEC the requisite registration
statement with respect to such Registrable Securities and use its
reasonable best efforts to cause such registration statement to become and
remain effective;
(b) prepare and file with the SEC 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 for such period as the Company shall deem appropriate and to
comply with the provisions of the Securities Act with respect to the sale
or other disposition of all securities covered by such registration
statement during such period;
(c) furnish to each seller of such Registrable Securities and each
underwriter such number of copies of such registration statement and of
each amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and summary
prospectus), in conformity with the requirements of the Securities Act,
and such other documents as such seller may reasonably request;
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(d) promptly notify each Stockholder that holds Registrable
Securities covered by such registration statement, (i) when such
registration statement or any post-effective amendment or supplement
thereto becomes effective, (ii) of the issuance by the SEC or any state
securities authority of any stop order, injunction or other order or
requirement suspending the effectiveness of such registration statement
(and take all reasonable action to prevent the entry of such stop order or
to remove it if entered, or the initiation of any proceedings for that
purpose), or (iii) of the happening of any event as a result of which the
registration statement, as then in effect, the prospectus related thereto
or any document included therein by reference includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made and promptly file
such amendments and supplements which may be required on account of such
event and use its reasonable best efforts to cause each such amendment and
supplement to become effective;
(e) promptly furnish counsel for each underwriter, if any, and for
the selling Stockholders of Registrable Securities copies of any written
request by the SEC or any state securities authority for amendments or
supplements to a registration statement and prospectus or for additional
information;
(f) use reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of a registration statement at the
earliest possible time;
(g) use its best efforts to cause all such Registrable Securities
covered by such registration statement to be listed on the principal
securities exchange or authorized for quotation on Nasdaq on which similar
equity securities issued by the Company are then listed or authorized for
quotation, or eligible for listing or quotation, if the listing or
authorization for quotation of such securities is then permitted under the
rules of such exchange or the NASD;
(h) enter into an underwriting agreement with the underwriter of
such offering in the form customary for such underwriter for similar
offerings, including such representations and warranties by the Company,
provisions
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regarding the delivery of opinions of counsel for the Company and
accountants' letters, provisions regarding indemnification and
contribution, and such other terms and conditions as are at the time
customarily contained in such underwriter's underwriting agreements for
similar offerings (the sellers of Registrable Securities which are to be
distributed by such underwriter(s) may, at their option, require that any
or all of the representations and warranties by, and the other agreements
on the part of, the Company to and for the benefit of such underwriter(s)
shall also be made to and for the benefit of such sellers of Registrable
Securities);
(i) make available for inspection by representatives of the selling
Stockholders who hold Registrable Securities and any underwriters
participating in any disposition pursuant hereto and any counsel or
accountant retained by such Stockholders or underwriters, all relevant
financial and other records, pertinent corporate documents and properties
of the Company and cause the respective officers, directors and employees
of the Company to supply all information reasonably requested by any such
representative, underwriter, counsel or accountant in connection with a
registration pursuant hereto; provided, however, that, with respect to
records, documents or information which the Company determines, in good
faith, to be confidential and as to which the Company notifies such
representatives, underwriters, counsel or accountants in writing of such
confidentiality, such representatives, underwriters, counsel or
accountants shall not disclose such records, documents or information
unless (i) the release of such records, documents or information is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction, (ii) such records, documents or information have previously
been generally made available to the public, or (iii) the disclosure of
such records, documents or information is necessary, in the written
opinion of outside legal counsel, to avoid or correct a material
misstatement or omission in the registration statement and then only after
reasonable request has been made to the Company to make such disclosure
and the Company has denied such request. Each selling Stockholder of such
Registrable Securities agrees that information obtained by it as a result
of such inspections shall be deemed confidential and shall not be used by
it as the basis for any market transactions in the securities of the
Company or its Affiliates (or for such Stockholder's business purposes or
for any reason other than in connection with a registration hereunder)
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unless and until such information is made generally available (other than
by such Stockholder or where such Stockholder knows that such information
became publicly available as a result of a breach of any confidentiality
arrangement) to the public. Each selling Stockholder of such Registrable
Securities further agrees that it will, upon learning that disclosure of
such records is sought, give notice to the Company and allow the Company,
at its expense, to undertake appropriate action to prevent disclosure of
the records deemed confidential;
(j) permit any beneficial owner of Registrable Securities who, in
the sole judgment, exercised in good faith, of such holder, might be
deemed to be a controlling person of the Company, to participate in the
preparation of such registration or comparable statement and to require
the insertion therein of material, furnished to the Company in writing,
that in the judgment of such holder, as aforesaid, should be included; and
(k) make reasonably available its employees and personnel and
otherwise provide reasonable assistance to the underwriters (taking into
account the needs of the Company's businesses and the requirements of the
marketing process) in the marketing of Registrable Securities in any
underwritten offering.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing. The Company shall not be
required to register or qualify any Registrable Securities covered by such
registration statement under any state securities, or "blue sky," laws of such
jurisdictions other than as it deems necessary in connection with the chosen
method of distribution or to take any other actions or do any other things other
than those it deems necessary or advisable to consummate such distribution, and
the Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would not
otherwise be obligated to be so qualified, to subject itself to taxation in any
such jurisdiction or to consent to general service of process in any such
jurisdiction.
Each beneficial owner of Registrable Securities agrees that upon
receipt of any notice from the Company of the happening of any event of the kind
described in subclauses (i) and (ii) of clause (d) of this Section 3.2, such
beneficial owner will forthwith discontinue disposition of Registrable
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Securities pursuant to the registration statement covering such Registrable
Securities until such beneficial owner's receipt of the copies of the
supplemented or amended prospectus contemplated by clause (d) of this Section
3.2, and, if so directed by the Company, such beneficial owner will deliver to
the Company (at the Company's expense) all copies, other than permanent file
copies then in such beneficial owner's possession, of the prospectus covering
such Registrable Securities that was in effect prior to such amendment or
supplement.
3.3 Indemnification.
(a) In the event of any registration of any Registrable Securities
pursuant to this Article III, the Company will, and hereby does, indemnify and
hold harmless, to the fullest extent permitted by law, the seller of any
Registrable Securities covered by such registration statement, its directors,
officers, fiduciaries, employees and stockholders or general and limited
partners (and the directors, officers, fiduciaries, employees and stockholders
or general and limited partners thereof), each other Person who participates as
an underwriter or a qualified independent underwriter, if any, in the offering
or sale of such securities, each director, officer, fiduciary, employee and
stockholder or general and limited partner of such underwriter or qualified
independent underwriter, and each other Person (including any such Person's
directors, officers, fiduciaries, employees and stockholders or general and
limited partners), if any, who controls such seller or any such underwriter or
qualified independent underwriter, within the meaning of the Securities Act,
against any and all Claims in respect thereof and expenses (including reasonable
fees and expenses of counsel and any amounts paid in any settlement effected
with the Company's consent, which consent shall not be unreasonably withheld or
delayed) to which each such indemnified party may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims or
expenses arise out of or are based upon any of the following actual or alleged
statements, omissions or violations (each, a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement under which such securities were registered pursuant to
this Agreement under the Securities Act or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary, final or summary prospectus or any
amendment or supplement thereto, together with the documents incorporated by
reference therein, or the omission or alleged omission to state therein a
material
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fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or (iii) any violation by the Company of any federal, state or
common law rule or regulation applicable to the Company and relating to action
required of or inaction by the Company in connection with any such registration,
and the Company will reimburse any such indemnified party for any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such Claim as such expenses are incurred;
provided, that the Company shall not be liable to any such indemnified party in
any such case to the extent such Claim or expense arises out of or is based upon
any Violation which occurs in reliance upon and in conformity with written
information furnished to the Company or its representatives by or on behalf of
such indemnified party expressly stating that such information is for use
therein.
(b) Each holder of Registrable Securities that are included in the
securities as to which any Demand Registration or Piggyback Registration is
being effected (and, if the Company requires as a condition to including any
Registrable Securities in any registration statement filed in connection with
any Demand Registration or Piggyback Registration, any underwriter and qualified
independent underwriter, if any) shall, severally and not jointly, indemnify and
hold harmless (in the same manner and to the same extent as set forth in
paragraph (a) of this Section 3.3), to the extent permitted by law, the Company,
its directors, officers, fiduciaries, employees and stockholders (and the
directors, officers, fiduciaries, employees and stockholders or general and
limited partners thereof) and each Person (including any such Person's
directors, officers, fiduciaries, employees and stockholders or general and
limited partners), if any, controlling the Company within the meaning of the
Securities Act and all other prospective sellers and their directors, officers,
fiduciaries, employees and stockholders or general and limited partners and
respective controlling Persons (including any such Person's directors, officers,
fiduciaries, employees and stockholders or general and limited partners) against
any and all Claims and expenses (including reasonable fees and expenses of
counsel and any amounts paid in any settlement effected with the consent of the
indemnifying party, which consent shall not be unreasonably withheld or delayed)
to which each such indemnified party may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such Claims or expenses arise out
of or are based upon any Violation which occurs in reliance upon and in
conformity with written information furnished to the Company or its
representatives by or on behalf of such holder or underwriter or qualified
independent underwriter, if any, expressly
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stating that such information is for use in connection with any registration
statement, preliminary, final or summary prospectus or amendment or supplement
or document incorporated by reference into any of the foregoing; provided,
however, that the aggregate amount which any such holder, underwriter or
qualified independent underwriter shall be required to pay pursuant to this
Section 3.3(b) and Sections 3.3(c) and (e) shall be limited to (x) in the case
of any such holder, the amount of the gross proceeds received by such holder
upon the sale of the Registrable Securities pursuant to the registration
statement giving rise to such claim and (y) in the case of any such underwriter
or qualified independent underwriter, the amount of the total sales price of the
Registrable Securities sold through or by it pursuant to the registration
statement giving rise to such claim.
(c) Indemnification similar to that specified in the preceding
paragraphs (a) and (b) of this Section 3.3 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities (and, if
the Company requires as a condition to including any Registrable Securities in
any registration statement filed in connection with any Demand Registration or
Piggyback Registration, any underwriter and qualified independent underwriter,
if any) with respect to any required registration or other qualification of
securities under any state securities and "blue sky" laws.
(d) Any Person entitled to indemnification under this Agreement
shall notify promptly the indemnifying party in writing of the commencement of
any action or proceeding with respect to which a claim for indemnification may
be made pursuant to this Section 3.3, but the failure of any indemnified party
to provide such notice shall not relieve the indemnifying party of its
obligations under the preceding paragraphs of this Section 3.3, except to the
extent the indemnifying party is prejudiced thereby and shall not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than under this Section 3.3. In case any action or proceeding is
brought against an indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, unless in the reasonable opinion of outside counsel to
the indemnified party a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, to assume the defense
thereof jointly with any other indemnifying party similarly notified, to the
extent that it chooses, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party
that it so chooses, the indemnifying party shall not be liable to such
indemnified party for any
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legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that (i) if the indemnifying party fails to
take reasonable steps necessary to defend diligently the action or proceeding
within twenty (20) days after receiving notice from such indemnified party that
the indemnified party believes it has failed to do so; or (ii) if such
indemnified party who is a defendant in any action or proceeding which is also
brought against the indemnifying party reasonably shall have concluded that
there may be one or more legal defenses available to such indemnified party
which are not available to the indemnifying party; or (iii) if representation of
both parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct, then, in any such case, the indemnified party
shall have the right to assume or continue its own defense as set forth above
(but with no more than one firm of counsel for all indemnified parties in each
jurisdiction, except to the extent any indemnified party or parties reasonably
shall have concluded that there may be legal defenses available to such party or
parties which are not available to the other indemnified parties or to the
extent representation of all indemnified parties by the same counsel is
otherwise inappropriate under applicable standards of professional conduct) and
the indemnifying party shall be liable for any expenses therefor. No
indemnifying party shall, without the written consent of the indemnified party,
which consent shall not be unreasonably withheld, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any
pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party is an
actual or potential party to such action or claim) unless such settlement,
compromise or judgment (A) includes an unconditional release of the indemnified
party from all liability arising out of such action or claim and (B) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any indemnified party.
(e) If for any reason the foregoing indemnity is unavailable or is
insufficient to hold harmless an indemnified party under Section 3.3(a), (b) or
(c), then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of any Claim in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other from the relevant offering of
securities. If, however, the allocation provided in the immediately preceding
sentence is not permitted by applicable law, or if the indemnified party failed
to give the notice required by Section 3.3(d) above and
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<PAGE> 29
the indemnifying party is prejudiced thereby, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative fault of but also
the relative benefits received by the indemnifying party, on the one hand, and
the indemnified party, on the other hand, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the Violation relates to information supplied by
the indemnifying party or the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such Violation. The parties hereto agree that it would not be just and equitable
if contributions pursuant to this Section 3.3(e) were to be 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 preceding sentences of this
Section 3.3(e). The amount paid or payable in respect of any Claim shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such Claim.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Notwithstanding
anything in this Section 3.3(e) to the contrary, no indemnifying party (other
than the Company) shall be required pursuant to this Section 3.3(e) to
contribute any amount in excess of (x) in the case of an indemnifying party that
is a holder of Registrable Securities, the gross proceeds received by such
indemnifying party from the sale of Registrable Securities in the offering to
which the losses, claims, damages or liabilities of the indemnified parties
relate, or (y) in the case of an indemnifying party that is an underwriter or a
qualified independent underwriter, the amount of the total sales price of the
Registrable Securities sold through or by it in the offering to which the
losses, claims, damages or liabilities of the indemnified parties relate, less,
in any such case referred to in (x) and (y), the amount of all indemnification
and contribution payments made pursuant to Sections 3.3(b) and (c) and this
Section 3.3(e), as the case may be, in connection with such offering.
(f) The indemnity agreements contained herein shall be in addition
to any other rights to indemnification or contribution which any indemnified
party may have pursuant to law or contract and shall remain operative and in
full force and effect regardless of any investigation made or omitted by or on
behalf of any indemnified party and shall survive the transfer of the
Registrable Securities by any such party.
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<PAGE> 30
(g) The indemnification and contribution required by this Section
3.3 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred.
(h) In connection with underwritten offerings, the Company will use
reasonable best efforts to negotiate terms of indemnification that are
reasonably favorable to the various sellers pursuant thereto, as appropriate
under the circumstances.
3.4 Holdback Agreement.
(a) If requested in writing by the Company or the underwriter, if
any, of any offering affording Stockholders registration rights pursuant to
Section 3.1 (whether or not some or all of such Stockholder's Registrable
Securities are subject to a cutback pursuant to Section 3.1 of this Agreement),
including without limitation an IPO, each Stockholder agrees not to effect any
public sale or distribution, including any sale pursuant to Rule 144, of any
Registrable Securities or any other equity security of the Company or of any
security convertible into or exchangeable or exercisable for any equity security
of the Company (in each case, other than as part of such underwritten public
offering) within fourteen (14) days before or 180 days after the effective date
of a registration statement affording Stockholders registration rights pursuant
to Section 3.1 (including where subject to a cutback pursuant to Section
3.1(d)).
(b) If requested in writing by the underwriter of any offering in
connection with a Demand Registration, the Company agrees not to effect any
public sale or distribution (other than public sales or distributions solely by
and for the account of the Company of securities issued (x) pursuant to any
employee or director benefit or similar plan or any dividend reinvestment plan
or (y) in any acquisition by the Company) of any Registrable Securities or any
other equity security of the Company or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (in each
case, other than as part of such underwritten public offering), within fourteen
(14) days before or 180 days after the effective date of a registration
statement filed in connection with a Demand Registration, or for such shorter
period as the sole or lead managing underwriter shall request, in any such case,
unless consented to by such underwriter.
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<PAGE> 31
ARTICLE IV
MANAGEMENT INVESTORS' PUTS AND CALLS
4.1 Call Rights. If, prior to the consummation of an IPO, a Management
Investor (other than the Estate or the Estate's Permitted Transferees) dies or
the Management Investor's (other than the Estate or the Estate's Permitted
Transferees) employment by the Company terminates for any reason (including due
to a Disability, as defined in such Management Investor's Employment Agreement
or any analogous provision of any employment, compensation or benefit agreement
or arrangement, if any, and if not so defined, upon the good faith determination
of the Board of Directors of the Company of such Disability), the Company shall
have the right, at its election, to purchase all (but not less than all) of the
Management Investor's shares of Common Stock (including any shares held by its
Permitted Transferees) within six (6) months after such termination, or fifteen
(15) months after such termination in the case of death of the Management
Investor (with respect to any shares of Common Stock acquired after such
termination or death upon the exercise of Options held by the Management
Investor, such period to run from the date of exercise) at a price equal to the
Fair Market Value of such Common Stock determined as of, in all cases other than
the death of the Management Investor, the date such termination is effective
and, in the case of the Management Investor's death, as of the date of death.
The Company shall pay the purchase price in cash to the extent that (x)
subsidiaries of the Company are permitted to dividend the funds for such
purchase to the Company (a "Subsidiary Dividend") (under both applicable law and
the indebtedness of the Company and its Affiliates) and (y) the Company is
permitted to purchase such shares for cash (under both applicable law and such
indebtedness). The Company shall fund any amount not permitted to be funded
through a Subsidiary Dividend or to be used to purchase such shares with a
Buy-Out Note. The Board of Directors of the Company may, in its discretion,
assign the rights and obligations of the Company under this Section 4.1 to any
other Person, but no such assignment shall relieve the Company of its
obligations hereunder to the extent not satisfied by such assignee.
4.2 Put Rights. If, prior to the consummation of an IPO, a Management
Investor (other than the Estate or the Estate's Permitted Transferee) dies or
the Management Investor's (other than the Estate or the Estate's Permitted
Transferee's) employment by the Company is terminated by the Company for any
reason (including due to a Disability, as defined in such Management Investor's
Employment Agreement or any analogous provision of any employment, compensation
or benefit
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<PAGE> 32
agreement or arrangement, if any, and if not so defined, upon the good faith
determination of the Board of Directors of the Company of such Disability), the
Management Investor or the Management Investor's legal representative or
trustee, as the case may be, shall have the right, within three (3) months after
such termination is effective (or one year after the date of death in the case
of the Management Investor's death), to require the Company to purchase all (but
not less than all) of the Management Investor's Common Stock (including any
shares held by its Permitted Transferees) at a price equal to (A) in the case of
termination by reason of death or Disability, the Fair Market Value thereof
determined as of the date of death (in the case of termination due to death) or
the date such other termination is effective and (B) in the case of termination
by the Company for any other reason, the lower of (1) Fair Market Value and (2)
the product of (x) the number of shares of Common Stock and (y) the New Cost Per
Share (subject to adjustment to reflect any adjustments to the Common Stock made
to reflect any merger, reorganization, consolidation, recapitalization, spinoff,
stock dividend, stock split, extraordinary distribution with respect to the
Common Stock or other change in corporate structure affecting the Common Stock,
as the Company reasonably shall deem fair and appropriate). To the extent the
funds for such purchase are permitted under the indebtedness of the Company and
its Affiliates and applicable law to be funded through a Subsidiary Dividend and
to be used to purchase such shares, the Company shall pay the purchase price in
cash. The Company shall pay any amount not permitted to be funded through a
Subsidiary Dividend or to be used to purchase such shares with a Buy-Out Note.
The Board of Directors of the Company may, in its discretion, assign the rights
and obligations of the Company under this Section 4.2 to any other Person, but
no such assignment shall relieve the Company of its obligations hereunder to the
extent not satisfied by such assignee.
ARTICLE V
MISCELLANEOUS
5.1 Effectiveness; Term. (a) This Agreement shall become effective (the
"Effective Date") simultaneously with the closing of the transactions under the
Merger Agreement and shall terminate without liability or penalty on the part of
any party or its directors, officers, fiduciaries, employees and stockholders or
general and limited partners (and the directors, officers, fiduciaries,
employees and stockholders or general and limited partners thereof) to any other
party or such
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<PAGE> 33
other party's Affiliates upon the termination of the Merger Agreement pursuant
to its terms.
(b) Unless theretofore terminated pursuant to the preceding
paragraph, the rights and obligations of, and restrictions on, the Stockholders
under Article II of this Agreement shall terminate when GSCP and its Affiliates
no longer hold in the aggregate at least 40% of the fully diluted shares of
Common Stock then outstanding. Notwithstanding the foregoing, in the event the
Company enters into any agreement to merge with or into any other Person or
adopts any other plan of recapitalization, consolidation, reorganization or
other restructuring transaction as a result of which the Stockholders and their
respective Permitted Transferees (including GSCP and any Affiliates thereof)
shall own less than a majority of the outstanding voting power of the entity
surviving such transaction, this Agreement shall terminate.
(c) Unless theretofore terminated pursuant to Section 5.1(a), and
notwithstanding anything in Section 5.1(b) to the contrary, the provisions
contained in Article III hereof shall continue to remain in full force and
effect until the earlier to occur of the twentieth anniversary of the date
hereof and the date on which there are no longer any Registrable Securities
outstanding or issuable or thereafter available for or subject to issuance to
any Stockholder upon exercise or conversion of any options, warrants, rights or
other convertible securities; provided, however, that the provisions of Section
3.3 hereof shall survive termination pursuant to Section 5.1(b) or (c) of this
Agreement.
5.2 No Voting or Conflicting Agreements. Prior to an IPO, no Management
Investor shall grant any proxy or enter into or agree to be bound by any voting
trust with respect to the Common Stock nor, at any time, shall any Management
Investor enter into any stockholder agreements or arrangements of any kind with
any Person with respect to the Common Stock inconsistent with the provisions of
this Agreement (whether or not such agreements and arrangements are with other
Management Investors or holders of Common Stock that are not parties to this
Agreement). The foregoing prohibition includes, but is not limited to,
agreements or arrangements with respect to the acquisition, disposition or
voting of shares of Common Stock inconsistent with the provisions of this
Agreement. No Management Investor shall act, at any time, for any reason, as a
member of a group or in concert with any other Persons in connection with the
acquisition, disposition or voting of shares of Common Stock in any manner which
is inconsistent with the provisions of this Agreement.
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<PAGE> 34
5.3 Approval of Stock Incentive Plan by Stockholders.
The Stockholders by their execution of this Agreement, hereby
approve the Stock Incentive Plan, a copy of which is attached hereto as Exhibit
A.
5.4 Specific Performance. The parties hereto acknowledge that there would
be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to any
other remedy to which it may be entitled at law or in equity, shall be entitled
to compel specific performance of the obligations of any other party under this
Agreement in accordance with the terms and conditions of this Agreement. Any
remedy under this Section 5.4 is subject to certain equitable defenses and to
the discretion of the court before which any proceedings therefor may be
brought.
5.5 Notices. All notices, statements, instructions or other documents
required to be given hereunder shall be in writing and shall be given either
personally or by mailing the same in a sealed envelope, by overnight courier or
by first-class mail, postage prepaid and either certified or registered, in
either case, return receipt requested, or by telecopy, addressed to the Company
at its principal offices and to the other parties at their addresses reflected
on the signature pages hereto. Each party hereto, by written notice given to the
other parties hereto in accordance with this Section 5.5, may change the address
to which notices, statements, instructions or other documents are to be sent to
such party. All notices, statements, instructions and other documents hereunder
that are mailed or telecopied shall be deemed to have been given on the date of
mailing or, in the case of telecopying, upon confirmation of receipt.
5.6 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties, and their respective successors and
assigns. If any Stockholder or any Affiliate thereof or any Transferee of any
Stockholder shall acquire any shares of Common Stock in any manner, whether by
operation of law or otherwise, such shares shall be held subject to all of the
terms of this Agreement, and by taking and holding such shares such Person shall
be conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement.
5.7 Recapitalizations and Exchanges Affecting Common Stock. The provisions
of this Agreement shall apply, to the full extent set forth herein with respect
to Common Stock, to any and all shares of capital stock or equity securities of
the
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<PAGE> 35
Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets or otherwise) which may be issued in respect of,
in exchange for, or in substitution of, the Common Stock, or which may be issued
by reason of any stock dividend, stock split, reverse stock split, combination,
recapitalization, reclassification or otherwise. Upon the occurrence of any of
such events, numbers of shares and amounts hereunder shall be appropriately
adjusted, as determined in good faith by the Board of Directors of the Company.
5.8 Governing Law. This Agreement shall be governed and construed and
enforced in accordance with the laws of the State of New York, without regard to
the principles of conflicts of law thereof.
5.9 Descriptive Headings, Etc. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Agreement
otherwise requires, references to "hereof," "herein," "hereby," "hereunder" and
similar terms shall refer to this entire Agreement.
5.10 Amendment; Waiver; Bylaws. This Agreement may not be amended or
supplemented except by an instrument in writing signed by the Company and by
Stockholders holding a majority of the then outstanding shares of Common Stock
held by all Stockholders; provided that any amendment, supplement or
modification of this Agreement which adversely affects the rights and
obligations of any Stockholder (an "Affected Holder") differently than those of
any other Stockholder shall also require the approval of such Affected Holder;
provided further, the foregoing proviso notwithstanding, any amendment,
supplement or modification of this Agreement that adversely affects the
Management Investors (or a group thereof) as a class may be approved by
Management Investors (or members of such group, as the case may be) holding
Common Stock or Options to purchase Common Stock, which together represent a
majority of the sum of the total number of (x) the shares of such Common Stock
and (y) the shares of Common Stock issuable upon exercise of such Options held
by all the Management Investors (or such group, as the case may be). The
foregoing notwithstanding, (i) the Company, without the consent of any other
party hereto, may amend Schedule I and the signature pages hereto, in order to
add any Management Investor or any other party that becomes a holder of Common
Stock or securities convertible into or exercisable for Common Stock and (ii)
GSCP and the Company may amend Article III of this Agreement (other than in a
manner that would materially reduce the Management Investor's rights or
materially increase the Management Investor's obligations with respect to
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<PAGE> 36
Piggyback Registrations) without the agreement or consent of any Management
Investor.
5.11 Severability. If any term or provision of this Agreement shall to any
extent be invalid or unenforceable, the remainder of this Agreement shall not be
affected thereby, and each term and provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by law. Upon the determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties shall negotiate in good faith to modify this Agreement so
as to effect their original intent as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
5.12 Further Assurances. The parties hereto shall from time to time
execute and deliver all such further documents and do all acts and things as the
other party may reasonably require to effectively carry out or better evidence
or perfect the full intent and meaning of this Agreement, including, to the
extent necessary or appropriate, using all reasonable efforts to cause the
amendment of the Amended Certificate or the By-Laws in order to provide for the
enforcement of this Agreement in accordance with its terms. In furtherance and
not in limitation of the foregoing, in the event of any amendment, modification
or termination of this Agreement in accordance with its terms, the Stockholders
shall cause the Board to meet within thirty (30) days following such amendment,
modification or termination or as soon thereafter as is practicable for the
purpose of amending the Amended Certificate and By-Laws, as may be required as a
result of such amendment, modification or termination, and, to the extent
required by law, proposing such amendments to the stockholders of the Company
entitled to vote thereon, and such action shall be the first action to be taken
at such meeting.
5.13 Complete Agreement; Counterparts. This Agreement (together with the
Merger Agreement, the Voting Agreement, the Stock Incentive Plan, the Employment
Agreements and the other agreements referred to herein and therein) constitutes
the entire agreement and supersedes all other agreements and understandings,
both written and oral, among the parties or any of them, with respect to the
subject matter hereof. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
5.14 Certain Transactions. The parties hereto agree that Goldman Sachs
shall have the exclusive right to perform all
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<PAGE> 37
consulting, financing, investment banking and similar services for the Company
and its subsidiaries (including as lead underwriter or in any analogous role in
connection with any public or private offering of securities or debt, and
including in connection with the Merger), for customary compensation and on
other terms that are customary for similar engagements with unaffiliated third
parties, and neither the Company nor its subsidiaries shall engage any other
Person to perform such services during the term of this Agreement except to the
extent Goldman Sachs shall consent thereto or shall decline, at its sole
election, to perform such services.
5.15 No Third Party Beneficiaries. The provisions of this Agreement shall
be only for the benefit of the parties to this Agreement, and no other Person
(other than Goldman Sachs with respect to Section 5.14) shall have any third
party beneficiary or other right hereunder.
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<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be duly executed on the date first written above.
AMSCAN HOLDINGS, INC.
By: /s/ GERALD C. RITTENBERG
-------------------------------------
Name: Gerald C. Rittenberg
Title: Chief Executive Officer
Address: 80 Grasslands Road
Elmsford, New York 10523
Attn: Secretary
Telecopier No.: (914) 345-2056
GS CAPITAL PARTNERS II, L.P.
By: GS Advisors, L.P.
General Partner
By: GS Advisors Inc., its
General Partner
By: /s/ RICHARD A. FRIEDMAN
-------------------------------------
Name: Richard A. Friedman
Title: President
Address: c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Attn: David J. Greenwald
Telecopier No.: (212) 357-5505
<PAGE> 39
GS CAPITAL PARTNERS II OFFSHORE, L.P.
By: GS Advisors II (Cayman), L.P.
General Partner
By: GS Advisors II, Inc., its
General Partner
By: /s/ RICHARD A. FRIEDMAN
-------------------------------------
Name: Richard A. Friedman
Title: President
Address: c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Attn: David J. Greenwald
Telecopier No.: (212) 357-5505
GOLDMAN, SACHS & CO. VERWALTUNGS GMBH
By: /s/ RICHARD A. FRIEDMAN
-------------------------------------
Name: Richard A. Friedman
Title: Managing Agent
By: /s/ EVE GERRIETS
-------------------------------------
Name: Eve Gerriets
Title: Registered Agent
Address: c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Attn: David J. Greenwald
Telecopier No.: (212) 357-5505
<PAGE> 40
STONE STREET FUND 1997, L.P.
By: Stone Street Asset Corp.
General Partner
By: /s/ RICHARD A. FRIEDMAN
-------------------------------------
Name: Richard A. Friedman
Title:
Address: c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Attn: David J. Greenwald
Telecopier No.: (212) 357-5505
BRIDGE STREET FUND 1997, L.P.
By: Stone Street Asset Corp.
Managing General Partner
By: /s/ RICHARD A. FRIEDMAN
-------------------------------------
Name: Richard A. Friedman
Title:
Address: c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Attn: David J. Greenwald
Telecopier No.: (212) 357-5505
<PAGE> 41
THE ESTATE OF JOHN A. SVENNINGSEN
By: /s/ CHRISTINE SVENNINGSEN
------------------------------------
Name: Christine Svenningsen
Title: Executrix
Address:
The following individuals, in their capacities as trustees or other fiduciaries
(whether on the date hereof or at any point in the future) of any trust or
similar instrument created by or at the instruction of, or under the last will
and testament of, John A. Svenningsen or the Estate, acknowledge this Agreement
and agree to be bound by the terms hereof in each such capacity, such agreement
being for the benefit of each of the parties hereto, and such individuals
further agree to cause any such trust or similar instrument upon its formation
to become a party to this Agreement as a Permitted Transferee pursuant to
Section 2.3.3 hereof (and as if a Management Investor hereunder) and in
accordance herewith have agreed to and acknowledged this Agreement:
By: /s/ LEE HARRISON CORBIN Dated: December 19, 1997
-------------------------- -----------------------
Name: Lee Harrison Corbin
Title: Attorney-In-Fact for Trustee
Address: 1 North Broadway
White Plains, NY 10801
By: /s/ FANNY S. WARREN Dated: December 19, 1997
-------------------------- -----------------------
Name: Fanny S. Warren
Title: Trustee
Address: 1 North Broadway
White Plains, NY 10801
<PAGE> 42
/s/ GERALD C. RITTENBERG Dated: December 19, 1997
- -------------------------- -----------------------
Gerald C. Rittenberg
Management Investor
Address:
<PAGE> 43
/s/ JAMES M. HARRISON Dated: December 19, 1997
- -------------------------- -----------------------
James M. Harrison
Management Investor
Address:
<PAGE> 44
/s/ WILLIAM WILKEY Dated: December 19, 1997
- -------------------------- -----------------------
William Wilkey
Management Investor
Address:
<PAGE> 45
/s/ DIANE D. SPAAR Dated: December 19, 1997
- -------------------------- -----------------------
Diane D. Spaar
Management Investor
Address:
<PAGE> 46
/s/ KATHERINE A. KUSNIERZ Dated: December 19, 1997
- -------------------------- -----------------------
Katherine A. Kusnierz
Management Investor
Address:
<PAGE> 47
/s/ WILLIAM MARK Dated: December 19, 1997
- -------------------------- -----------------------
William Mark
Management Investor
Address:
<PAGE> 48
/s/ KAREN MCKENZIE Dated: December 19, 1997
- -------------------------- -----------------------
Karen McKenzie
Management Investor
Address:
<PAGE> 49
/s/ HOWARD HARDING Dated: December 19, 1997
- -------------------------- -----------------------
Howard Harding
Management Investor
Address:
<PAGE> 50
/s/ ROSE GIAGRANDE Dated: December 19, 1997
- -------------------------- -----------------------
Rose Giagrande
Management Investor
Address:
<PAGE> 51
/s/ ERIC STOLLMAN Dated: December 19, 1997
- -------------------------- -----------------------
Eric Stollman
Management Investor
Address:
<PAGE> 52
/s/ VINCENT ANASTASI Dated: December 19, 1997
- -------------------------- -----------------------
Vincent Anastasi
Management Investor
Address:
<PAGE> 53
/s/ MARK IRVINE Dated: December 19, 1997
- -------------------------- -----------------------
Mark Irvine
Management Investor
Address:
<PAGE> 54
/s/ CHERYL CONSIDINE Dated: December 19, 1997
- -------------------------- -----------------------
Cheryl Considine
Management Investor
Address:
<PAGE> 55
/s/ ROBERT YEDOWITZ Dated: December 19, 1997
- -------------------------- -----------------------
Robert Yedowitz
Management Investor
Address:
<PAGE> 56
/s/ ANGELO GIUMMARRA Dated: December 19, 1997
- -------------------------- -----------------------
Angelo Giummarra
Management Investor
Address:
<PAGE> 57
/s/ KEITH JOHNSON Dated: December 19, 1997
- -------------------------- -----------------------
Keith Johnson
Management Investor
Address:
<PAGE> 58
/s/ CHARLES PHILLIPS Dated: December 19, 1997
- -------------------------- -----------------------
Charles Phillips
Management Investor
Address:
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/s/ KATHLEEN ROONEY Dated: December 19, 1997
- -------------------------- -----------------------
Kathleen Rooney
Management Investor
Address:
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/s/ AOIFE QUINN Dated: December 19, 1997
- -------------------------- -----------------------
Aoife Quinn
Management Investor
Address:
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/s/ SCOTT LAMETTO Dated: December 19, 1997
- -------------------------- -----------------------
Scott Lametto
Management Investor
Address:
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/s/ PATRICK VENUTI Dated: December 19, 1997
- -------------------------- -----------------------
Patrick Venuti
Management Investor
Address:
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/s/ NIGEL KEANE Dated: December 19, 1997
- -------------------------- -----------------------
Nigel Keane
Management Investor
Address:
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/s/ MORTON FISHER Dated: December 19, 1997
- -------------------------- -----------------------
Morton Fisher
Management Investor
Address:
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/s/ WALTER THOMPSON Dated: December 19, 1997
- -------------------------- -----------------------
Walter Thompson
Management Investor
Address:
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/s/ SUSAN SCOTT Dated: December 19, 1997
- -------------------------- -----------------------
Susan Scott
Management Investor
Address:
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/s/ RANDY HARRIS Dated: December 19, 1997
- -------------------------- -----------------------
Randy Harris
Management Investor
Address:
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/s/ JAMES DOTTI Dated: December 19, 1997
- -------------------------- -----------------------
James Dotti
Management Investor
Address:
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/s/ MICHAEL A. CORREALE Dated: December 19, 1997
- -------------------------- -----------------------
Michael A. Correale
Management Investor
Address:
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/s/ JOSEPH WALTER Dated: December 19, 1997
- -------------------------- -----------------------
Joseph Walter
Management Investor
Address:
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/s/ DALLAS HARTMAN Dated: December 19, 1997
- -------------------------- -----------------------
Dallas Hartman
Management Investor
Address:
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/s/ CONNIE WECKMAN Dated: December 19, 1997
- -------------------------- -----------------------
Connie Weckman
Management Investor
Address:
<PAGE> 73
/s/ KEN DANFORTH Dated: December 19, 1997
- -------------------------- -----------------------
Ken Danforth
Management Investor
Address:
<PAGE> 74
EXHIBIT A
[STOCK INCENTIVE PLAN]
<PAGE> 75
AMSCAN HOLDINGS, INC.
1997 STOCK INCENTIVE PLAN
SECTION 1. Purpose; Definitions
The purpose of the Plan is to give Amscan Holdings, Inc. (the "Company")
and its Affiliates (each as defined below) a competitive advantage in
attracting, retaining and motivating officers, employees, consultants and
directors, and to provide the Company and its subsidiaries with a stock plan
providing incentives linked to the financial results of the Company's
businesses and increases in shareholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
"Affiliate" of a Person means a Person directly or indirectly controlled
by, controlling or under common control with such Person.
"Award" means a Stock Appreciation Right, Stock Option or Restricted
Stock.
"Award Agreement" means a Restricted Stock Agreement or Option Agreement.
An Award Agreement may consist of provisions of an employment agreement.
"Board" means the Board of Directors of the Company.
"Change in Control" shall mean (1) the acquisition by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) other than GSCP (as defined in the Stockholders' Agreement) and
their Affiliates of a majority of the outstanding voting stock of the Company
or (2) the sale of or other disposition (other than by way of merger or
consolidation) of all or substantially all of the assets of the Company and its
subsidiaries taken as a whole to any Person or group of Persons, other than to
a Person (or group of Persons) a majority of the outstanding voting stock (or
other voting interests) of which are beneficially owned by GSCP and their
Affiliates.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
"Committee" means (a) before an IPO, the Executive Committee of the Board,
or such other committee of the Board as the Board may designate for such
purpose under the Plan, and (b)
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after an IPO, such committee of the Board as the Board may designate, which
shall be composed of not less than two Non-Employee Directors, each of whom
shall be appointed by and serve at the pleasure of the Board.
"Common Stock" means the Common Stock, par value $0.10 per share, of the
Company.
"Company" means Amscan Holdings, Inc., a Delaware corporation.
"Employment" means, unless otherwise defined in an applicable Restricted
Stock Agreement, Option Agreement or Employment Agreement, employment with, or
service as a director of or as a consultant to, the Company or any of its
Affiliates.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor thereto.
"Fair Market Value" of the Common Stock means, as of any given date, the
mean between the highest and lowest reported sales prices of the Common Stock
on the New York Stock Exchange or, if not listed on such exchange, on any other
national securities exchange on which the Common Stock is listed or, if not so
listed, on the Nasdaq National Market. If such sales prices are not so
available, the Fair Market Value of the Common Stock shall be determined by the
Committee in good faith.
"IPO" means the consummation of a registered underwritten public offering
or offerings of Common Stock with gross proceeds to the Company in the
aggregate of at least $50 million.
"Incentive Stock Option" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of Section 422 of
the Code.
"Nasdaq" means The Nasdaq Stock Market, Inc.
"Non-Employee Director" means a member of the Board who qualifies as a
Non-Employee Director as defined in Rule 16b--3(b)(3), as promulgated by the
SEC under the Exchange Act, or any successor definition adopted by the SEC.
"Nonqualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option Agreement" means an agreement setting forth the terms and
conditions of an Award of Stock Options and, if applicable, Stock Appreciation
Rights.
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"Participant" has the meaning set forth in Section 4.
"Person" means an individual, corporation, partnership, limited liability
company, joint venture, trust, unincorporated organization, government (or any
department or agency thereof) or other entity.
"Plan" means the Amscan Holdings, Inc. 1997 Stock Incentive Plan, as set
forth herein and as hereinafter amended from time to time.
"Plan Shares" has the meaning set forth in Section 12(b).
"Restricted Stock" means an Award granted under Section 7.
"Restricted Stock Agreement" means an agreement setting forth the terms
and conditions of an Award of Restricted Stock.
"Rule 13d-3" means Rule 13d-3, as promulgated by the SEC under the
Exchange Act, as amended from time to time.
"SEC" means the Securities and Exchange Commission or any successor
agency.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and any successor thereto.
"Stock Appreciation Right" means a right granted under Section 6.
"Stock Option" means an option granted under Section 5.
"Stockholders' Agreement" has the meaning as set forth in Section 12(a).
In addition, certain other terms used herein have definitions otherwise
ascribed to them herein.
SECTION 2. Administration
The Plan shall be administered by the Committee, or, if no Committee has
been designated or appointed, by the Board (in which case all references herein
to the Committee shall include the Board).
Among other things, the Committee shall have the authority, subject to the
terms of the Plan, to:
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(a) select the Participants to whom Awards may from time to time be
granted;
(b) determine whether and to what extent Incentive Stock Options,
Nonqualified Stock Options, Stock Appreciation Rights and Restricted Stock or
any combination thereof are to be granted hereunder;
(c) determine the number of shares of Common Stock to be covered by each
Award granted hereunder;
(d) determine the terms and conditions of any Award granted hereunder
(including, but not limited to, the option price, any vesting conditions,
restrictions or limitations (which may be related to the performance of the
Participant, the Company or any of its Affiliates)) and any acceleration of
vesting or waiver of forfeiture regarding any Award and the shares of Common
Stock relating thereto, based on such factors as the Committee shall determine;
(e) modify, amend or adjust the terms and conditions of any Award, at any
time or from time to time;
(f) determine to what extent and under what circumstances Common Stock and
other amounts payable with respect to an Award shall be deferred;
(g) determine under what circumstances an Award may be settled in cash or
Common Stock under Section 5(g);
(h) adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall from time to time deem advisable;
(i) interpret the terms and provisions of the Plan and any Award issued
under the Plan (and any agreement relating thereto); and
(j) otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the members thereof may authorize any one or more of their number
or any officer of the Company to execute and deliver documents on behalf of the
Committee.
Any dispute or disagreement which may arise under, or as a result of, or
in any way relate to, the interpretation, construction or application of the
Plan or an Award (or related Award Agreement) granted hereunder shall be
determined by the Committee. Any determination made by the Committee pursuant
to
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the provisions of the Plan with respect to the Plan, any Award or Award
Agreement shall be made in the sole discretion of the Committee and, with
respect to an Award, at the time of the grant of the Award or, unless in
contravention of any express term of the Plan, at any time thereafter. All
decisions made by the Committee shall be final and binding on all persons,
including the Company and the Participants.
SECTION 3. Common Stock Subject to Plan
The total number of shares of Common Stock reserved and available for
grant under the Plan shall be 120. Shares subject to an Award under the Plan
may be authorized and unissued shares or may be treasury shares.
If any shares of Restricted Stock are forfeited or if any Stock Option
(and related Stock Appreciation Right, if any) terminates without being
exercised, or if any Stock Appreciation Right is exercised for cash, the shares
subject to such Awards shall again be available for distribution in connection
with Awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, spinoff, stock dividend, stock split, reverse stock split,
extraordinary distribution with respect to the Common Stock or other change in
corporate structure affecting the Common Stock, the Committee or the Board may
make such substitution or adjustment in the aggregate number and kind of shares
or other property reserved for issuance under the Plan, in the number, kind and
Exercise Price (as defined herein) of shares or other property subject to
outstanding Stock Options and Stock Appreciation Rights, in the number and kind
of shares or other property subject to Restricted Stock Awards, and/or such
other equitable substitution or adjustments as it may determine to be fair and
appropriate in its sole discretion. Any such adjusted Exercise Price shall also
be used to determine the amount payable by the Company upon the exercise of any
Stock Appreciation Right associated with any Stock Option.
SECTION 4. Participants
Officers, employees, consultants and non-employee directors of the Company
and its Affiliates who are responsible for or contribute to the management,
growth and profitability of the business of the Company and its Affiliates
shall be "Participants" eligible to be granted Awards under the Plan.
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SECTION 5. Stock Options
The Committee shall have the authority to grant any Participant Incentive
Stock Options, Nonqualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights). Incentive Stock Options
may be granted only to employees of the Company and its subsidiaries (within
the meaning of Section 424(f) of the Code). To the extent that any Stock Option
is not designated as an Incentive Stock Option or even if so designated does
not qualify as an Incentive Stock Option, it shall constitute a Nonqualified
Stock Option.
Stock Options shall be evidenced by Option Agreements, which shall include
such terms and provisions as the Committee may determine from time to time. An
Option Agreement shall expressly indicate whether it is intended to be an
agreement for an Incentive Stock Option or a Nonqualified Stock Option. The
grant of a Stock Option shall occur on the date the Committee by resolution
selects an individual to be a Participant in any grant of a Stock Option,
determines the number of shares of Common Stock to be subject to such Stock
Option to be granted to such individual and specifies the terms and provisions
of the Stock Option, or on such other date as the Committee may determine. The
Company shall notify a Participant of any grant of a Stock Option, and a
written Option Agreement shall be duly executed and delivered by the Company to
the Participant. Subject to Section 12(a), such agreement shall become
effective upon execution by the Company and the Participant.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be exercised, so
as to disqualify the Plan under Section 422 of the Code or, without the consent
of the Participant affected, to disqualify any Incentive Stock Option under
such Section 422.
Stock Options shall be subject to the following terms and conditions and
shall contain such additional terms and conditions as the Committee shall deem
desirable:
(a) Exercise Price. The price per share of Common Stock purchasable under
a Stock Option shall be determined by the Committee and set forth in the Option
Agreement (the "Exercise Price").
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee. Absent any such term being fixed by the Committee, pursuant to an
Option Agreement or otherwise, such term shall be ten years.
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(c) Exercisability. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part, based
on such factors as the Committee may determine. In addition, the Committee may
at any time accelerate the exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Section 5,
vested Stock Options may be exercised, in whole or in part, at any time during
the option term by giving written notice of exercise to the Company specifying
the number of shares of Common Stock subject to the Stock Option to be
purchased.
Such notice shall be accompanied by payment in full of the purchase price
by certified or bank check or such other instrument as the Company may accept.
If approved by the Committee, payment, in full or in part, may also be made in
the form of unrestricted Common Stock already owned by the Participant of the
same class as the Common Stock subject to the Stock Option (based on the Fair
Market Value of the Common Stock on the date the Stock Option is exercised);
provided, however, that, in the case of an Incentive Stock Option the right to
make a payment in the form of already owned shares of Common Stock of the same
class as the Common Stock subject to the Stock Option may be authorized only at
the time the Stock Option is granted.
In the discretion of the Committee, after an IPO, payment for any shares
subject to a Stock Option may also be made by delivering a properly executed
exercise notice to the Company, together with a copy of irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds to pay the purchase price, and, if requested by the Company,
the amount of any federal, state, local or foreign withholding taxes. To
facilitate the foregoing, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms.
In addition, in the discretion of the Committee, payment for any shares
subject to a Stock Option may also be made by instructing the Committee to
withhold a number of such shares having a Fair Market Value on the date of
exercise equal to the aggregate exercise price of such Stock Option.
No shares of Common Stock shall be issued until full payment therefor has
been made. Except as otherwise provided in
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the Stockholders' Agreement or the applicable Option Agreement, subject to a
Participant's compliance with Section 12(a) hereof, a Participant shall have
all of the rights of a stockholder of the Company holding the class or series
of Common Stock that is subject to such Stock Option (including, if applicable,
the right to vote the shares and the right to receive dividends and
distributions), when the Participant has given written notice of exercise, has
paid in full for such shares and, if requested, has given the representations
referred to in Section 12(c).
(e) Nontransferability of Stock Options. No Stock Option shall be
transferable by the Participant other than (i) by will or by the laws of
descent and distribution or (ii) in the case of a Nonqualified Stock Option, as
otherwise expressly permitted under the applicable Option Agreement including,
if so permitted, pursuant to a qualified domestic relations order (as defined
in the Code) or pursuant to a gift to such Participant's spouse, children,
grandchildren or other living descendants, whether directly or indirectly or by
means of a trust, partnership, limited liability company or otherwise. All
Stock Options shall be exercisable, subject to the terms of this Plan, during
the Participant's lifetime, only by the Participant or any person to whom such
Stock Option is transferred pursuant to the preceding sentence, including such
Participant's guardian, legal representative and other transferee. The term
"Participant" includes the estate of the Participant or the legal
representative of the Participant named in the Option Agreement and any person
to whom an Option is otherwise transferred in accordance with this Section
5(e), by will or the laws of descent and distribution; provided, however, that
references herein to Employment of a Participant or termination of Employment
of a Participant shall continue to refer to the Employment or termination of
Employment of the applicable grantee of an Award hereunder.
(f) Termination of Employment. Except as otherwise provided by the
Committee or in the applicable Option Agreement, upon the Participant's death
or when the Participant's Employment is terminated for any reason, the
Participant:
a. shall forfeit all Stock Options that have not previously
vested;
b. shall have three months to exercise the Participant's vested
Stock Options that are vested on the date of the Participant's
termination of Employment if such termination is for any reason
other than the Participant's death; and
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c. shall have one year to exercise the Participant's vested
Stock Options that are vested on the date of death if the
Participant's termination of Employment is due to the Participant's
death.
Any vested Stock Options not exercised within the permissible period of time
shall be forfeited by the Participant. Notwithstanding any of the foregoing,
the Participant shall not be permitted to exercise any Stock Option at a time
beyond the initial option term.
(g) Cashing Out of Stock Option. On receipt of written notice of exercise,
the Committee may elect to cash out all or any portion of the shares of Common
Stock for which a Stock Option is being exercised by paying the Participant an
amount, in cash or Common Stock, equal to the excess of the Fair Market Value
of one share of Common Stock over the Exercise Price per share times the number
of shares of Common Stock for which the Option is being exercised on the
effective date of such cashout.
SECTION 6. Stock Appreciation Rights
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Nonqualified Stock Option, such rights may be granted either at or
after the time of grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of such Stock
Option. A Stock Appreciation Right shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option. In either case,
the terms and conditions of a Stock Appreciation Right shall be set forth in
the Option Agreement for the related Stock Option or an amendment thereto.
A Stock Appreciation Right may be exercised by a Participant in accordance
with Section 6(b) by surrendering the applicable portion of the related Stock
Option in accordance with procedures established by the Committee. Upon such
exercise and surrender, the Participant shall be entitled to receive an amount
determined in the manner prescribed in Section 6(b). Stock Options which have
been so surrendered shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
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(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including
the following:
(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to which they
relate are exercisable in accordance with the provisions of Section 5
and this Section 6;
(ii) upon the exercise of a Stock Appreciation Right, a
Participant shall be entitled to receive an amount equal to the
product of (a) the excess of the Fair Market Value of one share of
Common Stock over the Exercise Price per share specified in the
related Stock Option times (b) the number of shares in respect of
which the Stock Appreciation Right shall have been exercised, in
cash, shares of Common Stock or both, with the Committee having the
right to determine the form of payment;
(iii) Stock Appreciation Rights shall be transferable only with
the related Stock Option in accordance with Section 5(e); and
(iv) upon the exercise of a Stock Appreciation Right (other than
an exercise for cash), the Stock Option or part thereof to which such
Stock Appreciation Right is related shall be deemed to have been
exercised for the purpose of the limitation set forth in Section 3 on
the number of shares of Common Stock to be issued under the Plan, but
only to the extent of the number of shares covered by the Stock
Appreciation Right at the time of exercise.
SECTION 7. Restricted Stock
The Committee shall determine the Participants to whom and the time or
times at which grants of Restricted Stock will be awarded, the number of shares
to be awarded to any Participant, the conditions for vesting, the time or times
within which such Awards may be subject to forfeiture and restrictions on
transfer and any other terms and conditions of the Awards (including provisions
(i) relating to placing legends on certificates representing shares of
Restricted Stock, (ii) permitting the Company to require that shares of
Restricted Stock be held in custody by the Company with a stock power from the
owner thereof until restrictions lapse and (iii) relating to any rights to
purchase the Restricted Stock on the part of the Company and
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its Affiliates), in addition to those contained in the Stockholders'
Agreement. The terms and conditions of Restricted Stock Awards shall be set
forth in a Restricted Stock Agreement, which shall include such terms and
provisions as the Committee may determine from time to time. Except as provided
in this Section 7, the Restricted Stock Agreement, the Stockholders' Agreement
and any other relevant agreements, the Participant shall have, with respect to
the shares of Restricted Stock, all of the rights of a stockholder of the
Company holding the class or series of Common Stock that is the subject of the
Restricted Stock Award, including, if applicable, the right to vote the shares
and, subject to the following sentence, the right to receive any cash dividends
or distributions (but, subject to the third paragraph of Section 3, not the
right to receive non-cash dividends or distributions). If so determined by the
Committee in the applicable Restricted Stock Agreement, cash dividends and
distributions on the class or series of Common Stock that is the subject of the
Restricted Stock Award shall be automatically deferred and reinvested in
additional Restricted Stock, held subject to the vesting of the underlying
Restricted Stock, or held subject to meeting conditions applicable only to
dividends and distributions.
SECTION 8. Tax Offset Bonuses
At the time an Award is made hereunder or at any time thereafter, the
Committee may grant to the Participant receiving such Award the right to
receive a cash payment in an amount specified by the Committee, to be paid at
such time or times (if ever) as the Award results in compensation income to the
Participant, for the purpose of assisting the Participant to pay the resulting
taxes, all as determined by the Committee, and on such other terms and
conditions as the Committee shall determine.
SECTION 9. Change in Control Provisions
Notwithstanding any other provision of the Plan to the contrary, unless
otherwise provided in the applicable Award Agreement or the Stockholders'
Agreement, in the event of a Change in Control:
(a) immediately prior to the occurrence of a Change in Control, all
Stock Options and Stock Appreciation Rights outstanding as of such date,
and which are not then exercisable and vested, shall become fully
exercisable and vested to the full extent of the original grant; and
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(b) the restrictions and deferral limitations applicable to any
Restricted Stock (and any dividends or distributions in respect of
Restricted Stock) shall lapse, and such Restricted Stock (and any
dividends or distributions in respect of Restricted Stock) shall become
free of all restrictions, fully vested and transferable to the full extent
of the not theretofore forfeited portion of the original grant.
SECTION 10. Term, Amendment and Termination
The Plan will terminate ten years after the effective date of the Plan.
Awards outstanding as of such date shall not be affected or impaired by the
termination of the Plan.
The Board may amend, alter, or discontinue the Plan, prospectively or
retroactively, but no amendment, alteration or discontinuation shall be made
which would impair the rights of any Participant under an Award theretofore
granted without the Participant's consent.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall be made which would
impair the rights of any Participant thereunder without the Participant's
consent.
SECTION 11. Unfunded Status of Plan
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation
of trusts or other arrangements to meet the obligations created under the Plan
to deliver Common Stock or make payments; provided, however, that unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 12. General Provisions
(a) Stockholders' Agreement. Notwithstanding anything in this Plan to the
contrary, unless the Committee determines otherwise, it shall be a condition to
receiving any Award under the Plan or transferring any Option in accordance
with Section 5(e) or any other transfer permitted under the terms of an Award
Agreement or otherwise, that a Participant (or transferee in the case of such
transfer) shall become a party to the Stockholders' Agreement, dated as of
December 19, 1997,
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among the Company and certain stockholders of the Company, as amended from time
to time (the "Stockholders' Agreement"), and such Participant (or transferee in
the case of such transfer) shall become a "Management Investor" thereunder (or
such transferee shall become a "Permitted Transferee" of a "Management
Investor" thereunder).
(b) Awards and Certificates. Shares of Restricted Stock and shares of
Common Stock issuable upon the exercise of a Stock Option or Stock Appreciation
Right (together, "Plan Shares") shall be evidenced in such manner as the
Committee may deem appropriate, including book-entry registration or issuance
of one or more stock certificates. Any certificate issued in respect of Plan
Shares shall be registered in the name of such Participant and shall bear
appropriate legends referring to the terms, conditions, and restrictions
applicable to such Award, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms, conditions and
restrictions (including forfeiture) of the Amscan Holdings, Inc. 1997
Stock Incentive Plan and a Restricted Stock Agreement and/or an
Option Agreement, as the case may be, between the issuer and the
registered holder hereof. Copies of such Plan and Agreement are on
file at the offices of Amscan Holdings, Inc., 80 Grasslands Road,
Elmsford, New York 10523."
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under the
securities laws of any state, and may not be sold or otherwise
disposed of except pursuant to an effective registration statement
under said Act and applicable state securities laws or an applicable
exemption to the registration requirements of such Act and laws."
Such shares may bear other legends to the extent the Committee or the Board
determines it to be necessary or appropriate, including any required by the
Stockholders' Agreement or pursuant to any applicable Restricted Stock
Agreement or Option Agreement. If and when all restrictions expire without a
prior forfeiture of the Plan Shares theretofore subject to such restrictions,
new certificates for such shares shall be delivered to the Participant without
the first legend listed above.
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The Committee may require that any certificates evidencing Plan Shares be
held in custody by the Company until the restrictions thereon shall have lapsed
and that the Participant deliver a stock power, endorsed in blank, relating to
the Plan Shares.
(c) Representations and Warranties. The Committee may require each person
purchasing or receiving Plan Shares to (i) represent to and agree with the
Company in writing that such person is acquiring the shares without a view to
the distribution thereof and (ii) make any other representations and warranties
that the Committee deems appropriate.
(d) Additional Compensation. Nothing contained in the Plan shall prevent
the Company or any of its Affiliates from adopting other or additional
compensation arrangements for its employees.
(e) No Right of Employment. Adoption of the Plan or grant of any Award
shall not confer upon any employee any right to continued Employment, nor shall
it interfere in any way with the right of the Company or any of its Affiliate
thereof to terminate the Employment of any employee at any time.
(f) Withholding Taxes. No later than the date as of which an amount first
becomes includible in the gross income of a Participant for federal income tax
purposes with respect to any Award under the Plan, such Participant shall pay
to the Company or, if appropriate, any of its Affiliates, or make arrangements
satisfactory to the Committee regarding the payment of, any federal, state,
local or foreign taxes of any kind required by law to be withheld with respect
to such amount. If approved by the Committee, withholding obligations may be
settled with Common Stock, including Common Stock that is part of the Award
that gives rise to the withholding requirement. The obligations of the Company
under the Plan shall be conditional on such payment or arrangements, and the
Company and its Affiliates shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment otherwise due to the
Participant. The Committee may establish such procedures as it deems
appropriate, including making irrevocable elections, for the settlement of
withholding obligations with Common Stock.
(g) Beneficiaries. The Committee shall establish such procedures as it
deems appropriate for a Participant to designate a beneficiary to whom any
amounts payable in the event of the Participant's death are to be paid or by
whom any rights of the Participant, after the Participant's death, may be
exercised.
14
<PAGE> 89
(h) Pooling of Interests. Notwithstanding any other provision of this
Plan, if any right (or the exercise of such right) granted pursuant to this
Plan would make a Change in Control transaction ineligible for
pooling-of-interests accounting under APB No. 16 that but for the nature of
such grant or grants would otherwise be eligible for such accounting treatment,
the Committee shall have the ability to substitute for the cash payable
pursuant to such grant or grants Common Stock with a Fair Market Value equal to
the cash that would otherwise be payable hereunder, or make any other
appropriate adjustment.
(i) Governing Law. The Plan and all Awards made and actions taken
thereunder shall be governed by and construed and enforced in accordance with
the laws of the State of New York without regard to the principles of conflicts
of law thereof.
(j) Compliance with Laws. If any law or any regulation of any commission
or agency having jurisdiction shall require the Company or a Participant
seeking to exercise Stock Options or Stock Appreciation Rights to take any
action with respect to the Plan Shares to be issued upon the exercise of Stock
Options or Stock Appreciation Rights then the date upon which the Company shall
issue or cause to be issued the certificate or certificates for the Plan Shares
shall be postponed until full compliance has been made with all such
requirements of law or regulation; provided, that the Company shall use its
reasonable efforts to take all necessary action to comply with such
requirements of law or regulation. Moreover, in the event that the Company
shall determine that, in compliance with the Securities Act or other applicable
statutes or regulations, it is necessary to register any of the Plan Shares
with respect to which an exercise of a Stock Option or Stock Appreciation Right
has been made, or to qualify any such Plan Shares for exemption from any of the
requirements of the Securities Act or any other applicable statute or
regulation, no Stock Options or Stock Appreciation Rights may be exercised and
no Plan Shares shall be issued to the exercising Participant until the required
action has been completed; provided, that the Company shall use its reasonable
efforts to take all necessary action to comply with such requirements of law or
regulation. Notwithstanding anything to the contrary contained herein, neither
the Board nor the members of the Committee owes a fiduciary duty to any
Participant in his or her capacity as such.
15
<PAGE> 90
SECTION 13. Effective Date of Plan
The Plan shall be effective as of the date it is approved by the holders
of a majority of the outstanding shares of Common Stock, which approval is
evidenced by Section 5.3 under the Stockholders' Agreement.
16
<PAGE> 91
Schedule I
Management Investors
Options
-------
Gerald C. Rittenberg 16.648
James M. Harrison 16.268
William S. Wilkey 16.441
Diane D. Spaar 11.827
Katherine A. Kusnierz 11.577
Morton Fisher 2.383
William Mark 1.280
Angelo Giummarra 2.477
Karen McKenzie 1.477
Keith Johnson 1.280
Howard Harding 1.280
Walter Thompson 1.144
Charles Phillips 0.478
Susan Scott 1.144
Rose Giagrande 1.238
Randy Harris 0.718
Eric Stollman 1.238
Kathleen Rooney 1.238
James Dotti 1.238
Vincent Anastasi 0.794
Michael A. Correale 2.570
Mark Irvine 0.555
Scott Lametto 0.999
Joseph Walter 0.555
Cheryl Considine 0.999
Patrick Venuti 0.555
Dallas Hartman 0.555
Robert Yedowitz 0.555
Nigel Keane 0.555
Connie Weckman 0.555
Ken Danforth 0.555
<PAGE> 1
Exhibit 12.1
AMSCAN HOLDINGS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIO DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
TRANSACTION
PRO FORMA
1992 1993 1994 1995 1996 1996
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before taxes and minority interests $ 7,784 $ 9,104 $10,591 $19,206 $ 5,732 $ 8,449
Add: Fixed charges 2,556 3,358 4,719 6,874 8,735 25,090
------- ------- ------- ------- ------- -------
Earnings, as adjusted $10,340 $12,462 $15,310 $26,080 $14,467 $33,539
======= ======= ======= ======= ======= =======
Computation of fixed charges:
Interest expense $ 2,135 $ 2,711 $ 3,971 $ 6,025 $ 6,968 $23,323
Interest portion of rent expense 421 647 748 849 1,767 1,767
------- ------- ------- ------- ------- -------
Total fixed charges $ 2,556 $ 3,358 $ 4,719 $ 6,874 $ 8,735 $25,090
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 4.0x 3.7x 3.2x 3.8x 1.7x 1.3x
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------
TRANSACTION TRANSACTION
PRO FORMA PRO FORMA
1996 1997 1997 1997
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Earnings:
Income before taxes and minority interests $20,104 $28,677 $14,335 $12,161
Add: Fixed charges 6,013 4,296 18,534 25,345
------- ------- ------- -------
Earnings, as adjusted $26,117 $32,973 $32,869 $37,506
======= ======= ======= =======
Computation of fixed charges:
Interest expense $ 4,827 $ 2,799 $17,037 $23,267
Interest portion of rent expense 1,186 1,497 1,497 2,078
------- ------- ------- -------
Total fixed charges $ 6,013 $ 4,296 $18,534 $25,345
======= ======= ======= =======
Ratio of earnings to fixed charges 4.3x 7.7x 1.8x 1.5x
</TABLE>
<PAGE> 1
LETTER OF TRANSMITTAL
AMSCAN HOLDINGS, INC.
OFFER TO EXCHANGE
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
FOR ALL OF ITS OUTSTANDING
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON MARCH , 1998, UNLESS THE OFFER IS EXTENDED
TO: IBJ SCHRODER BANK & TRUST COMPANY (THE "EXCHANGE AGENT")
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier or By Hand:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, NY 10004
New York, New York 10274-0084 Attention: Securities Processing Window
Attention: Reorganization Operations Department Subcellar One (SC-1)
</TABLE>
By Facsimile:
(212) 858-2611
Confirm by Telephone:
(212) 858-2103
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the ones listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.
The undersigned hereby acknowledges receipt of the Prospectus dated
February , 1998 (the "Prospectus") of Amscan Holdings, Inc. (the "Company")
and this Letter of Transmittal, which together constitute the Company's offer
(the "Exchange Offer") to exchange $1,000 principal amount of its 9 7/8% Senior
Subordinated Notes due 2007 (the "Exchange Notes"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement of which the Prospectus is a part, for each $1,000
principal amount of its outstanding 9 7/8% Senior Subordinated Notes due 2007
(the "Notes"), respectively. The term "Expiration Date" shall mean 5:00 p.m.,
New York City time, on March , 1998, unless the Company, in its reasonable
judgment, extends the Exchange Offer, in which case the term shall mean the
latest date and time to which the Exchange Offer is extended. Capitalized terms
used but not defined herein have the meaning given to them in the Prospectus.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the notes to which this Letter of Transmittal relates. If the
space indicated below is inadequate, the Certificate or Registration Numbers and
Principal Amounts should be listed on a separately signed schedule affixed
hereto.
- --------------------------------------------------------------------------------
DESCRIPTION OF NOTES TENDERED HEREBY
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL
CERTIFICATE OR AMOUNT PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) REGISTRATION REPRESENTED AMOUNT
(PLEASE FILL IN) NUMBERS* BY NOTES TENDERED**
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Total
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by Book-entry Holders.
** Unless otherwise indicated, the Holder will be deemed to have tendered the
full aggregate principal amount represented by such Notes. All tenders must
be in integral multiples of $1,000.
- --------------------------------------------------------------------------------
<PAGE> 2
This Letter of Transmittal is to be used (i) if certificates of Notes are
to be forwarded herewith, (ii) if delivery of Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at The Depository Trust
Company (the "Depository") pursuant to the procedures set forth in "The Exchange
Offer -- Procedures for Tendering Notes" in the Prospectus or (iii) tender of
the Notes is to be made according to the guaranteed delivery procedures
described in the Prospectus under the caption "The Exchange Offer -- Guaranteed
Delivery Procedures." See Instruction 2. Delivery of documents to a book-entry
transfer facility does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder. The
undersigned has completed, executed and delivered this Letter of Transmittal to
indicate the action the undersigned desires to take with respect to the Exchange
Offer. Holders who wish to tender their Notes must complete this letter in its
entirety.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY
THE EXCHANGE AGENT WITH THE DEPOSITORY AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution
------------------------------------------------------
Account Number
------------------------------------------------------
Transaction Code Number
------------------------------------------------------
Holders whose Notes are not immediately available or who cannot deliver
their Notes and all other documents required hereby to the Exchange Agent on or
prior to the Expiration Date must tender their Notes according to the guaranteed
delivery procedure set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND
COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
-----------------------------------------------------
Name of Eligible Institution that Guaranteed
Delivery
------------------------------------------------------
IF DELIVERY BY BOOK-ENTRY TRANSFER:
Account Number
------------------------------------------------------
Transaction Code Number
------------------------------------------------------
[ ] 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
------------------------------------------------------
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
2
<PAGE> 3
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
such Notes tendered hereby, the undersigned hereby exchanges, assigns and
transfers to, or upon the order of, the Company all right, title and interest in
and to such Notes as are being tendered hereby, including all rights to accrued
and unpaid interest thereon as of the Expiration Date. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent the true and lawful
agent and attorney-in-fact of the undersigned (with full knowledge that said
Exchange Agent acts as the agent of the Company in connection with the Exchange
Offer) to cause the Notes to be assigned, transferred and exchanged. The
undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Notes, and that when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim.
The undersigned represents to the Company that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, and (ii) neither the undersigned nor any such
other person is engaged or intends to engage in, or has an arrangement or
understanding with any person to participate in, the distribution of such
Exchange Notes. If the undersigned or the person receiving the Exchange Notes
covered hereby is a broker-dealer that is receiving the Exchange Notes for its
own account in exchange for Notes that were acquired as a result of
market-making activities or other trading activities, the undersigned
acknowledges that it or such other person 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. The undersigned and any such other person
acknowledge that, if they are participating in the Exchange Offer for the
purpose of distributing the Exchange Notes, (i) they cannot rely on the position
of the staff of the Securities and Exchange Commission enunciated in Exxon
Capital Holdings Corporation (available April 13, 1989), Morgan Stanley & Co.,
Inc. (available June 5, 1991) or similar no-action letters and, in the absence
of an exemption therefrom, must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with the resale of the
Exchange Notes and (ii) failure to comply with such requirements in such
instance could result in the undersigned or any such other person incurring
liability under the Securities Act for which such persons are not indemnified by
the Company. If the undersigned or the person receiving the Exchange Notes
covered by this letter is an affiliate (as defined under Rule 405 of the
Securities Act) of the Company, the undersigned represents to the Company that
the undersigned understands and acknowledges that such Exchange Notes may not be
offered for resale, resold or otherwise transferred by the undersigned or such
other person without registration under the Securities Act or an exemption
therefrom.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Notes or transfer ownership of such Notes on the account books
maintained by a book-entry transfer facility. The undersigned further agrees
that acceptance of any tendered Notes by the Company and the issuance of
Exchange Notes in exchange therefor shall constitute performance in full by the
Company of its obligations under the Registration Rights Agreement and that the
Company shall have no further obligations or liabilities thereunder for the
registration of the Notes or the Exchange Notes.
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Company), as more particularly set forth in the Prospectus,
the Company may not be required to exchange any of the Notes tendered hereby
and, in such event, the Notes not exchanged will be returned to the undersigned
at the address shown below the signature of the undersigned.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Tendered Notes may be withdrawn at any time
prior to the Expiration Date.
3
<PAGE> 4
Unless otherwise indicated in the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" in this Letter
of Transmittal, certificates for all Exchange Notes delivered in exchange for
tendered Notes, and any Notes delivered herewith but not exchanged, will be
registered in the name of the undersigned and shall be delivered to the
undersigned at the address shown below the signature of the undersigned. If an
Exchange Note is to be issued to a person other than the person(s) signing this
Letter of Transmittal, or if the Exchange Note is to be mailed to someone other
than the person(s) signing this Letter of Transmittal or to the person(s)
signing this Letter of Transmittal at an address different than the address
shown on this Letter of Transmittal, the appropriate boxes of this Letter of
Transmittal should be completed. If Notes are surrendered by Holder(s) that have
completed either the box entitled "Special Registration Instructions" or the box
entitled "Special Delivery Instructions" in this Letter of Transmittal,
signature(s) on this Letter of Transmittal must be guaranteed by an Eligible
Institution (defined in Instruction 2).
SPECIAL REGISTRATION INSTRUCTIONS
To be completed ONLY if the Exchange Notes are to be issued in the name of
someone other than the undersigned.
Name:
---------------------------------------------------
Address:
-------------------------------------------------
------------------------------------------------------------
Book-Entry Transfer Facility Account:
------------------------------------------------------------
Employer Identification or Social Security Number:
------------------------------------------------------------
(Please print or type)
SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the Exchange Notes are to be sent to someone other
than the undersigned, or to the undersigned at an address other than that
shown under "Description of Notes Tendered Hereby."
Name:
---------------------------------------------------
Address:
-------------------------------------------------
------------------------------------------------------------
Employer Identification or Social Security Number:
------------------------------------------------------------
(Please print or type)
4
<PAGE> 5
REGISTERED HOLDER(S) OF NOTES SIGN HERE
(IN ADDITION, COMPLETE SUBSTITUTE FORM W-9 BELOW)
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
Must be signed by registered holder(s) exactly as name(s) appear(s) on the
Notes or on a security position listing as the owner or the Notes or by
person(s) authorized to become registered holder(s) by properly completed bond
powers transmitted herewith. If signature is by attorney-in-fact, trustee,
executor, administrator, guardian, officer of a corporation or other person
acting in a fiduciary capacity, please provide the following information.
(Please print or type):
---------------------------------------------------
Name and Capacity (full title)
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
Address (including zip code)
---------------------------------------------------
(Area Code and Telephone Number)
---------------------------------------------------
(Taxpayer Identification or Social Security No.)
Dated:
------------------------------------ , 19
--
SIGNATURE GUARANTEE
(IF REQUIRED -- SEE INSTRUCTION 4)
---------------------------------------------------
(Signature of Representative of Signature Guarantor)
---------------------------------------------------
(Name and Title)
---------------------------------------------------
(Name of Firm)
---------------------------------------------------
(Area Code and Telephone Number)
Dated:
- ------------------------------------ , 19
- --
5
<PAGE> 6
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES. All
physically delivered Notes or confirmation of any book-entry transfer to the
Exchange Agent's account at a book-entry transfer facility of Notes tendered by
book-entry transfer, as well as a properly completed and duly executed copy of
this Letter of Transmittal or facsimile thereof, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein on or prior to the Expiration Date (as defined
in the Prospectus). The method of delivery of this Letter of Transmittal, the
Notes and any other required documents is at the election and risk of the
Holder, and except as otherwise provided below, the delivery will be deemed made
only when actually received by the Exchange Agent. If such delivery is by mail,
it is suggested that registered mail with return receipt requested, properly
insured, be used.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Notes for exchange.
Delivery to an address other than as set forth herein, or instructions via
a facsimile number other than the ones set forth herein, will not constitute a
valid delivery.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their
Notes, but whose Notes are not immediately available and thus cannot deliver
their Notes, the Letter of Transmittal or any other required documents to the
Exchange Agent (or comply with the procedures for book-entry transfer) prior to
the Expiration Date, may effect a tender if:
(a) the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent
in the United States or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution");
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the registration
number(s) of such Notes and the principal amount of Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof), together with the Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange Agent's
account at the Depository) and any other documents required by the Letter
of Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Notes into the
Exchange Agent's account at the Depository) and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent
within three 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 Notes according to the guaranteed
delivery procedures set forth above. Any Holder who wishes to tender Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery relating to such
Notes prior to the Expiration Date. Failure to comply with the guaranteed
delivery procedures outlined above will not, of itself, affect the validity or
effect a revocation of any Letter of Transmittal form properly completed and
executed by a Holder who attempted to use the guaranteed delivery procedures.
3. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount
of Notes evidenced by a submitted certificate is tendered, the tendering Holder
should fill in the principal amount tendered in the column entitled "Principal
Amount Tendered" of the box entitled "Description of Notes Tendered Hereby." A
newly
6
<PAGE> 7
issued Note for the principal amount of Notes submitted but not tendered will be
sent to such Holder as soon as practicable after the Expiration Date. All Notes
delivered to the Exchange Agent will be deemed to have been tendered in full
unless otherwise indicated.
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date, after which tenders of Notes are irrevocable. To
be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Exchange Agent. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Notes to
be withdrawn (the "Depositor"), (ii) identify the Notes to be withdrawn
(including the registration number(s) and principal amount of such Notes, or, in
the case of Notes transferred by book-entry transfer, the name and number of the
account at the Depository to be credited), (iii) be signed by the Holder in the
same manner as the original signature on this Letter of Transmittal (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Notes register the transfer
of such Notes into the name of the person withdrawing the tender and (iv)
specify the name in which any such notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any 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 Notes so withdrawn are validly retendered. Any Notes which have been
tendered but which are not accepted for exchange, will be returned to the Holder
thereof without cost to such Holder as soon as practicable after withdrawal,
rejection of tender or termination of Exchange Offer.
4. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered Holder(s) of the Notes tendered hereby, the signature must
correspond with the name(s) as written on the face of the certificates without
alteration or enlargement or any change whatsoever. If this Letter of
Transmittal is signed by a participant in the Depository, the signature must
correspond with the name as it appears on the security position listing as the
owner of the Notes.
If any of the Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Notes registered in different names are tendered, it will be
necessary to complete, sign and submit as many separate copies of this Letter of
Transmittal as there are different registrations of Notes.
Signatures of this Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution unless the Notes
tendered hereby are tendered (i) by a registered Holder who has not completed
the box entitled "Special Registration Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If this Letter of Transmittal is signed by the registered Holder or Holders
of Notes (which term, for the purposes described herein, shall include a
participant in the Depository whose name appears on a security listing as the
owner of the Notes) listed and tendered hereby, no endorsements of the tendered
Notes or separate written instruments of transfer or exchange are required. In
any other case, the registered Holder (or acting Holder) must either properly
endorse the Notes or transmit properly completed bond powers with this Letter of
Transmittal (in either case, executed exactly as the name(s) of the registered
Holder(s) appear(s) on the Notes, and, with respect to a participant in the
Depository whose name appears on a security position listing as the owner of
Notes, exactly as the name of the participant appears on such security position
listing), with the signature on the Notes or bond power guaranteed by an
Eligible Institution (except where the Notes are tendered for the account of an
Eligible Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
7
<PAGE> 8
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering Holders
should indicate, in the applicable box, the name and address (or account at the
Depository) in which the Exchange Notes or substitute Notes for principal
amounts not tendered or not accepted for exchange are to be issued (or
deposited), if different from the names and addresses or accounts of the person
signing this Letter of Transmittal. In the case of issuance in a different name,
the employer identification number or social security number of the person named
must also be indicated and the tendering Holder should complete the applicable
box.
If no instructions are given, the Exchange Notes (and any Notes not
tendered or not accepted) will be issued in the name of and sent to the acting
Holder of the Notes or deposited at such Holder's account at the Depository.
6. TRANSFER TAXES. The Company shall pay all transfer taxes, if any,
applicable to the transfer and exchange of Notes to it or its order pursuant to
the Exchange Offer. If a transfer tax is imposed for any other reason other than
the transfer and exchange of Notes to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered Holder or any other person) will be payable by the tendering Holder.
If satisfactory evidence of payment of such taxes or exception therefrom is not
submitted herewith, the amount of such transfer taxes will be collected from the
tendering Holder by the Exchange Agent.
Except as provided in this Instruction 6, it will not be necessary for
transfer stamps to be affixed to the Notes listed in this Letter of Transmittal.
7. WAIVER OF CONDITIONS. The Company reserves the right, in its
reasonable judgment, to waive, in whole or in part, any of the conditions to the
Exchange Offer set forth in the Prospectus.
8. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any Holder whose Notes
have been mutilated, lost, stolen or destroyed should contact the Exchange Agent
at the address indicated above for further instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent
at the address and telephone number(s) set forth above. In addition, all
questions relating to the Exchange Offer, as well as requests for assistance or
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to Amscan Holdings, Inc., 80 Grasslands Road, Elmsford, New York 10523,
Attention: Corporate Secretary; telephone (914) 345-2020.
10. VALIDITY AND FORM. All questions as to the validity, form,
eligibility (including time of receipt), acceptance of tendered Notes and
withdrawal of tendered Notes will be determined by the Company in its sole
discretion, which determination will be final and binding. The Company reserves
the absolute right to reject any and all Notes not properly tendered or any
Notes the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right, in its reasonable
judgment, to waive any defects, irregularities or conditions of tender as to
particular Notes. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in this Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Notes must be cured within such
time as the Company shall determine. Although the Company intends to notify
Holders of defects or irregularities with respect to tenders of Notes, neither
the Company, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any 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 Holder as soon as practicable
following the Expiration Date.
IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder tendering Notes is required to
provide the Exchange Agent with such Holder's correct TIN on Substitute Form W-9
above. If such Holder is an individual, the TIN is the Holder's social security
number. The Certificate of Awaiting Taxpayer Identification Number should be
completed if the
8
<PAGE> 9
tendering Holder has not been issued a TIN and has applied for a number or
intends to apply for a number in the near future. If the Exchange Agent is not
provided with the correct TIN, the Holder may be subject to a $50 penalty
imposed by the Internal Revenue Service. In addition, payments that are made to
such Holder with respect to tendered Notes may be subject to backup withholding.
Certain Holders (including, among others, all domestic corporations and
certain foreign individuals and foreign entities) are not subject to these
backup withholding and reporting requirements. Such a Holder, who satisfies one
or more of the conditions set forth in Part 2 of the Substitute Form W-9 should
execute the certification following such Part 2. In order for a foreign Holder
to qualify as an exempt recipient, that Holder must submit to the Exchange Agent
a properly completed Internal Revenue Service Form W-8, signed under penalties
of perjury, attesting to that Holder's exempt status. Such forms can be obtained
from the Exchange Agent.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any amounts otherwise payable to the Holder. Backup withholding is not an
additional tax. Rather, the 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.
PURPOSE OF SUBSTITUTE FORM W-9. To prevent backup withholding on payments
that are made to a Holder with respect to Notes tendered for exchange, the
Holder is required to notify the Exchange Agent of his or her correct TIN by
completing the form herein certifying that the TIN provided on Substitute Form
W-9 is correct (or that such Holder is awaiting a TIN) and that (i) such Holder
is exempt, (ii) such Holder has not been notified by the Internal Revenue
Service that he or she is subject to backup withholding as a result of failure
to report all interest or dividends or (iii) the Internal Revenue Service has
notified such Holder that he or she is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT. Each Holder is required to give
the Exchange Agent the social security number or employer identification number
of the record Holder(s) of the Notes. If Notes are in more than one name or are
not in the name of the actual Holder, consult the instructions on Internal
Revenue Service Form W-9, which may be obtained from the Exchange Agent, for
additional guidance on which number to report.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER. If the tendering
Holder has not been issued a TIN and has applied for a number or intends to
apply for a number in the near future, write "Applied For" in the space for the
TIN or Substitute Form W-9, sign and date the form and the Certificate of
Awaiting Taxpayer Identification Number and return them to the Exchange Agent.
If such certificate is completed and the Exchange Agent is not provided with the
TIN within 60 days, the Exchange Agent will withhold 31% of all payments made
thereafter until a TIN is provided to the Exchange Agent.
IMPORTANT: This Letter of Transmittal or a facsimile thereof (together with
Notes or confirmation of book-entry transfer and all other required documents)
or a Notice of Guaranteed Delivery must be received by the Exchange Agent on or
prior to the Expiration Date.
9
<PAGE> 10
PAYOR'S NAME: IBJ SCHRODER BANK & TRUST COMPANY, AS EXCHANGE AGENT
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN --------------------------------
FORM W-9 THE BOX AT THE RIGHT AND CERTIFY BY Social Security Number
DEPARTMENT OF THE TREASURY SIGNING AND DATING BELOW. OR
INTERNAL REVENUE SERVICE -------------------------------
Employer Identification
Number
PAYOR'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER ("TIN")
- --------------------------------------------------------------------------------------------------------
PART 2 -- CHECK THE BOX IF YOU ARE NOT SUBJECT TO BACKUP WITHHOLDING
UNDER THE PROVISIONS OF SECTION 3406(A)(1)(C) OF THE INTERNAL REVENUE PART 3 --
CODE BECAUSE (1) YOU ARE EXEMPT FROM BACKUP WITHHOLDING, (2) YOU HAVE AWAITING TIN [ ]
NOT BEEN NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING AS A
RESULT OF FAILURE TO REPORT ALL INTEREST OR DIVIDENDS OR (3) THE
INTERNAL REVENUE SERVICE HAS NOTIFIED YOU THAT YOU ARE NO LONGER
SUBJECT TO BACKUP WITHHOLDING. [ ].
- --------------------------------------------------------------------------------------------------------
The IRS does not require your consent to any provision of this document other than the certifications
required to avoid backup withholding.
- --------------------------------------------------------------------------------------------------------
CERTIFICATION: UNDER PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS
TRUE, CORRECT AND COMPLETE.
SIGNATURE DATE
- --------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS 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.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
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 an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
reportable payments made to me will be withheld until I provide a number, but
will be refunded if I provide a certified taxpayer identification number within
60 days.
<TABLE>
<S> <C>
- --------------------------------------------- ---------------------------------------------
Signature Date
</TABLE>
10
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
(INCLUDING THOSE IN BOOK-ENTRY FORM)
OF
AMSCAN HOLDINGS, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Amscan Holdings, Inc. (the "Company") made pursuant to the
Prospectus, dated February , 1998 (the "Prospectus"), if certificates for the
outstanding 9 7/8% Senior Subordinated Notes due 2007 of the Company (the "Old
Notes") are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date of the Exchange Offer. Such form may be delivered
or transmitted by telegram, telex, facsimile transmission, mail or hand delivery
to IBJ Schroder Bank & Trust Company (the "Exchange Agent") as set forth below.
In addition, in order to utilize the guaranteed delivery procedure to tender Old
Notes pursuant to the Exchange Offer, a completed, signed and dated Letter of
Transmittal (or facsimile thereof) must also be received by the Exchange Agent
prior to 5:00 p.m., New York City time, on the Expiration Date. Capitalized
terms not defined herein are defined in the Prospectus.
IBJ SCHRODER BANK & TRUST COMPANY, EXCHANGE AGENT.
By Mail:
IBJ Schroder Bank & Trust Company
P.O. Box 84
Bowling Green Station
New York, New York 10274-0084
Attention: Reorganization Operations Department
By Overnight Courier or By Hand:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attn: Securities Processing Window -- Subcellar One (SC-1)
By Facsimile:
(212) 858-2611
Confirm by Telephone:
(212) 858-2103
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer -- Guaranteed
Delivery Procedures" section of the Prospectus.
Principal Amount of Old Notes Tendered:* $
----------------------------------------------------------------
Certificate Nos. (if available):
------------------------------------------------------------------
Total Principal Amount Represented by Certificate(s): $
----------------------------------------------------------------
*Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
PLEASE SIGN HERE
<TABLE>
<S> <C>
X
- ----------------------------------------------------- -------------------------------------
- ----------------------------------------------------- -------------------------------------
Signature(s) of Owner(s) Date
or Authorized Signatory
</TABLE>
Area Code and Telephone
Number: ________________________________________________________
Must be signed by the holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below. If Old Notes will be delivered by book-entry
transfer to The Depository Trust Company, provide account number.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
NAME(S):
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
CAPACITY:
_____________________________________________________________________________
_____________________________________________________________________________
ADDRESS(ES):
_________________________________________________________________________
_________________________________________________________________________
ACCOUNT
NUMBER: ______________________________________________________________________
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a financial institution (including most banks, savings and
loan associations and brokerage houses) that is a participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchanges Medallion Program, hereby guarantees
that the undersigned will deliver to the Exchange Agent the certificates
representing the Old Notes being tendered hereby or confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at The Depository
Trust Company, in proper form for transfer, together with any other documents
required by the Letter of Transmittal within three New York Stock Exchange
trading days after the Expiration Date.
Name of Firm
---------------------------------------------------------------------
Address ------------------------------------------------------------------------
Area Code & Telephone No.
--------------------------------------------------------
Authorized Signature
--------------------------------------------------------------
Name --------------------------------------------------------------------------
(Please Type or Print)
Title---------------------------------------------------------------------------
Date ----------------------------------------------------------
NOTE: DO NOT SEND CERTIFICATES OF OLD NOTES WITH THIS FORM. CERTIFICATES OF OLD
NOTES SHOULD BE SENT ONLY WITH A COPY OF THE PREVIOUSLY EXECUTED LETTER OF
TRANSMITTAL.
