<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1996
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
E&S HOLDINGS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 6719 59-2439656
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
601 SOUTH HARBOUR ISLAND BOULEVARD, SUITE 200
TAMPA, FLORIDA 33602-3141
(813) 204-5200
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------
PAUL L. WHITING
PRESIDENT AND CHIEF EXECUTIVE OFFICER
E&S HOLDINGS CORPORATION
601 SOUTH HARBOUR ISLAND BOULEVARD, SUITE 200
TAMPA, FLORIDA 33602-3141
(813) 204-5200
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------
WITH A COPY TO:
<TABLE>
<S> <C>
JOHN B. TEHAN, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS
REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE OFFERING PRICE(1)
10 3/8% Series B Senior Subordinated Notes due 2006...... $200,000,000 100% $200,000,000
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
10 3/8% Series B Senior Subordinated Notes due 2006...... $68,965.52
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION DATED, OCTOBER 21, 1996
PRELIMINARY PROSPECTUS
N82455BE.G01,970,260,H
N82455BE.G02,990,360,H
E&S HOLDINGS CORPORATION
OFFER TO EXCHANGE UP TO $200,000,000 OF ITS
10 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
FOR ANY AND ALL OF ITS OUTSTANDING
10 3/8% SENIOR SUBORDINATED NOTES DUE 2006
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1996, UNLESS EXTENDED.
------------------------
E&S Holdings Corporation (the "Company") hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange an aggregate of up to $200,000,000 principal amount of 10 3/8% Series B
Senior Subordinated Notes due 2006 (the "Exchange Notes") of the Company for an
identical face amount of the issued and outstanding 10 3/8% Senior Subordinated
Notes due 2006 (the "Old Notes" and the Old Notes and the Exchange Notes,
collectively, the "Notes") of the Company from the Holders (as defined herein)
thereof. As of the date of this Prospectus, there is $200,000,000 aggregate
principal amount of the Old Notes outstanding. The terms of the Exchange Notes
are identical in all material respects to the Old Notes, except that the
Exchange Notes have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), and therefore will not bear legends restricting their
transfer and will not contain certain provisions providing for an increase in
the interest rate on the Old Notes under certain circumstances relating to the
Registration Rights Agreement (as defined herein), which provisions will
terminate as to all of the Notes upon the consummation of the Exchange Offer.
Interest on the Exchange Notes will be payable semiannually on October 1 and
April 1 of each year, commencing April 1, 1997. The Exchange Notes will mature
on October 1, 2006. The Exchange Notes will be redeemable at the option of the
Company, in whole or in part, at any time or from time to time on or after
October 1, 2001, 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 on or prior to October 1, 1999, the Company may redeem up to 40% of the
aggregate principal amount of the Exchange Notes originally issued with the net
proceeds of one or more Equity Offerings (as defined), at 110% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
redemption; provided that at least $120 million aggregate principal amount of
the Exchange Notes remains outstanding after such redemption. Upon a Change of
Control (as defined), each holder of the Exchange Notes will be able to require
the Company to purchase such holder's Exchange Notes at 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of purchase.
The Exchange Notes will be unsecured senior subordinated obligations of the
Company and will be subordinated in right of payment to all existing and future
Senior Indebtedness (as defined) of the Company, including indebtedness under
its Credit Facilities (as defined). At September 30, 1996, after giving effect
to the Recapitalization, the Financings (as defined) (including the sale of the
Old Notes) and the Etonic Acquisition (as defined), the Senior Indebtedness of
the Company was approximately $ million (including $ million of bankers'
acceptances) and the Company had additional availability of $ million (reduced
to reflect $ million of outstanding letters of credit and bankers' acceptances)
for borrowings under the Credit Facilities, all of which would be Senior
Indebtedness, if borrowed. The Company is a holding company and, accordingly,
the Old Notes are and the Exchange Notes also will be effectively subordinated
to all existing and future liabilities of the Company's subsidiaries. As of
September 30, 1996, after giving effect to the Recapitalization, the Financings
and the Etonic Acquisition, the Company's subsidiaries had total liabilities of
$ million, including guarantees of indebtedness under the Credit Facilities.
The Credit Facilities provide that certain change of control events with respect
to the Company will constitute a default thereunder. In the event a Change of
Control occurs and the Company fails to purchase tendered Exchange Notes, such
failure would constitute an Event of Default under the Indenture. If, as a
result thereof, a default occurs with respect to any Senior Indebtedness, the
subordination provisions in the Indenture would likely restrict payments to the
holders of the Exchange Notes.
The Old Notes were issued and sold on September 30, 1996 in a transaction
not registered under the Securities Act in reliance upon an exemption from the
registration requirements thereof. In general, the Old Notes may not be offered
or sold unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act. The
Exchange Notes are being offered hereby in order to satisfy certain obligations
of the Company contained in the Registration Rights Agreement. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued to third parties, the
Company believes that the Exchange Notes issued pursuant to the Exchange Offer
in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by any holder thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 promulgated 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, such holder has no arrangement
with any person to participate in the distribution of such Exchange Notes and
neither such holder nor any such other person is engaging in or intends to
engage in a distribution of such Exchange Notes. However, the Company has not
sought, and does not intend to seek, its own no-action letter, and there can be
no assurance that the staff of the Securities and Exchange Commission
("Commission") would make a similar determination with respect to the Exchange
Offer. Notwithstanding the foregoing, each broker-dealer that receives Exchange
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with any resale of Exchange Notes received in
exchange for such Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Company). The
Company has agreed that, for a period of 120 days after the date of this
Prospectus, it will make this Prospectus available to any broker-dealer for use
in connection with any such resale.
The Old Notes are designated for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") market. There is no
established trading market for the Exchange Notes. The Company does not
currently intend to list the Exchange Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. Accordingly,
there can be no assurance as to the development or liquidity of any market for
the Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange. The date of acceptance and
exchange of the Old Notes (the "Exchange Date") will be the first business day
following the Expiration Date (as defined herein). Old Notes tendered pursuant
to the Exchange Offer may be withdrawn at any time prior to the Expiration Date.
The Company will not receive any proceeds from the Exchange Offer. The Company
will pay all of the expenses incident to the Exchange Offer.
------------------------
SEE "RISK FACTORS," BEGINNING ON PAGE 16, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS IN CONNECTION WITH THE EXCHANGE
OFFER AND AN INVESTMENT IN THE EXCHANGE NOTES.
------------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1996
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Exchange Notes being offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company and
the Exchange Notes, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and, where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions in such exhibit, to which reference
is hereby made. Copies of the Registration Statement may be examined without
charge at the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the web site
(http://www.sec.gov.) maintained by the Commission and at the Commission's
Regional Offices located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Avenue, Suite 1400, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of certain fees prescribed by
the Commission.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon
completion of the Exchange Offer, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file periodic reports and other information with the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of any material so filed can
be obtained from the Public Reference Section of the Commission, upon payment of
certain fees prescribed by the Commission. In addition, pursuant to the
Indenture covering the Old Notes and the Exchange Notes, the Company has agreed
to file with the Commission and provide to the Holders the annual reports and
the information, documents and other reports otherwise required pursuant to
Section 13 of the Exchange Act. Such requirements may be satisfied through the
filing and provision of such documents and reports which would otherwise be
required pursuant to Section 13 in respect of the Company.
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed financial and other information contained
elsewhere in this Prospectus. Prospective investors are urged to read this
Prospectus in its entirety. All references to the "Company" shall mean E&S
Holdings Corporation and its consolidated subsidiaries, the term "Spalding"
refers to the Company's Spalding Sports Worldwide Division and the term
"Evenflo" refers to Evenflo Company, Inc., a subsidiary of Spalding & Evenflo
Companies, Inc., a subsidiary of the Company ("S&E"), unless the context
indicates otherwise. All references to fiscal year in this Prospectus refer to
the fiscal year ending on September 30 of each year. Financial data presented on
a pro forma basis reflects the acquisition (the "Etonic Acquisition") by the
Company of Etonic, Inc.'s golf lines and athletic shoes ("Etonic"). All
references to market share and demographic data in this Prospectus are based on
industry publications and Company data.
THE COMPANY
GENERAL
The Company is a leading global marketer, manufacturer and licensor of
branded consumer products serving the golf, sporting goods and infant and
juvenile product markets. Spalding is one of the most recognized consumer
product companies serving the sporting goods industry, and in 1995, sold more
golf balls, basketballs and softballs than any other company in the U.S. Evenflo
is the largest domestic manufacturer of juvenile car seats, juvenile stationary
activity products and breastfeeding products and is widely recognized by new
mothers for high quality, safety-tested infant and juvenile products. The
Company markets its products in over 100 countries and had pro forma net sales
of $694 million in fiscal 1995.
Spalding, with pro forma net sales of $484 million in fiscal 1995, is a
leader in the $2.4 billion U.S. wholesale golf industry and in the $57 billion
U.S. wholesale sporting goods industry, with some of the most widely recognized
branded consumer product names such as Spalding(R), Top-Flite(R), Etonic(R) and
Dudley(R). Spalding's brand names are currently featured on over 2,000 products
with an emphasis on three primary categories: (i) golf products, (ii) products
for other sporting goods segments, such as basketball, diamond sports (baseball
and softball), volleyball and soccer, and (iii) licensed athletic products,
including apparel and footwear. To broaden Spalding's line of golf products, in
July 1996 the Company acquired Etonic's line of golf accessories, including the
second best selling golf shoe brand in the U.S., golf gloves and apparel.
Spalding's international sales have grown to $156 million, or 32% of Spalding's
pro forma net sales in fiscal 1995, due in large part to the growing popularity
of golf, basketball and volleyball outside the United States.
Evenflo, with net sales of $210 million in fiscal 1995, is a leader in the
$1.9 billion U.S. market for juvenile and infant hardgood products, as well as a
market leader in such products in several international markets. Evenflo,
established in 1920, is one of the oldest and most recognized names in the
infant and juvenile products industry, with a 97% brand awareness for infant
feeding products among new mothers in the U.S. Evenflo brands, such as
Evenflo(R), Exersaucer(R) and On My Way(R), currently appear on more than 400
products, with an emphasis on two principal categories: (i) juvenile furniture,
which includes car seats, portable play yards, strollers, high chairs, cribs,
activity products, carriers and mattresses and (ii) infant feeding, which
includes reusable and disposable nurser systems, breastfeeding aids, oral
development items, such as pacifiers, and other baby care accessories. Evenflo
has capitalized in recent years on favorable demographic trends in the U.S. and
abroad and from the adoption of mandatory automobile child restraint laws in
certain international markets. Evenflo's international sales have grown to $40
million, or 19% of Evenflo's net sales, in fiscal 1995.
3
<PAGE>
COMPETITIVE STRENGTHS
SPALDING
Leading Market Share in Key Product Areas. In fiscal 1995, Spalding was the
U.S. market share leader in golf balls (35% market share in units), basketballs
(48% market share in net sales), and softballs (27% market share in net sales).
In 1995, Spalding held the leading U.S. market share position in products that
generated 60% of its pro forma net sales. Spalding sold approximately 25 million
dozen golf balls in fiscal 1995, approximately 30% more (by units) than its
nearest competitor. The Company believes that Top-Flite is the most played golf
ball in the world. By leveraging its strong market position in core product
lines, Spalding is able to increase net sales and profit margins by introducing
new lines of related products, such as Top-Flite Tour(R) golf clubs and
Top-Flite Strata TourTM golf balls, or line extensions in existing products,
such as the ZK-Composite(R) basketballs and ZK-CompositeTM volleyballs.
Strong Brand Identity. Spalding enjoys 91% brand awareness among sports
participants in the U.S. due to its 120-year tradition of developing and
manufacturing high quality sporting goods products. The Company believes that
the NBA's exclusive endorsement of Spalding basketballs since 1983, along with
the endorsement of Spalding products by professional athletes such as Lee
Trevino, Mark O'Meara, Payne Stewart, Craig Stadler, D.A. Weibring, Bill
Glasson, Hakeem Olajuwon, Shaquille O'Neal, Rebecca Lobo and Orel Hershiser, has
contributed to Spalding's high level of domestic and international brand
awareness and strong market positions. Spalding pursues domestic and
international growth through new product introductions, line extensions and
licensing arrangements under its well established brand names, including
Spalding, Top-Flite, Etonic and Dudley. In addition, Spalding's strong brand
identity in its key product areas increases licensing opportunities for apparel,
footwear and other products. Sales of licensed Spalding products totaled
approximately $318 million in fiscal 1995, up from approximately $186 million in
fiscal 1991, a compound annual growth rate of 14%. Spalding realized royalty
income from such licensed sales of $13 million in fiscal 1995.
Emphasis on Product Development and Innovation. In recent years, the
Company has derived a significant percentage of its net sales from new product
introductions and line extensions. For the nine months ended June 30, 1996, over
33% of Spalding's net sales came from new products and line extensions
introduced during the twelve months ended June 30, 1996. Spalding currently
holds more than 125 U.S. patents, 55 of them in golf ball technology alone.
Spalding introduced the first dimpled golf ball in the U.S., invented the first
two-piece golf ball, developed and patented the blended Surlyn(R) cut-resistant
golf ball cover and in May 1996 introduced the Top-Flite Strata Tour, Spalding's
latest product offering in the premium golf ball market. In addition, Spalding
has recently introduced one of the first titanium irons in the market, and the
popularity of Spalding's patented ZK-Composite materials for basketballs and
volleyballs has contributed to Spalding's success in both of these markets.
Low Cost Producer. Spalding is the largest golf ball manufacturer in the
U.S. and, as a result of its highly automated manufacturing process and focus on
improving efficiency, believes it is one of the lowest cost golf ball producers
in the world. Since 1991, Spalding has reduced costs per unit by 10%, reduced
average per ball production time from eight days to less than 30 hours and
increased its production capacity by approximately 45%, while improving product
quality levels.
Quality Customer Service and Support. Spalding believes that quality
customer service is a critical factor for success in the branded consumer
products market. Spalding has developed a highly integrated, on-line software
system which allows Spalding to expedite order entry, respond rapidly to retail
customer questions regarding product specifications and custom orders, and
direct consumers to convenient retail locations that stock Spalding products. In
response to the growing need to assist retailers with their efforts to improve
purchasing efficiencies, Spalding offers customized computer-to-computer order
entry, just-in-time inventory control and other specialized services.
4
<PAGE>
EVENFLO
Strong Market Share in Key Product Areas. In 1995, Evenflo was the U.S.
market leader (by net sales) in juvenile car seats (35% market share), juvenile
stationary activity products (in excess of 50% market share) and breastfeeding
products (50% market share). In 1995, Evenflo held leading market share
positions in products that generated over 55% of its net sales in such year. In
1995, Evenflo had one of the leading domestic market positions (by net sales) in
play yards (27% market share) and reusable nursing systems (24% market share).
Evenflo believes that its strong market shares are attributable to its design of
safety-tested products that appeal to parents' desires for fashionable products
that add convenience to the child care process. The breadth of Evenflo's product
line permits it to compete effectively internationally, resulting in significant
net sales in certain international markets.
Strong Brand Identity. With a strong brand awareness among new mothers in
the U.S., Evenflo is one of the most widely recognized names in the infant and
juvenile products industry. Evenflo believes that its long history of developing
safety-tested, innovative products (Evenflo introduced the first nursing bottle
system in 1935) is responsible for the high levels of brand loyalty achieved by
its products. In addition, the strength of Evenflo products in the car seat and
high chair markets which are "core" products (required products for most
families with infants and juveniles) contributes to customers recognizing
Evenflo as a brand name associated with high quality consumer products. Evenflo
is able to introduce new lines and related products, such as Evenflo's car
seat/stroller combination, or product innovations, such as the stationary
Exersaucer, by leveraging its strong brand name awareness.
Emphasis on Innovation and Product Development. Evenflo has developed a
number of innovative infant and juvenile products, including the first fully
transparent baby bottle, the first decorated nurser, the first convertible car
seat to pass applicable federal testing standards and the first juvenile
stationary activity product. In 1994, Evenflo successfully introduced the
stationary Exersaucer infant exerciser as a safer alternative to infant walkers.
Evenflo's most recent car seat offering, the On My Way introduced in 1994, with
its ergonomically correct Carry RightTM handle, has gained a leading market
share in the infant car seat segment. By designing a car seat that attaches to a
stroller to form the new On My Way Travel SystemTM, Evenflo has opened
incremental growth opportunities in strollers. Each new product Evenflo develops
is subjected to extensive evaluation to ensure it meets Evenflo's standards for
quality and safety.
Quality Customer Service and Support. Evenflo believes that effective
customer service is essential to maintaining the brand loyalty of new parents,
grandparents and other purchasers of infant and juvenile products. Evenflo has
established toll free customer service numbers for consumers with questions
relating to Evenflo products. Like Spalding, Evenflo offers customized
computer-to-computer order entry, just-in-time inventory control and other
specialized services to its customers.
BUSINESS STRATEGY
The Company's objective is to be a leading worldwide marketer, manufacturer
and licensor of branded consumer products. The Company intends to achieve this
objective by growing sales, both in the U.S. and abroad, continuing to introduce
high quality, innovative products, supporting the sale of those products with
excellent customer service and by making selective acquisitions.
SPALDING
Spalding's objective is to be a leading worldwide supplier of high quality
sporting goods products serving the needs of sports participants of all skill
levels. Spalding seeks to achieve this objective through the following
strategies:
5
<PAGE>
Increase Market Share in Golf Products. Spalding intends to increase market
share in each golf product market segment, particularly the premium golf market,
by pursuing the following strategies:
. Introducing frequent improvements in golf ball technology. Spalding's
introduction of the Top-Flite Strata Tour golf ball marks the fourth
consecutive year in which Spalding has introduced a new line of advanced
performance golf balls. With its patented multi-layer core and ZS
BalataTM cover, the Top-Flite Strata Tour outperforms other premium grade
golf balls in distance and spin comparisons. The Top-Flite Strata Tour
has been one of the most successful product launches in the Company's
history and has increased Spalding's sales through the attractive
on-course pro shop channel. Through the introduction of the Top-Flite
Strata Tour, along with further enhancements to Spalding's high volume
Top-Flite XLTM and Top-Flite Magna(R) brands, Spalding intends to expand
its presence in the premium golf ball market while maintaining its unit
leadership in the mid-priced golf ball market.
. Increasing sales of premium golf clubs. Spalding entered the premium golf
club market in 1994 to capitalize on the strength of the Top-Flite name
and establish Top-Flite as a major brand in the $1.2 billion U.S.
wholesale golf club market, which is highly fragmented and has grown 13%
annually over the past five years. Since the beginning of the 1996 golf
season, Top-Flite Tour irons have been one of the most played irons on
the PGA Senior Tour. In addition, Spalding's premium golf club sales have
increased to $19 million for the first nine months of fiscal 1996 from $9
million for the same period in fiscal 1995. Spalding recently introduced
its first titanium Top-Flite Tour irons and its new MuscleTM graphite
shaft which further improves the Company's position in the premium golf
club market.
. Expanding and upgrading its line of golf accessories. The acquisition of
Etonic, the second best selling golf shoe brand in the U.S., extends the
Company's golf franchise to golf shoes and gloves, as well as enhances
the Company's distribution into on-course golf pro shops and high-end
golf retailers. Etonic currently offers over 70 styles of golf shoes
which are endorsed by several of the leading PGA tour professionals,
including Phil Mickelson. The Company intends to capitalize on the
acquisition of Etonic by introducing new shoe and glove products which
complement the Top-Flite line of equipment and accessories.
Continue New Sporting Goods Product Innovations and Introductions. Spalding
intends to expand on its leading market share in golf balls, basketballs and
softballs by continuing to develop new products in related categories. Spalding
will continue to introduce high end, innovative products for its sporting goods
segment, such as a new dimpled softball, a "soft-touch" volleyball and premium
soccer balls. Spalding also intends to continue developing new high performance
products for the increasing number of women participating in competitive sports
and the growing international market for sporting goods. In addition, Spalding
intends to utilize its Warner Bros. license for Looney Tunes(R) to become a
leader in the growing licensed character segment of the athletic products
industry.
Grow International Sales. Although Spalding already markets its products in
over 95 countries, management believes that significant additional opportunities
exist to increase international sales, especially in Latin America, China and
other nations in Southeast Asia. In addition to new geographic opportunities,
Spalding believes that significant international opportunities are available for
growth from both existing product lines as well as new product introductions due
to the growing international popularity of golf, basketball and volleyball.
Spalding believes that its brand name recognition in the U.S., coupled with
important product endorsements, particularly the NBA and touring golf
professionals, will allow Spalding to continue to expand in international
markets.
Selectively Expand Licensing Program. Spalding intends to selectively
expand its brand name to additional product categories and new markets,
particularly outside the U.S. Spalding is currently one of the world's leading
sports brand licensors with over 100 worldwide licenses. The Spalding and Top-
Flite brand names are licensed in over 45 product categories, including the
Hakeem Olajuwon shoe line by Mercury International Trading Corp., one of the
largest shoe manufacturers in the world, and an
6
<PAGE>
apparel line by Mitsubishi Corporation in Japan. Spalding also recently entered
into a 15-year exclusive U.S. licensing agreement with the Sara Lee Corporation,
one of the largest apparel manufacturers in the U.S. and the maker of
Champion(R), Coach(R), Hanes(R)and L'eggs(R) products, for apparel products in
the mid-price range.
EVENFLO
Evenflo's objective is to be a worldwide leader in serving the infant and
juvenile hardgoods products markets with high quality products and excellence in
customer service. Evenflo seeks to achieve this objective by pursuing the
following strategies:
Increase Market Share Through New Product Innovations. Evenflo expects to
introduce numerous new products in its juvenile furniture and infant feeding
markets in the next twelve months. Evenflo is the leading seller of infant and
juvenile car seats in the U.S. and will seek to increase its market share with
the 1996 launch of the MedallionTM, a high-end convertible (infant to toddler)
car seat. Evenflo intends to use its recent success with the On My Way Travel
System, a combination car seat and stroller system, to increase sales of
strollers. Evenflo intends to introduce additional products similar to its
multi-functional PhasesTM high chair, which was introduced in late 1995. The
success of the Phases high chair has increased Evenflo's share (in net sales) of
the U.S. high chair market from approximately 5% in 1994 to 13% for the six
months ended June 30, 1996.
Grow International Sales. Evenflo's international sales have grown at a
compound annual rate of more than 12% from fiscal 1991 to fiscal 1995. Evenflo
intends to continue to increase sales in international markets, which are highly
fragmented with many competitors that generally do not have the brand name,
breadth of product offerings or economies of scale possessed by Evenflo. In
addition, Evenflo expects that its strength in car seats will be an advantage in
certain foreign markets such as Korea and Singapore which have recently enacted
mandatory automobile child restraint laws. To effectively compete in
international markets, Evenflo develops products, packaging and marketing
strategies specific to targeted markets in conjunction with key foreign
distributors.
Selectively Expand Licensed Product Offering. Evenflo anticipates that
sales of products featuring popular, licensed cartoon characters will provide
increased revenue opportunities as consumers purchase additional products based
upon the appeal of the licensed character. Evenflo has been a licensee of Disney
Babies(R) for feeding products since 1985. In addition, Evenflo introduced a
number of new products featuring licensed characters, such as Peter Rabbit &
Friends(R), Paddington Bear(R) and Precious Moments(R) during fiscal 1996.
Evenflo is evaluating other licensed characters for use with both its furniture
and feeding product lines.
ETONIC ACQUISITION
In July, the Company completed the Etonic Acquisition. Etonic manufactures
and/or markets golf shoes, gloves and other golf accessories, as well as an
established line of running and walking shoes. The Etonic Acquisition reflects
Spalding's strategy to expand and upgrade its line of golf products. The Etonic
golf shoe, which is the second best selling golf shoe in the U.S. with an 18%
market share (in net sales) in 1995, increases Spalding's presence in pro shops
and other high-end golf distribution channels. To complete the Etonic
Acquisition, the Company issued notes in the aggregate principal amount of $54
million to the seller of Etonic (the "Etonic Notes") which were paid at the
closing of the Recapitalization. For the year ended December 31, 1995, Etonic
had net sales of $60 million.
THE RECAPITALIZATION AND THE FINANCINGS
On August 15, 1996, Strata, an entity organized by KKR, and Abarco entered
into the Recapitalization Agreement pursuant to which Strata acquired control of
the Company. In connection with the Recapitalization Agreement, Strata acquired
newly issued shares of Common Stock for $221 million (the "Equity Investment").
The Company used the proceeds from the Equity Investment, together with
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approximately $750 million of aggregate proceeds from certain financings
described below (the "Financings"), to (i) repay approximately $368 million in
existing indebtedness, including the Etonic Notes; (ii) redeem a portion of the
Common Stock held by Abarco for $580 million, of which $522 million was paid in
cash (the remaining consideration was paid by distribution of the Company's
investments in an affiliate promissory note and in the common stock and note
receivable of a real estate subsidiary of the Company); (iii) purchase certain
foreign trademarks and assignment rights from an affiliate of Abarco for $5
million; (iv) redeem for approximately $28 million, from certain members of the
management of S&E, all of the shares of S&E not owned by the Company; (v) pay an
estimated $31 million in transaction fees and expenses, (vi) pay a transaction
bonus of $5 million to certain members of management of S&E and (vii) provide
working capital of approximately $19 million. Immediately after the closing of
the Recapitalization, (the "Closing"), Strata owned approximately 88.4% of the
Common Stock and Abarco retained approximately 11.6% of the Common Stock.
The Financings included (i) a $650 million credit facility comprised of a
$400 million term loan facility (the "Term Loan Facility") and a $250 million
revolving credit facility (the "Revolving Credit Facility"; together with the
Term Loan Facility, the "Credit Facilities"), of which $400 million were drawn
at the Closing, (ii) $200 million of the Notes and (iii) the Equity Investment.
In addition, as part of the Financings, the Company issued and sold 1,500,000
shares of 12 1/2% Preferred Stock (the "Preferred Stock") with an aggregate
liquidation preference of $150 million (the "Preferred Stock Offering") to
Strata, 1,000,000 shares of which were sold at the closing of the
Recapitalization and 500,000 shares of which were sold immediately thereafter.
The proceeds of the sale of the shares of Preferred Stock sold immediately after
the Recapitalization were used by the Company to repay all borrowings under its
Revolving Credit Facility incurred at the closing of the Recapitalization and
the remainder will be used for general corporate purposes.
The sources and uses of the funds for the Recapitalization and the related
transactions, were as follows (dollars in millions):
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SOURCES OF FUNDS
Term Loan Facility................................................... $ 400
Old Notes............................................................ 200
Preferred Stock Offering............................................. 150(1)
Equity Investment.................................................... 221
Repayment of management notes in connection with purchase of S&E
stock.................................................................. 7
---------
Total........................................................... $ 978
---------
---------
USES OF FUNDS
Redemption of Abarco Common Stock.................................... $ 522
Refinancing of existing debt......................................... 368
Redemption of S&E shares owned by management of S&E.................. 28
Estimated transaction fees and expenses.............................. 31
Transaction bonus.................................................... 5
Acquisition of foreign trademarks.................................... 5
Working capital...................................................... 19
---------
Total........................................................... $ 978
---------
---------
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(1) Of the $150 million of gross proceeds from the Preferred Stock Offering,
$100 million were received from the 1,000,000 shares of Preferred Stock
issued and sold by the Company to Strata at Closing and $50 million were
received from the 500,000 shares of Preferred Stock issued and sold by the
Company to Strata immediately following the Closing. At Closing, the Company
borrowed $26 million under the Revolving Credit Facility and applied $2
million of cash balances to complete the Recapitalization. The borrowings
under the Revolving Credit Facility were repaid immediately following the
Closing upon receipt by the Company of the proceeds from the sale of $50
million liquidation preference of Preferred Stock.
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THE EXCHANGE OFFER
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The Exchange Offer........................ The Company is offering to exchange pursuant to the Exchange Offer up
to $200,000,000 aggregate principal amount of its new 10 3/8% Series
B Senior Subordinated Notes due 2006 (the "Exchange Notes") for
$200,000,000 aggregate principal amount of its outstanding 10 3/8%
Senior Subordinated Notes due 2006 (the "Old Notes"). The terms of
the Exchange Notes are identical in all material respects (including
principal amount, interest rate and maturity) to the terms of the Old
Notes for which they may be exchanged pursuant to the Exchange Offer,
except that the Exchange Notes are freely transferrable by holders
thereof (other than as provided herein), and are not subject to any
covenant regarding registration under the Securities Act. See "The
Exchange Offer."
Interest Payments......................... Interest on the Exchange Notes shall accrue from the last Interest
Payment Date (October 1 or April 1) on which interest was paid on the
Notes so surrendered or, if no interest has been paid on such Notes,
from September 30, 1996.
Minimum Condition......................... The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for exchange.
Expiration Date; Withdrawal of Tender..... The Exchange Offer will expire 5:00 p.m., New York City time, on
, 199 , 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. Tenders may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date.
See "The Exchange Offer--Withdrawal of Rights."
Exchange Date............................. The date of acceptance for exchange of the Old Notes will be the
first business day following the Expiration Date.
Conditions to the Exchange Offer.......... The Exchange Offer is subject to certain customary conditions, which
may be waived by the Company. The Company currently expects that each
of the conditions will be satisfied and that no waivers will be
necessary. See "The Exchange Offer--Certain Conditions to the
Exchange Offer." The Company reserves the right to terminate or amend
the Exchange Offer at any time prior to the Expiration Date upon the
occurrence of any such condition.
Procedures for Tendering
Old Notes............................... Each holder of Old Notes wishing to accept the Exchange Offer must
complete, sign and date the 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 Old Notes and any other required
documentation to the
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<S> <C>
Exchange Agent (as defined herein) at the address set forth herein.
See "The Exchange Offer--Procedures for Tendering Old Notes" and
"Plan of Distribution."
Use of Proceeds........................... There will be no proceeds to the Company from the exchange of Notes
pursuant to the Exchange Offer.
Federal Income Tax Consequences........... The exchange of Notes pursuant to the Exchange Offer will not be a
taxable event for federal income tax purposes. See "Certain U.S.
Federal Income Tax Consequences."
Special Procedures for Beneficial
Owners.................................... Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender 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
beneficial owner's own behalf, such beneficial owner must, prior to
completing and executing the Letter of Transmittal and delivering the
Old Notes, either make appropriate arrangements to register ownership
of the Old Notes in such beneficial owner's name or obtain a properly
completed bond power from the registered holder. The transfer of
registered ownership may take considerable time. See "The Exchange
Offer--Procedures for Tendering Old Notes."
Guaranteed Delivery Procedures............ Holders of Old Notes who wish to tender their Old Notes and whose Old
Notes are not entirely available or who cannot deliver their Old
Notes, the Letter of Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The Exchange
Offer--Procedures for Tendering Old Notes."
Acceptance of Old Notes and Delivery of
Exchange Notes............................ The Company will accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., 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--Procedures for Tendering
Old Notes."
Effect on Holders of Old Notes............ As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange
Offer, the Company will have fulfilled a covenant contained in the
Registration Rights Agreement (the "Registration Rights Agreement")
dated September 30, 1996 among the Company, Merrill Lynch & Co.,
NationsBanc Capital Markets, Inc., BA Securities, Inc. and BT
Securities Corporation (the "Initial Purchasers") and, accordingly,
there will be no increase in the interest rate on the Old Notes
pursuant to the terms of the Registration Rights Agreement, and the
holders of the Old Notes will have no further registration or other
rights under the Registration
</TABLE>
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<S> <C>
Rights Agreement. Holders of the Old Notes who do not tender their
Old Notes in the Exchange Offer will continue to hold such Old Notes
and will be entitled to all the rights and limitations applicable
thereto under the Indenture between the Company and Marine Midland
Bank relating to the Old Notes and the Exchange Notes (the
"Indenture"), except for any such rights under the Registration
Rights Agreement that by their terms terminate or cease to have
further effectiveness as a result of the making of, and the
acceptance for exchange of all validly tendered Old Notes pursuant
to, the Exchange Offer. All untendered Old Notes will continue to be
subject to the restrictions on transfer provided for in the Old Notes
and in the Indenture. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered Old
Notes could be adversely affected.
Consequence of Failure to Exchange........ Holders of Old Notes who do not exchange their Notes for Exchange
Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Old Notes as set forth in the
legend thereon as a consequence of the offer or sale of the Old Notes
pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act and applicable
state securities laws. In general, the Old Notes may not be offered
or sold, unless registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does
not currently anticipate that it will register the Old Notes under
the Securities Act.
Exchange Agent............................ Marine Midland Bank is serving as exchange agent (the "Exchange
Agent") in connection with the Exchange Offer. See "The Exchange
Offer--Exchange Agent."
TERMS OF THE EXCHANGE NOTES
Securities Offered........................ $200,000,000 principal amount of 10 3/8% Series B Senior Subordinated
Notes due 2006.
Maturity Date............................. October 1, 2006.
Interest Payment Dates.................... October 1 and April 1 of each year, commencing April 1, 1997.
Optional Redemption....................... The Exchange Notes will be redeemable at the option of the Company,
in whole or in part, at any time or from time to time, on or after
October 1, 2001, 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 on or prior to October 1, 1999, the Company
may redeem up to 40% of the aggregate principal amount of the
Exchange Notes originally issued with the net proceeds of one or more
Equity Offerings (as defined), at a redemption price equal to 110% of
the principal amount thereof, plus accrued and unpaid
</TABLE>
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interest, if any, to the date of redemption; provided that at least
$120 million aggregate principal amount of the Exchange Notes remains
outstanding after such redemption. See "Description of the Exchange
Notes--Optional Redemption."
Change of Control......................... Upon the occurrence of a Change of Control, each holder of the
Exchange Notes may require the Company to purchase all or any portion
of such holder's Exchange Notes at a purchase price equal to 101% of
the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of purchase. See "Description of the
Exchange Notes-- Repurchase at the Option of Holders--Change of
Control."
Ranking................................... The Exchange Notes will be unsecured senior subordinated obligations
of the Company and, as such, will be subordinated to all existing and
future Senior Indebtedness (as defined) of the Company, including
indebtedness under the Credit Facilities. By reason of such
subordination, holders of Senior Indebtedness must be paid in full
before holders of the Exchange Notes may be paid in the event of a
liquidation, dissolution or other winding up of the Company, whether
voluntary or involuntary and whether or not involving insolvency or
bankruptcy. At September 30, 1996, after giving effect to the
Recapitalization, the Financings and the application of the net
proceeds therefrom and the Etonic Acquisition, the Company had
approximately $ million (including $ million of bankers'
acceptances) of Senior Indebtedness outstanding and the Company had
additional availability of $ million (reduced to reflect $
million of outstanding letters of credit and bankers' acceptances)
for borrowings under the Credit Facilities, all of which would be
Senior Indebtedness, if borrowed. See "Pro Forma Condensed
Consolidated Financial Statements." Additional Senior Indebtedness
may be incurred by the Company from time to time, subject to certain
restrictions. See "Description of the Exchange Notes--Subordination."
The Company is a holding company and, accordingly, the Exchange Notes
also will be effectively subordinated to all existing and future
liabilities of the Company's subsidiaries. At September 30, 1996,
after giving effect to the Recapitalization, the Financings and the
application of the net proceeds therefrom and the Etonic Acquisition,
the Company's subsidiaries had total liabilities (including accrued
expenses ($ million) and trade payables and bankers' acceptances
($ million)) of $ million, including guarantees of
indebtedness under the Credit Facilities.
Certain Covenants......................... The indenture relating to the Old Notes and the Exchange Notes (the
"Indenture") contains covenants, including, but not limited to,
covenants with respect to the following matters: (i) restricted
payments; (ii) limitation on incurrence of indebtedness and issuance
of disqualified stock; (iii) liens; (iv) merger, consolidation, or
sale of all or substantially all assets;
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<S> <C>
(v) limitation on transactions with affiliates; (vi) dividends and
other payment restrictions affecting subsidiaries; (vii) limitation
of guarantees of Indebtedness by Restricted Subsidiaries; (viii)
limitations on other senior subordinated indebtedness and (ix) asset
sales. See "Description of the Exchange Notes."
Absence of Market......................... The Exchange Notes are new securities for which there is currently no
established market. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Exchange Notes. The
Company does not intend to apply for a listing on a securities
exchange of the Exchange Notes.
</TABLE>
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by Holders of the Old Notes prior to tendering Old Notes in the
Exchange Offer.
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<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth certain summary historical and pro forma
consolidated financial data of the Company. The historical consolidated
Operating Statement Data of the Company for the three fiscal years ended
September 30, 1996 have been derived from, and should be read in conjunction
with, the audited consolidated financial statements of the Company and the
related notes thereto included elsewhere in this Prospectus. The historical
consolidated Operating Statement Data of the Company for the two fiscal years
ended September 30, 1993 have been derived from audited consolidated financial
statements of the Company but which are not contained herein. The pro forma
consolidated financial data have been derived from the Pro Forma Financial
Statements (as defined) and the related notes thereto included elsewhere herein.
The pro forma operating statement data for the periods presented gives effect to
the Recapitalization, the Financings, the Etonic Acquisition and the related
transactions as if such transactions were consummated on October 1, 1995 for the
year ended September 30, 1996. See "Selected Consolidated Historical Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Pro Forma Condensed Consolidated Financial Statement" and the
historical consolidated financial statements and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------
PRO
FORMA(1)
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- --------- -----------
(DOLLARS IN THOUSANDS)
OPERATING STATEMENT DATA
Spalding net sales....................................... $ 353,262 $ 378,010 $ 411,574 $ 424,118
Evenflo net sales........................................ 158,312 158,234 171,533 210,039
--------- --------- --------- ---------
Total net sales.......................................... 511,574 536,244 583,107 634,157
Cost of sales (2)........................................ 325,337 342,276 370,328 407,334
--------- --------- --------- ---------
Gross profit............................................. 186,237 193,968 212,779 226,823
Selling, general and administrative expenses............. 147,533 150,106 178,678 179,043
Royalty expense (income), net............................ (7,534) (9,328) (12,789) (13,514)
Patent infringement settlement income (3)................ (2,300) 0 0 0
Litigation settlement expense (3)........................ 0 0 0 2,400
--------- --------- --------- ---------
Income from operations................................... 48,538 53,190 46,890 58,894
Interest expense, net (4)................................ 11,848 8,913 17,073 38,108
Currency loss (gain), net (5)............................ 849 2,238 (144) 381
--------- --------- --------- ---------
Earnings (loss) before income taxes...................... 35,841 42,039 29,961 20,405
Income taxes (benefit)................................... 14,330 18,000 11,938 8,683
--------- --------- --------- ---------
Earnings (loss) before minority interest and cumulative
effect of accounting changes............................. $ 21,511 $ 24,039 $ 18,023 $ 11,722
--------- --------- --------- ---------
--------- --------- --------- ---------
Net earnings (loss) (6).................................. $ 21,511 $ 14,419 $ 18,023 $ 10,998
--------- --------- --------- ---------
--------- --------- --------- ---------
Pro forma net earnings (loss) for common shareholders
(7)......................................................
</TABLE>
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<S> <C> <C> <C> <C> <C> <C>
OTHER DATA
Spalding EBITDA (8)...................................... $ 54,188 $ 57,981 $ 62,966 $ 70,957
Evenflo EBITDA (8)....................................... 19,568 14,349 15,075 17,170
Corporate expense (9).................................... (6,572) (1,908) (10,577) (11,327)
--------- --------- --------- ---------
Total EBITDA (8)......................................... $ 67,184 $ 70,422 $ 67,464 $ 76,800
--------- --------- --------- ---------
--------- --------- --------- ---------
Depreciation and amortization............................ $ 19,495 $ 19,470 $ 20,430 $ 18,287
Capital expenditures..................................... 11,880 25,348 19,109 15,381
Ratio of earnings to fixed charges (10)(11).............. 3.67x 5.08x 2.61x 1.51x
Ratio of earnings to combined fixed charges and preferred
stock dividends (10)(12).................................
</TABLE>
(continued
on following page)
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<S> <C>
AS OF SEPTEMBER 30,
1996
--------------------
HISTORICAL
--------------------
BALANCE SHEET DATA
Working capital............................................................................. $
Total assets................................................................................
Long-term debt (net of current portion).....................................................
Preferred Stock.............................................................................
Shareholders' equity (deficiency)...........................................................
</TABLE>
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(1) Pro forma selling, general and administrative expenses have been adjusted
to eliminate certain expenses of affiliates and S&E's management stock
ownership plan that will no longer exist after the Recapitalization. See
"Pro Forma Condensed Consolidated Financial Statement."See the notes to
the "Pro Forma Condensed Consolidated Financial Statement."
(2) Included in cost of sales are charges of (i) $3.1 million in fiscal 1992
for the relocation of Evenflo infant feeding facilities and (ii) $3.8
million in fiscal 1993, for the conversion of two Evenflo manufacturing
facilities to distribution centers and for the closure of two Spalding
softball manufacturing facilities.
(3) In fiscal 1992 the Company received $2.3 million from the settlement of
patent infringement suits. In fiscal 1995 the Company settled an
indemnification dispute involving an environmental matter of a former
operation for $2.4 million.
(4) Pro forma net interest expense in fiscal 1996 includes amortization of
deferred financing costs of $ million.
(5) Net currency losses in fiscal 1993 of $2.2 million were primarily the
result of losses from hedging activities, principally in Japan.
(6) Net earnings (loss) includes: (i) minority interest in net earnings of
consolidated subsidiary of $0.7 million for the fiscal year ended September
30, 1995 and (ii) effective October 1, 1992, the Company adopted SFAS No.
106 "Employers' Accounting for Postretirement Benefits Other Than Pensions"
and SFAS No. 109 "Accounting for Income Taxes." As of October 1, 1992, the
Company recorded one-time charges against earnings in the form of
cumulative effects of accounting changes of $4.8 million on an after-tax
basis with respect to SFAS 106 and $4.8 million with respect to SFAS 109.
(7) Represents pro forma net earnings after reduction for preferred stock
dividend requirements and related accretion.
(8) "EBITDA" represents earnings before interest expense, income taxes,
depreciation and amortization, and excludes minority interest and
cumulative effect of accounting changes. EBITDA is not intended to
represent cash flow from operations as defined by generally accepted
accounting principles ("GAAP") and should not be considered as an
alternative to net earnings as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. EBITDA is included
in this Prospectus as it is a basis upon which the Company assesses its
financial performance, and certain covenants in the Company's borrowing
arrangements are tied to similar measures.
(9) Reflects a $5.1 million one-time insurance recovery associated with a
return of postretirement health and life benefits in fiscal 1993.
(10) For purposes of determining the ratio of earnings to fixed charges and the
pro forma ratio of earnings to combined fixed charges and preferred stock
dividends, earnings are defined as earnings before income taxes and
cumulative effect of accounting changes, plus fixed charges (net of
capitalized interest). Fixed charges consist of interest expense on all
indebtedness and capitalized interest, 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. For purposes of the computation of the ratio of earnings to
combined fixed charges and preferred stock dividends, the preferred stock
dividend requirements were increased to an amount representing the pre-tax
earnings which are required to cover such dividend requirements.
(11) For fiscal 1996, the deficiency of pro forma earnings to fixed charges was
$ million.
(12) For fiscal 1996, the deficiency of earnings to combined fixed charges and
preferred stock dividends was $ million
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RISK FACTORS
Holders of Old Notes should consider carefully, in addition to the other
information contained in this Prospectus, the following factors before deciding
to tender Old Notes in the Exchange Offer. The risk factors set forth below are
generally applicable to the Old Notes as well as the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the offer or sale of the Old Notes pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, Old Notes may
not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently intend to register the Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission, the Company believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold or otherwise transferred by Holders 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 Old Notes were acquired in the ordinary course of such Holders'
business and such Holders have no arrangement with any person to participate in
the distribution of such Exchange Notes. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution." To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Notes will be adversely affected.
SIGNIFICANT LEVERAGE AND DIVIDEND REQUIREMENTS
The Company incurred substantial indebtedness in connection with the
Recapitalization and the Company is highly leveraged. As of September 30, 1996,
after giving effect to the Recapitalization, the Financings and the Etonic
Acquisition, the Company had $ million of consolidated indebtedness and $
million of consolidated shareholders' deficiency. The Company's historical
common shareholders' deficiency increased as a result of the accounting
treatment of the Recapitalization. In addition, the Company has $150 million of
aggregate liquidation preference of Preferred Stock. Also after giving pro forma
effect to such transactions, the Company's earnings would have been insufficient
to cover (i) its fixed charges by approximately $ million for the 1996 fiscal
year; or (ii) its fixed charges and preferred stock dividend requirements by
approximately $ million for the 1996 fiscal year. Pro forma interest expense
for fiscal 1996 would have been $ million. See "Capitalization" and "Pro Forma
Condensed Consolidated Financial Statements." In addition, on a pro forma basis,
for fiscal 1996, the Company would have had noncash preferred stock dividends of
$ million. The Company and its subsidiaries may incur additional indebtedness
in the future, subject to certain limitations contained in the instruments
governing its indebtedness. Accordingly, the Company will have significant debt
service obligations.
The Company's debt service obligations could have important consequences to
holders of the Exchange Notes, including the following: (i) a substantial
portion of the dividends and other payments to the Company from its subsidiaries
will be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company; (ii) the Company's ability
to obtain additional financing in the future may be limited; (iii) certain of
the Company's borrowings (including,
16
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but not limited to, $400 million of term loans under the Credit Facilities at
the Closing) will be at variable rates of interest, which could cause the
Company to be vulnerable to increases in interest rates; and (iv) all of the
indebtedness incurred in connection with the Credit Facilities will become due
prior to the time the principal payments on the Exchange Notes will become due.
The Company's ability to make scheduled payments of the principal of, or to
pay interest on, or to refinance its indebtedness (including the Exchange Notes)
and to make scheduled payments under its operating and capitalized leases
depends on its future performance, which to a certain extent is subject to
economic, financial, competitive and other factors beyond its control. Based
upon the current level of operations and anticipated growth, management believes
that future cash flow from operations, together with available borrowings under
the Revolving Credit Facility, will be adequate to meet the Company's
anticipated requirements for capital expenditures, interest payments and
scheduled principal payments. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Liquidity and Capital
Resources." There can be no assurance, however, that the Company's business will
continue to generate sufficient cash flow from operations in the future to
service its debt and make necessary capital expenditures. If unable to do so,
the Company may be required to refinance all or a portion of its existing debt,
including the Exchange Notes, to sell assets or to obtain additional financing.
There can be no assurance that any such refinancing would be possible or that
any such sales of assets or additional financing could be achieved.
The Credit Facilities and the Indenture contain numerous financial and
operating covenants that will limit the discretion of the Company's management
with respect to certain business matters. These covenants will place significant
restrictions on, among other things, the ability of the Company to incur
additional indebtedness, to create liens or other encumbrances, to make certain
payments and investments, and to sell or otherwise dispose of assets and merge
or consolidate with other entities. See "Description of Credit Facilities" and
"Description of the Exchange Notes--Certain Covenants." The Credit Facilities
will also require the Company to meet certain financial ratios and tests. A
failure to comply with the obligations contained in the Credit Facilities or the
Indenture could result in an event of default under either the Credit Facilities
or the Indenture which could result in acceleration of the related debt and the
acceleration of debt under other instruments evidencing indebtedness, that may
contain cross-acceleration or cross-default provisions. If, as a result thereof,
a default occurs with respect to Senior Indebtedness, the subordination
provisions in the Indenture would likely restrict payments to the holders of the
Exchange Notes.
SUBORDINATION OF EXCHANGE NOTES TO SENIOR INDEBTEDNESS
The Company's obligations under the Exchange Notes are subordinate and
junior in right of payment to all existing and future Senior Indebtedness of the
Company. As of September 30, 1996, after giving effect to the Recapitalization,
the Financings and the application of the net proceeds therefrom and the Etonic
Acquisition, the Company had (i) approximately $ million (including $
million of bankers' acceptances) of Senior Indebtedness and (ii) approximately
$ millon (reduced to reflect $ million of outstanding letters of credit and
bankers' acceptances) available under the Revolving Credit Facility to fund
future liquidity needs of the Company, all of which would be Senior
Indebtedness, if borrowed. Additional Senior Indebtedness may be incurred by the
Company from time to time, subject to certain restrictions. By reason of such
subordination, in the event of an insolvency, liquidation, or other
reorganization of the Company, the lenders under the Credit Facilities and other
creditors who are holders of Senior Indebtedness must be paid in full before the
holders of the Exchange Notes may be paid; accordingly, there may be
insufficient assets remaining after payment of prior claims to pay amounts due
on the Exchange Notes. In addition, under certain circumstances, no payments may
be made with respect to the Exchange Notes if a default exists with respect to
certain Senior Indebtedness. See "Description of the Exchange
Notes--Subordination."
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<PAGE>
ADVERSE CONSEQUENCES OF HOLDING COMPANY STRUCTURE
The Exchange Notes will be effectively subordinated to the obligations of
the Company's subsidiaries, including the guarantee by its subsidiaries of
obligations under the Credit Facilities, because the Company is a holding
company. In the event of an insolvency, liquidation or other reorganization of
any of the subsidiaries of the Company, the creditors of the Company (including
the holders of the Exchange Notes), as well as shareholders of the Company, will
have no right to proceed against the assets of such subsidiaries or to cause the
liquidation or bankruptcy of such subsidiaries under Federal bankruptcy laws.
Creditors of such subsidiaries, including lenders under the Credit Facilities,
would be entitled to payment in full from such assets before the Company, as a
shareholder, would be entitled to receive any distribution therefrom. Except to
the extent that the Company may itself be a creditor with recognized claims
against such subsidiaries, claims of creditors of such subsidiaries will have
priority with respect to the assets and earnings of such subsidiaries over the
claims of creditors of the Company, including claims under the Exchange Notes.
In addition, as a result of the Company being a holding company, the Company's
operating cash flow and its ability to service its indebtedness, including the
Exchange Notes, is dependent upon the operating cash flow of its subsidiaries
and the payment of funds by such subsidiaries to the Company in the form of
loans, dividends or otherwise. At September 30, 1996, after giving effect to the
Recapitalization, the Financing and the Etonic Acquisition, the subsidiaries of
the Company had aggregate liabilities (including accrued expenses ($
million) and trade payables, and bankers' acceptances ($ million)) of $
million, including guarantees of indebtedness under the Credit Facilities.
ENCUMBRANCES ON ASSETS TO SECURE CREDIT FACILITIES
In addition to being subordinated to all existing and future Senior
Indebtedness of the Company, the Exchange Notes will not be secured by any of
the Company's assets. The Company's obligations under the Credit Facilities will
be secured by a first priority pledge of the capital stock of certain
subsidiaries. If the Company becomes insolvent or is liquidated, or if payment
under any of the Credit Facilities is accelerated, the lenders under the Credit
Facilities will be entitled to exercise the remedies available to a secured
lender under applicable law pursuant to the Credit Facilities. Accordingly, such
lenders will have a prior claim with respect to such assets. See "Description of
Credit Facilities."
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control the
Company will make an offer to purchase all of the Exchange Notes at a price in
cash equal to 101% of the aggregate principal amount thereof together with
accrued and unpaid interest to the date of purchase. The Credit Facilities
prohibit the Company from repurchasing any Exchange Notes, except with the
proceeds of one or more Equity Offerings and a portion of excess cash flow and
other amounts not applied to repay borrowings under the Credit Facility. The
Credit Facilities also provide that certain change of control events with
respect to the Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Indebtedness to which the
Company becomes a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when the Company is prohibited from
purchasing the Exchange Notes, or if the Company is required to make an Asset
Sale Offer (as defined) pursuant to the terms of the Exchange Notes, the Company
could seek the consent of its lenders to the purchase of the 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 the Exchange Notes. In such case, the
Company's failure to purchase tendered Exchange Notes would constitute an Event
of Default under the Indenture. If, as a result thereof, a default occurs with
respect to any Senior Indebtedness, the subordination provisions in the
Indenture would likely restrict payments to the holders of the Exchange Notes.
The provisions relating to a Change of Control included in the Indenture may
increase the
18
<PAGE>
difficulty of a potential acquiror obtaining control of the Company. See
"Description of the Exchange Notes--Repurchase at the Option of Holders--Change
of Control."
COMPETITION; ENDORSEMENTS
The sporting goods and juvenile product industries are highly competitive
and are characterized by frequent introductions of new products, often
accompanied by major advertising and promotional programs. Spalding competes
with numerous national and international companies which manufacture and
distribute sporting goods and related equipment and sports apparel, a number of
which have greater financial and other resources at their disposal. Certain of
Spalding's competitors offer types of sports equipment not sold by Spalding.
Evenflo competes with numerous national and international companies which
manufacture and distribute infant feeding products and/or infant and juvenile
furniture, a number of which have greater financial and other resources at their
disposal.
The Company attributes its brand name recognition, in part, to endorsements
of its products by professional athletes and sports organizations. If the
Company were unable to maintain its relationships with its endorsers, or to
successfully compete with competitors in attracting professional athletes and
sports organizations, such as the NBA, to endorse its products, then the
Company's operating results could be adversely affected. See "Business--Sales,
Marketing and Distribution."
DEPENDENCE ON CERTAIN CUSTOMERS
Certain customers are material to the business and operations of the
Company. The five largest customers of Evenflo represented approximately % of
Evenflo's net sales for the fiscal year ended September 30, 1996. The four
largest customers of Spalding represented approximately % of Spalding's net
sales for the same period. In fiscal 1995, net sales to Spalding's four largest
customers constituted approximately 22% of Spalding's total net sales. Three
customers of Evenflo and Spalding, Wal-Mart Stores, Inc. ("Wal-Mart"), Kmart
Corporation ("Kmart") and Toys "R" Us Inc. ("Toys "R" Us"), accounted in the
aggregate for approximately % of the Company's net sales for the fiscal year
ended September 30, 1996. During fiscal 1994 and fiscal 1995, one of the
Company's customers, Wal-Mart, accounted for approximately 11% of its net sales.
Although management does not currently expect to lose any of these customers,
the loss of one or more such customers could have a material adverse effect on
the business and operations of the Company.
DEPENDENCE ON FOREIGN MANUFACTURING
For the fiscal year ended September 30, 1996, sales of products which were
manufactured in foreign countries, primarily in Mexico, China, Thailand, Taiwan
and other countries in Southeast Asia, represented approximately % of the
Company's net sales. The Company's arrangements with its foreign manufacturers,
as well as the operation of the Company's facilities in Mexico and other foreign
countries, are subject to the risks of doing business abroad, such as changes in
import duties, trade restrictions, transportation delays, work stoppages,
economic and political instability, foreign currency fluctuations, the laws and
policies of the United States and of the countries in which the Company's
products are manufactured and other factors which could have a material adverse
effect on the Company's business and results of operations. The Company believes
that the loss of its facilities in Mexico could adversely affect the Company's
business and results of operations until alternative manufacturing arrangements
were secured.
PRODUCT LIABILITY LITIGATION
Due to the nature of its products, the Company has been engaged in, and
will continue to be engaged in, the defense of product liability claims related
to its products, particularly with respect to juvenile car seats and cribs. Such
claims have caused the Company to incur material litigation and
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<PAGE>
insurance expenses. Since 1986, approximately 139 product liability lawsuits
have been brought against the Company, 89 of which related to juvenile car
seats. Over the past ten policy periods (April 1, 1986 to March 30, 1996),
reserves, out-of-pocket indemnities and expenses for car seat claims (including
damage awards, settlements, attorney fees and other related expenses, but
excluding payments by insurers and insurance premiums) have averaged
approximately $1.3 million annually, when allocated to the policy periods when
the related injuries occurred, while the total reserves, out-of-pocket
indemnities and expenses (exclusive of payments by insurers and insurance
premiums) for all product liability claims have averaged approximately $1.8
million per year, on a similar basis. From fiscal 1992 through fiscal 1996, the
Company has incurred average costs for out-of-pocket indemnities and expenses
(exclusive of payments by insurers and insurance premiums) for all product
liability claims of approximately $ million. The Company anticipates that it
will continue to incur average annual litigation costs at similar levels over
the next several years. The Company currently carries substantial insurance (at
a cost in fiscal 1996 of $1.2 million) and maintains reserves for these claims.
However, from December 1985 through March 1988, the Company was totally
self-insured, although only one of the 59 currently pending product liability
claims relate to incidents that occurred during that 28-month period. Based on
its experience with product liability claims, the amount of reserves established
for product liability claims against it and the levels of insurance that it
maintains, the Company believes that there are no product liability claims
pending which, if adversely determined, would have a material adverse effect on
its consolidated financial position, results of operations or cash flows.
However, due to the inherent uncertainty of litigation, it is possible that the
Company may be subject to adverse judgments which, singly or in the aggregate,
could be substantial in amount and may not be covered by insurance or reserves.
In addition, no assurance can be given that in the future a claim will not be
brought against the Company which would have a material adverse effect on the
Company. See "Business--Legal Proceedings."
GOVERNMENTAL REGULATION
The Company's products are subject to the provisions of the Federal
Consumer Product Safety Act and the Federal Hazardous Substances Act (the
"Acts") and the regulations promulgated thereunder. The Acts authorize the
Consumer Product Safety Commission ("CPSC") to protect the public from products
which present a substantial risk of injury. The CPSC can require the repurchase
or recall by the manufacturer of articles which are found to be defective and
impose fines or penalties on the manufacturer. Similar laws exist in some states
and cities and in other countries in which the Company markets its products. Any
recall of its products could have a material adverse effect on the Company,
depending on the particular product.
In the past five years, Evenflo had approximately six such recalls and/or
other corrective actions, including corrective actions taken in June 1995 in
response to cracks experienced during sled tests of the On My Way car seat and
peeling of outer layers of pacifier tips. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year Ended September
30, 1995 Compared to Year Ended September 30, 1994." On August 20, 1996,
Consumers Union, the publisher of Consumer Reports, advised the Company that an
Evenflo Travel Tandem(R) infant automobile safety seat did not pass an impact
test conducted by Consumer Reports. As of April 1996, the Company had already
discontinued production of the particular model tested and began production of
an improved model which meets new federal safety standards that have gone into
effect as of September 1, 1996. While Consumer Reports is asking the Government
to begin a defect investigation and recommends a recall of the Travel Tandem
model which was tested, the Company believes the standards used by Consumer
Reports exceeded federal standards in effect prior to September 1, 1996. This
product was in compliance with all relevant safety standards in effect at the
time the product was produced and distributed. In the event the Company
voluntarily recalls such product, the Company would incur certain costs that,
although there can be no assurance, the Company does not believe would be
material.
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PRODUCT INNOVATION
The Company's historical success is attributable, in part, to its
introduction of products which are perceived to represent an improvement over
existing products offered by the Company or other manufacturers. The Company
believes that its future growth and success will depend significantly on its
continued ability to introduce innovative golf products and juvenile products,
and there can be no assurance of the Company's ability to do so. Innovative
designs are often not successful, and successful product designs are frequently
displaced by the introduction of other product designs by competitors which
shift market preferences in their favor. The Company's operating results may
fluctuate as a result of the amount, timing and market acceptance of new product
introductions by the Company or its competition.
RELIANCE ON CERTAIN SPORTS
Over % of the Company's pro forma net sales during fiscal 1996 were
related to the sale of golf products. A decline in the size of the golf products
market or other sporting goods products market from which the Company derives
sales, whether from a decrease in the popularity of particular golf products,
adverse weather conditions, a reduction in discretionary consumer spending or a
prolonged recessionary period, could have a material adverse effect on the
Company's business. See "Business--Golf Products."
COST AND AVAILABILITY OF CERTAIN MATERIALS
Plastic resin, synthetic rubber and paper products are significant
components of the Company's products and packaging. A shortage of any of these
components or significant increases in price could adversely affect the
Company's ability to maintain its profit margin in the event price competition
did not permit the Company to increase prices. Certain materials used in the
production of golf balls are petroleum derivatives and are therefore sensitive
to fluctuations in the price of oil.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
environmental laws and regulations that impose limitations on the discharge of
pollutants into the environment and establish standards for the handling,
generation, emission, release, discharge, treatment, storage and disposal of
certain materials, substances and wastes and the remediation of environmental
contamination (collectively, "Environmental Laws"). The Company believes that
its operations are in substantial compliance with the terms of all applicable
Environmental Laws as currently interpreted.
While historically the costs of environmental compliance have not had a
material adverse effect on the consolidated financial condition, results of
operations or cash flows of the Company, the Company cannot predict with
certainty its future costs of environmental compliance because of continually
changing compliance standards and technology. The Company expects that future
regulations and changes in the text or interpretation of existing Environmental
Laws may subject its operations to increasingly stringent standards. Compliance
with such requirements may make it necessary, at costs which may be substantial,
to retrofit existing facilities with additional pollution-control equipment and
to undertake new measures in connection with the storage, transportation,
treatment and disposal of by-products and wastes.
The Company has been named as a potentially responsible party ("PRP") with
respect to the generation and disposal of hazardous substances at sixteen sites
under the federal "Superfund" statute and/or certain analogous state statutes.
Pursuant to various federal, state and local laws and regulations, PRPs can
become liable for the costs of removal and/or remediation of those hazardous
substances disposed on, in or about such properties. The liability imposed by
the Superfund statute and
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<PAGE>
analogous state statutes generally is joint and several and imposed without
regard to whether the generator knew of, or was responsible for, the presence of
such hazardous substances. The Company estimates its liabilities with respect to
such sites to be approximately $0.6 million in the aggregate. However, there can
be no assurance that such liabilities will not exceed this estimate.
Regulations resulting from the 1990 Amendments to the Clean Air Act (the
"1990 Amendments") that will pertain to the Company's manufacturing operations
are currently not expected to be promulgated until 1997 or later. The Company
cannot predict the level of required capital expenditures resulting from future
environmental regulations such as those forthcoming as a result of the 1990
Amendments; however, the Company does not anticipate expenditures that will be
required by such regulations to be material. See "Business--Environmental
Matters."
DEPENDENCE ON KEY MANAGEMENT
The Company's success depends largely upon the abilities and experience of
certain key management personnel. The loss of the services of one or more of
such key personnel could have a material adverse effect on the Company. The
Company has non-competition agreements with all of such personnel. The Company
does not maintain key-man life insurance policies on any of its executives. See
"Management" and "Ownership of Common Stock."
CONTROL BY KKR
At the Closing, approximately 88.4% of the outstanding shares of Common
Stock will be held by Strata, of which KKR Associates (Strata), L.P. ("KKR
Associates (Strata)") is the general partner. The general partner of KKR
Associates (Strata) is Strata L.L.C., a limited liability company organized
under Delaware law. The members of Strata L.L.C. are also the members of the
limited liability company which is the general partner of KKR. Accordingly, the
members of Strata L.L.C. control the Company and have the power to elect all of
its directors (other than the director to be appointed by Abarco), appoint new
management and approve any action requiring the approval of the Company's
shareholders, including adopting amendments to the Company's Certificate of
Incorporation and approving mergers or sales of substantially all of the
Company's assets. There can be no assurance that the interests of the members of
Strata L.L.C. will not conflict with the interests of holders of the Exchange
Notes. See "Management," "Ownership of Common Stock" and "Related Party
Transactions."
LABOR RELATIONS
Approximately 27% of the Company's employees are unionized. While the
Company believes that its relations with its employees are good, a prolonged
labor dispute could have a material adverse effect on the Company.
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if the
Company, at the time it issued the Exchange Notes, (a) incurred such
indebtedness with the intent to hinder, delay or defraud creditors, or (b)(i)
received less than reasonably equivalent value or fair consideration, and
(ii)(A) was insolvent at the time of such incurrence, (B) was rendered insolvent
by reason of such incurrence (and the application of the proceeds thereof), (C)
was engaged or was about to engage in a business or transaction for which the
assets remaining with the Company constituted unreasonably small capital to
carry on its business, or (D) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they mature, then, in each
such case, a court of competent jurisdiction could avoid, in whole or in part,
the Exchange Notes or, in the alternative, subordinate the Exchange Notes to
existing and future
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indebtedness of the Company. The measure of insolvency for purposes of the
foregoing would likely vary depending upon the law applied in such case.
Generally, however, the Company would be considered insolvent if the sum of its
debts, including contingent liabilities, was greater than all of its assets at a
fair valuation, or if the present fair saleable value of its assets was less
than the amount that would be required to pay the probable liabilities on its
existing debts, including contingent liabilities, as such debts become absolute
and matured. Management of the Company believes that, for purposes of the United
States Bankruptcy Code and state fraudulent transfer or conveyance laws, the
Exchange Notes are being issued without the intent to hinder, delay or defraud
creditors and for proper purposes and in good faith, and that the Company will
receive reasonably equivalent value or fair consideration therefor, and that
after the issuance of the Exchange Notes and the application of the net proceeds
therefrom, the Company will be solvent, will have sufficient capital for
carrying on its business and will be able to pay its debts as they mature.
However, there can be no assurance that a court passing on such issues would
agree with the determination of the Company's management.
LACK OF PRIOR MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the holders of the Old Notes. The
Old Notes were offered and sold in September 1996 to a small number of
institutional investors and are eligible for trading in the Private Offerings,
Resale and Trading through Automatic Linkages (PORTAL) Market.
The Company does not intend to apply for a listing of the Exchange Notes on
a securities exchange. There is currently no established market for the Exchange
Notes and there can be no assurance as to the liquidity of markets that may
develop for the Exchange Notes, the ability of the holders of the Exchange Notes
to sell their Exchange Notes or the price at which such holders would be able to
sell their Exchange Notes. If such markets were to exist, the Exchange Notes
could trade at prices that may be lower than the initial market values thereof
depending on many factors, including prevailing interest rates and the markets
for similar securities. Although there is currently no market for the Exchange
Notes, the Initial Purchasers have advised the Company that they currently
intend to make a market in the Exchange Notes. However, the Initial Purchasers
are not obligated to do so, and any market making with respect to the Exchange
Notes may be discontinued at any time without notice.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market for similar securities.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning the
Company's operations, economic performances and financial condition, including,
in particular, the likelihood of the Company's success in developing and
expanding its business. These statements are based upon a number of assumptions
and estimates which are inherently subject to significant uncertainties and
contingencies, many of which are beyond the control of the Company, and reflect
future business decisions which are subject to change. Some of these assumptions
inevitably will not materialize, and unanticipated events will occur which will
affect the Company's results.
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THE RECAPITALIZATION AND THE FINANCINGS
On August 15, 1996, Strata and Abarco entered into the Recapitalization
Agreement pursuant to which Strata acquired control of the Company. In
connection with the Recapitalization Agreement, Strata acquired newly issued
shares of Common Stock for $221 million in the Equity Investment. The Company
used the proceeds from the Equity Investment, together with approximately $750
million of aggregate proceeds from the Financings to (i) repay existing
indebtedness including the Etonic Notes of approximately $368 million; (ii)
redeem a portion of the Common Stock held by Abarco for $580 million, of which
$522 million was paid in cash (the remaining consideration was paid by
distribution of the Company's investments in an affiliate promissory note and in
the common stock and note receivable of a real estate subsidiary of the
Company); (iii) purchase certain foreign trademarks and assignment rights from
an affiliate of Abarco for $5 million; (iv) redeem for approximately $28
million, from certain members of the management of S&E, all of the shares of S&E
not owned by the Company; (v) pay an estimated $31 million in transaction fees
and expenses, (vi) pay a transaction bonus of $5 million to certain members of
management of the Company and (vii) provide working capital of approximately $19
million. Immediately after Closing, Strata owned approximately 88.4% of the
Common Stock and Abarco retained approximately 11.6% of the Common Stock.
The Financings included (i) a $650 million credit facility comprised of the
Term Loan Facility and the Revolving Credit Facility, of which $400 million was
drawn at Closing, (ii) $200 million of the Notes, (iii) $150 million of
Preferred Stock and (iv) the Equity Investment.
The sources and uses of the funds for the Recapitalization and the related
transactions were as follows (dollars in millions):
<TABLE>
<S> <C>
SOURCES OF FUNDS
Term Loan Facility.................................................... $ 400
Old Notes............................................................. 200
Preferred Stock Offering.............................................. 150(1)
Equity Investment..................................................... 221
Repayment of management notes in connection with purchase of S&E
stock................................................................... 7
---------
Total............................................................ $ 978
---------
---------
USES OF FUNDS
Redemption of Abarco Common Stock..................................... $ 522
Refinancing of existing debt.......................................... 368
Redemption of S&E shares owned by management of the Company........... 28
Estimated transaction fees and expenses............................... 31
Transaction bonus..................................................... 5
Acquisition of foreign trademarks..................................... 5
Working capital....................................................... 19
---------
Total............................................................ $ 978
---------
---------
</TABLE>
- ------------
(1) Of the $150 million of gross proceeds from the Preferred Stock Offering,
$100 million were received from the 1,000,000 shares of Preferred Stock
issued and sold by the Company to Strata at Closing and $50 million were
received from the 500,000 shares of Preferred Stock issued and sold by the
Company to Strata immediately following the Closing. At Closing, the Company
borrowed $26 million under the Revolving Credit Facility and applied $2
million of cash balances to complete the Recapitalization. The borrowings
under the Revolving Credit Facility were repaid immediately following the
Closing upon receipt by the Company of the proceeds from the sale of $50
million liquidation preference of Preferred Stock.
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<PAGE>
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Notes
pursuant to the Exchange Offer.
The gross proceeds to the Company from the offering of the Old Notes
were $200 million. Such proceeds, together with (i) gross proceeds of the
Preferred Stock Offering of $150 million; (ii) borrowings of $400 million
under the Credit Facilities and (iii) $221 million from the Equity
Investment, were used by the Company to (a) repay existing indebtedness of
the Company, which amounted to approximately $368 million, (b) redeem a
portion of the Common Stock of the Company owned by Abarco for aggregate cash
consideration of approximately $522 million, (c) purchase certain foreign
trademarks and assignment rights from an affiliate of Abarco for $5 million,
(d) redeem S&E shares not owned by management of the Company for aggregate
consideration of approximately $28 million, (e) pay an estimated $31 million
in transaction fees and expenses, (f) pay a transaction bonus of $5 million
to certain members of management of the Company and (g) provide working
capital of approximately $19 million. The indebtedness of the Company repaid
in connection with the Recapitalization and the Financings consisted of: (i)
aggregate principal and interest of $313 million, at a weighted average
interest rate of 9.2%, owed by S&E to a syndicate of banks led by Citibank,
N.A. and NationsBank of Florida, N.A.; (ii) aggregate principal and interest
of $55 million Etonic Notes, at a weighted average interest rate of 9.0%;
(iii) aggregate principal of $4 million, at interest rates ranging from 0.00%
to 7.00%, owed by S&E to various New York State agencies and Fulton County,
New York; (iv) aggregate principal amount of $66,000, at an interest rate of
10.10%, owed by S&E to Metlife Capital Corporation; (v) aggregate principal
amount of $44,000, at an interest rate of 10.00%, owed by S&E to Metlife
Capital Corporation; and (vi) aggregate principal amount of $77,000, at an
interest rate of 8.75%, owed by S&E to the Estate of Donald J. Byrnes, the
former Chief Executive Officer of the Company. See "The Recapitalization and
the Financings."
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CAPITALIZATION
The following table sets forth the consolidated historical capitalization
of the Company as of September 30, 1996, which includes the effects of the
Recapitalization, the Financings and the application of the proceeds therefrom
and the Etonic Acquisition. This table should be read in conjunction with the
"Pro Forma Condensed Consolidated Financial Statement" and the notes thereto
and the consolidated financial statements of the Company and the related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<S> <C>
AS OF
SEPTEMBER 30, 1996
---------------------
HISTORICAL
---------------------
(DOLLARS IN MILLIONS)
Short-term debt:
Non-U.S. bank loans........................................................................ $
Current portion of long-term debt (1)......................................................
------
Subtotal................................................................................
------
Long-term debt:
Prior secured credit agreement:
Revolving credit loans..................................................................
Term loans..............................................................................
Credit Facilities:
Revolving Credit Facility (2)...........................................................
Term Loan Facility......................................................................
Notes...................................................................................
Other long-term debt.......................................................................
------
Total long-term debt....................................................................
------
Preferred Stock..............................................................................
------
Common shareholders' equity (deficiency).....................................................
------
Total capitalization.........................................................................
------
------
</TABLE>
- ---------------
(1) Does not include approximately $ million of bankers acceptances included in
accounts payable.
(2) As of September 30, 1996, the Company had additional availability under the
Revolving Credit Facility of $ million (after a reduction of $ million for
outstanding letters of credit and bankers' acceptances).
26
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENT
The following unaudited pro forma condensed statement of consolidated
earnings (the "Pro Forma Financial Statement") has been derived by the
application of pro forma adjustments to the Company's historical statement of
consolidated earnings for the year ended September 30, 1995 included
elsewhere in this Prospectus. The pro forma condensed statement of
consolidated earnings for the year presented gives effect to the
Recapitalization, the Financings, the Etonic Acquisition and the related
transactions as if such transactions had been consummated as of October 1,
1994. The adjustments, which include adjustments relating to the
Recapitalization, the Financings, the Etonic Acquisition and related
transactions, are described in the accompanying notes. The Pro Forma
Financial Statement should not be considered indicative of actual results
that would have been achieved had the Recapitalization, the Financings, the
Etonic Acquisition and the related transactions been consummated for the
period indicated and do not purport to indicate results of operations for any
future period. The Pro Forma Financial Statement should be read in
conjunction with the Company's historical financial statements and the notes
thereto included elsewhere in this Prospectus.
27
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED EARNINGS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C>
ADJUSTMENTS ADJUSTMENTS
FOR THE FOR THE
ETONIC RECAPITALIZATION
HISTORICAL ACQUISITION(A) AND OFFERING PRO FORMA
----------- ------------- --------------- -----------
Net sales....................................... $ 634,157 $ 60,230 $ 694,387
Cost of sales................................... 407,334 42,812 450,146
----------- ------------- -----------
Gross profit............................... 226,823 17,418 244,241
Selling, general and administrative expenses.... 179,043 15,496(b) $ (1,105)(c)
(1,130)(d) 192,304
Royalty income, net............................. (13,514) (1,911) (15,425)
Litigation settlement expense................... 2,400 2,400
----------- ------------- --------------- -----------
Income from operations..................... 58,894 3,833 2,235 64,962
Interest expense, net........................... 35,883 2,016 25,009(e) 62,908
Amortization of deferred financing
costs......................................... 2,225 629(f) 2,854
Currency loss, net.............................. 381 381
----------- ------------- --------------- -----------
Earnings (loss) before income taxes........ 20,405 1,817 (23,403) (1,181)
Income taxes.................................... 8,683 781(g) (10,063)(g) (599)
----------- ------------- --------------- -----------
Earnings (loss) before minority interest... 11,722 1,036 (13,340) (582)
Minority interest in net earnings of
consolidated subsidiary......................... 724 (724)(h) 0
----------- ------------- --------------- -----------
Net earnings (loss)........................ 10,998 1,036 (12,616) (582)
Noncash preferred stock dividend................ (19,647)(i) (19,647)
----------- ------------- --------------- -----------
Net earnings (loss) for common shareholders..... $ 10,998 $ 1,036 $ (32,263) $ (20,229)
----------- ------------- -----------
----------- ------------- --------------- -----------
---------------
Ratio of earnings to fixed charges (j).......... --
-----------
-----------
Deficiency of earnings to fixed charges......... $ 1,181
-----------
-----------
Ratio of earnings to fixed charges and preferred
stock dividends (j)............................. --
-----------
-----------
Deficiency of earnings to combined fixed charges
and preferred stock dividends(j).............. $ 35,649
-----------
-----------
Pro forma consolidated EBITDA (k)............... $ 84,290
-----------
-----------
</TABLE>
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
(a) Represents adjustments for the Company's purchase of certain assets of Etonic as of July 8, 1996. Etonic
reports its operations on a calendar year basis; accordingly, Etonic's financial results for the 1995
calendar year have been included in the Unaudited Pro Forma Condensed Statement of Consolidated Earnings for
the fiscal year ended September 30, 1995. Income taxes reflect the Company's effective income tax rate of
43%.
(b) Includes amortization of goodwill of $422 for the year ended September 30, 1995 related to the amortization
of $16,905 of goodwill arising from the Etonic acquisition. Goodwill is being amortized over 40 years.
(c) Historically, the Company has paid an affiliate of the Company for certain services provided by the
executives of this affiliate. However, after the Recapitalization, these services will no longer be provided;
therefore an adjustment has been reflected to reduce expenses for this transaction.
(d) Expenses related to a management stock ownership plan of a consolidated subsidiary that will not exist, or be
replaced, after the Recapitalization.
(e) Adjustments to interest expense as follows:
</TABLE>
<TABLE>
<S> <C>
Interest expense with respect to the Credit Facilities, the Offerings
and other indebtedness at an assumed weighted average interest rate of
9.0%.................................................................... $ 62,908
Less interest on prior U.S. secured credit agreement and other
indebtedness............................................................ 37,899
----------
Net increase in interest expense........................................ $ 25,009
----------
----------
</TABLE>
<TABLE>
<S> <C>
A 0.125% change in the interest rate would change annual pro forma interest expense by $828.
(f) Represents incremental amortization expense of deferred financing costs related to the Recapitalization and
the Financings. Part of such costs ($20,500) will be deferred and amortized over the lives of the related
debt and other securities. A portion of such costs ($19,500) has been charged against retained earnings
(deficit).
(g) Reflects the tax effect of deductible adjustments at the Company's effective income tax rate of 43%.
(h) Reflects the elimination of a minority interest in the consolidated subsidiary which will not exist after the
Recapitalization.
(i) Reflects the dividends to be paid to holders of Preferred Stock.
(j) For purposes of determining the pro forma ratios of earnings to fixed charges and of earnings to combined
fixed charges and preferred stock dividends, earnings are defined as earnings before income taxes and
cumulative effect of accounting changes, plus fixed charges (net of capitalized interest). Fixed charges
consist of interest expense on all indebtedness and capitalized interest, 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. For purposes of the computation of the ratio of
earnings to combined fixed charges and preferred stock dividends, the preferred stock dividend requirements
were increased to an amount representing the pre-tax earnings which are required to cover such dividend
requirements.
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
(k) "EBITDA" represents earnings before interest expense, income taxes, depreciation and amortization, and
excludes minority interest and cumulative effect of accounting changes. EBITDA is not intended to represent
cash flow from operations as defined by GAAP 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 is
included in the Offering Memorandum as it is one basis upon which the Company assesses its financial
performance, and certain covenants in the Company's borrowing agreements are tied to similar measures.
(l) A transaction bonus of $6,000 will be paid to certain members of management as part of the Recapitalization.
This amount will be expensed during the fourth quarter of fiscal 1996 and is not reflected in the Unaudited
Pro Forma Condensed Statement of Consolidated Earnings.
(m) Part of the proceeds from the Recapitalization will be used to redeem from certain members of management of
S&E all the shares of S&E not presently owned by the Company. Total compensation expense to be recognized by
the Company under the stock ownership plan of S&E is $20,255. Of this amount, the Company has recorded $1,130
through September 30, 1995, and expensed the remaining $19,125 during fiscal 1996 which is not reflected in
the Unaudited Pro Forma Condensed Statement of Consolidated Earnings.
</TABLE>
30
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial data of the Company. The historical consolidated financial statements
of the Company for the five fiscal years ended September 30, 1996 have been
audited. The historical consolidated financial data for the three fiscal years
ended September 30, 1996 have been derived from, and should be read in
conjunction with, the audited consolidated financial statements of the Company
and the related notes thereto included elsewhere in this Prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Pro Forma Condensed Consolidated Financial Statements," and the
historical consolidated financial statements and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<S> <C> <C> <C> <C> <C>
FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
OPERATING STATEMENT DATA
Spalding net sales...................................... $ 353,262 $ 378,010 $ 411,574 $ 424,118
Evenflo net sales....................................... 158,312 158,234 171,533 210,039
----------- ----------- ----------- ----------- -----------
Total net sales......................................... 511,574 536,244 583,107 634,157
Cost of sales (1)....................................... 325,337 342,276 370,328 407,334
----------- ----------- ----------- ----------- -----------
Gross profit............................................ 186,237 193,968 212,779 226,823
Selling, general and administrative expenses............ 147,533 150,106 178,678 179,043
Royalty expense (income), net........................... (7,534) (9,328) (12,789) (13,514)
Patent infringement settlements (2)..................... (2,300) 0 0 0
Litigation settlement expense (2)....................... 0 0 0 2,400
----------- ----------- ----------- ----------- -----------
Income from operations.................................. 48,538 53,190 46,890 58,894
Interest expense, net................................... 11,848 8,913 17,073 38,108
Currency loss (gain), net (3)........................... 849 2,238 (144) 381
----------- ----------- ----------- ----------- -----------
Earnings before income taxes............................ 35,841 42,039 29,961 20,405
Income taxes............................................ 14,330 18,000 11,938 8,683
----------- ----------- ----------- ----------- -----------
Earnings before minority interest and cumulative effect
of accounting changes................................... 21,511 24,039 18,023 11,722
Minority interest in net earnings of consolidated
subsidiary.............................................. 0 0 0 724
Cumulative effect of accounting
changes (4)........................................... 0 9,620 0 0
----------- ----------- ----------- ----------- -----------
Net earnings............................................ $ 21,511 $ 14,419 $ 18,023 $ 10,998
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Ratio of earnings to fixed charges (5).................. 3.67x 5.08x 2.61x 1.51x
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
AS OF SEPTEMBER 30,
--------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ------------ ---------- ----------
BALANCE SHEET DATA
Working capital (deficiency)........................... $ 49,667 $ 61,079 $ (110,193) $ 88,124
Total assets........................................... 382,747 404,336 508,068 535,645
Long-term debt (net of current portion)................ 80,166 141,512 129,788 313,073
Shareholder's equity (deficiency) (6).................. 128,318 67,803 (22,684) (12,976)
</TABLE>
- ---------------
(1) Included in cost of sales are unusual charges of (i) $3.1 million in fiscal
1992 for the relocation of Evenflo infant feeding facilities: and (ii) $3.8
million in fiscal 1993, for the conversion of two Evenflo manufacturing
facilities to distribution centers and for the closure of two Spalding
softball manufacturing facilities.
(2) In fiscal 1992 the Company received $2.3 million from the settlements of
patent infringement suits. In fiscal 1995 the Company expensed a litigation
settlement involving an environmental matter of a former operation for $2.4
million.
(3) Net currency losses in fiscal 1993 of $2.2 million were primarily the result
of losses from hedging activities, principally in Japan.
31
<PAGE>
(4) Effective October 1, 1992, the Company adopted SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 109
"Accounting for Income Taxes." As of October 1, 1992, the Company recorded
one-time charges against earnings in the form of cumulative effects of
accounting changes of $4.8 million on an after-tax basis with respect to
SFAS 106 and $4.8 million with respect to SFAS 109.
(5) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and cumulative effect of
accounting changes, plus fixed charges (net of capitalized interest). Fixed
charges consist of interest expense on all indebtedness and capitalized
interest, 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.
(6) Shareholder's equity (deficiency) reflects the acquisition of substantially
all of the non-U.S. trademarks related to the Company's business (the
"Acquired Trademarks") in May 1994. See Note D to the Consolidated Financial
Statements.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations of the
Company covers periods before completion of the Recapitalization, the Financings
and the Etonic Acquisition. Accordingly, the discussion and analysis of such
periods does not reflect the significant impact that the Recapitalization, the
Financings and the Etonic Acquisition will have on the Company. See "Risk
Factors," "Pro Forma Condensed Consolidated Financial Statement" and the
discussion below under "--Liquidity and Capital Resources" for further
discussion relating to the impact that the Recapitalization, the Financings and
the Etonic Acquisition may have on the Company.
The following table sets forth operating results of the Company for the
periods indicated.
<TABLE>
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1995 1996
(DOLLARS IN THOUSANDS)
Spalding net sales............................................................... $ 411,574 $ 424,118
Evenflo net sales................................................................ 171,533 210,039
--------- --------- ---------
Total net sales.................................................................. 583,107 634,157
Cost of sales.................................................................... 370,328 407,334
--------- --------- ---------
Gross profit..................................................................... 212,779 226,823
Selling general, and administrative expenses..................................... 178,678 179,043
Royalty expense (income), net.................................................... (12,789) (13,514)
Litigation settlement expense.................................................... 0 2,400
--------- --------- ---------
Income from operations........................................................... 46,890 58,894
Interest expense, net............................................................ 17,073 38,108
Currency loss (gain), net........................................................ (144) 381
--------- --------- ---------
Earnings before income taxes..................................................... 29,961 20,405
Income taxes..................................................................... 11,938 8,683
--------- --------- ---------
Earnings before minority interest................................................ 18,023 11,722
Minority interest in net earnings of consolidated subsidiary..................... 0 724
--------- --------- ---------
Net earnings..................................................................... $ 18,023 $ 10,998
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1995 1996
(PERCENTAGE OF TOTAL NET SALES)
Spalding net sales............................................................... 70.6% 66.9%
Evenflo net sales................................................................ 29.4 33.1
--------- --------- ---------
Total net sales.................................................................. 100.0% 100.0%
Cost of sales.................................................................... 63.5 64.2
--------- --------- ---------
Gross profit..................................................................... 36.5 35.8
Selling, general and administrative expenses..................................... 30.6 28.2
Royalty expense (income), net.................................................... (2.1) (2.1)
Litigation settlement expense.................................................... 0.0 0.4
--------- --------- ---------
Income from operations........................................................... 8.0 9.3
Interest expense, net............................................................ 2.9 6.0
Currency loss (gain), net........................................................ 0.0 0.1
--------- --------- ---------
Earnings before income taxes..................................................... 5.1 3.2
Income taxes..................................................................... 2.0 1.4
--------- --------- ---------
Earnings before minority interest................................................ 3.1 1.8
Minority interest in net earnings of consolidated subsidiary..................... 0.0 0.1
--------- --------- ---------
Net earnings..................................................................... 3.1% 1.7%
--------- --------- ---------
--------- --------- ---------
</TABLE>
33
<PAGE>
YEAR ENDED SEPTEMBER 30, 1996, ("FISCAL 1996")
COMPARED TO YEAR ENDED SEPTEMBER 30, 1995, ("FISCAL 1995")
[To Come]
YEAR ENDED SEPTEMBER 30, 1995 ("FISCAL 1995")
COMPARED TO YEAR ENDED SEPTEMBER 30, 1994 ("FISCAL 1994")
NET SALES. The Company's net sales increased to $634.2 million in fiscal
1995 from $583.1 million in fiscal 1994, an increase of $51.1 million or 8.8%.
Spalding's net sales increased to $424.1 million in fiscal 1995 from $411.6
million in fiscal 1994, an increase of $12.5 million or 3.0%. Evenflo's net
sales increased to $210.0 million in fiscal 1995 from $171.5 million in fiscal
1994, an increase of $38.5 million or 22.4%. On May 17, 1994, the Company
acquired substantially all of the non-U.S. trademarks related to its business
(the "Acquired Trademarks") from an affiliate of Abarco. In fiscal 1994, prior
to the acquisition, the Company paid $4.5 million in royalties for use of the
Acquired Trademarks on goods manufactured by the Company. Prior to the
acquisition of the Acquired Trademarks, the Company's accounting policy was to
net royalty payments to the former owner of the Acquired Trademarks on goods
manufactured by the Company against net sales. As a result of acquiring the
Acquired Trademarks in May 1994, no significant amounts relating to these
trademarks were netted against net sales in fiscal 1995.
Higher net sales at Spalding were attributable to increased international
sales, due primarily to increased volume in golf ball product lines and Dudley
softballs. The conversion from the 15 golf ball pack to the 18 golf ball pack
coupled with related promotional programs increased Top-Flite XL sales in fiscal
1995. In addition, golf club sales increased, but were offset by the close out
of the Thunder Heat(R) model. Dudley had record softball sales in fiscal 1995
primarily due to new product introductions of softballs with new leather and
ZK-Composite materials. Basketball sales were comparable to the prior fiscal
year due to slow retail sales.
34
<PAGE>
Evenflo's increase in net sales was principally driven by new product
introductions in the stationary activity products segment and in car seats, and
to a lesser extent Fisher Price's exit from the car seat business in fiscal
1995. The Exersaucer, the Ultara 1(R) Premier car seat with Adjust-A-Shield(R),
and the On My Way infant car seat with Carry Right handle were among the new
products which promoted increased unit sales volume. While breastfeeding and
baby care net sales increased slightly from prior year levels, the highly
competitive reusable and disposable feeding lines coupled with the consumer
advisory on pacifiers and car seats negatively impacted the overall increase in
net sales. During the second quarter of fiscal 1995, Evenflo's net sales of
pacifiers were negatively affected by reports from consumers alleging peeling of
pacifiers. As a precautionary measure, Evenflo discontinued shipments of all
pacifiers and destroyed existing inventory and, after an internal review,
purchases from one of its two suppliers were halted. The cost of such action
taken with respect to pacifiers was reflected in fiscal 1994 as a $1.2 million
charge to selling, general and administrative expenses. During fiscal 1995,
Evenflo discovered that the On My Way infant car seat could crack under severe
test conditions, and although the crack would not affect the car seat's ability
to restrain the occupant, Evenflo advised consumers of the cracking potential
and offered them the option of a rectification kit or a return of the product.
The consumer advisory and recall cost of $1.7 million was deducted from net
sales. Management believed these actions were necessary to maintain its high
quality standards.
GROSS PROFIT. The Company's gross profit increased to $226.8 million in
fiscal 1995 from $212.8 million in fiscal 1994, an increase of $14.0 million or
6.6%. Gross margin declined to 35.8% for fiscal 1995 from 36.5% for fiscal 1994.
Spalding's gross profit increased to $174.4 million in fiscal 1995 from $164.8
million in fiscal 1994, an increase of $9.6 million or 5.8%. Evenflo's gross
profit increased to $52.4 million in fiscal 1995 from $48.0 million in fiscal
1994, an increase of $4.4 million or 9.2%.
Spalding's gross margin increased to 41.1% in fiscal 1995 from 40.0% in
fiscal 1994. The increase was attributable to a favorable product mix with
higher golf ball sales volume.
Evenflo's gross margin decreased to 25.0% in fiscal 1995 from 28.0% in
fiscal 1994. The decrease was due principally to higher sales of car seats and
stationary activity products (representing 50% of net sales in fiscal 1995
compared to 41% in fiscal 1994) which have lower gross margins than feeding
products lines (representing 27% of net sales in fiscal 1995 compared to 35% in
fiscal 1994). Additionally, the cost of the On My Way voluntary corrective
action referred to above reduced net sales by $1.7 million.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's selling,
general and administrative expenses increased to $179.0 million for fiscal 1995
from $178.7 million for fiscal 1994, an increase of $0.3 million. As a
percentage of sales, selling, general and administrative expenses decreased to
28.2% for fiscal 1995 from 30.6% for fiscal 1994.
The $1.6 million increase in Spalding's selling, general and administrative
expenses included a $2.3 million increase in administrative and other expenses
reduced by $0.7 million in lower selling, advertising and promotional expenses.
The reduction in advertising and promotional expenses was a result of certain
fiscal 1994 programs designed to reposition golf balls under the Top-Flite brand
to a higher price point which were not repeated in fiscal 1995.
Selling, general and administrative expenses at Evenflo increased $0.9
million. This increase consisted of (i) $1.3 million in higher co-op advertising
and sales commissions, (ii) $1.2 million associated with the quality assurance
efforts and a consumer advisory on pacifiers referred to above and (iii) a $0.7
million increase in the allowance for doubtful accounts, reduced by (i) $1.5
million in fiscal 1994 expenses not incurred in fiscal 1995 associated with new
packaging costs and relocation of the Evenflo infant feeding operations to the
Canton, Georgia manufacturing facility and (ii) $0.8 million in other
miscellaneous costs.
35
<PAGE>
In fiscal 1995, the corporate office general and administrative expenses
decreased $2.2 million due primarily to $1.1 million higher compensation expense
related to the management stock plan of S&E offset by $3.0 million of costs
related to the Acquired Trademarks recorded in fiscal 1994 which did not recur
in fiscal 1995.
ROYALTY INCOME. Royalty income reflected a $0.7 million increase to $13.5
million in fiscal 1995 from $12.8 million in fiscal 1994. Prior to the
acquisition of the Acquired Trademarks, the Company's accounting policy with
respect to royalty income from licensed products was to net that portion of
royalty income required to be paid over to the former owner of the Acquired
Trademarks against royalty income. Consequently, by adding $1.8 million to the
fiscal 1994 royalty income to eliminate the effect of such deductions from
royalty income, royalty income decreased $1.1 million for the comparable
periods. For fiscal 1995, non-U.S. royalty income increased $1.1 million which
consisted of $1.0 million of higher royalties from Japanese manufacturers and
$0.1 million from manufacturers in other countries. U.S. royalty income
decreased $2.2 million consisting of (i) $1.2 million reduction due to a soft
footwear market coupled with the reduction by a mass merchant of purchases from
a Spalding licensee, (ii) $0.8 million decrease from terminating purchases of
mass merchandise golf clubs from a licensee to in-house production in fiscal
1995, (iii) $0.2 million decrease as Spalding transitions from current apparel
licensees to the new Sara Lee licensee and (iv) $0.3 million decrease in Evenflo
royalty income, which is partially offset by net increases in other domestic
licensees of $0.3 million.
LITIGATION SETTLEMENT EXPENSE. In fiscal 1995 the Company incurred a
nonrecurring expense of $2.4 million to settle a dispute relating to
environmental cleanup costs of a manufacturing facility which the Company
disposed of in 1976.
INTEREST EXPENSE. Interest expense increased to $38.1 million for fiscal
1995 from $17.1 million for fiscal 1994, an increase of $21.0 million. The
increase was due to a higher average U.S. borrowing rate of 10.1% for fiscal
1995 versus 5.1% for fiscal 1994 and a higher average borrowing balance,
primarily attributable to debt incurred in connection with the purchase of the
Acquired Trademarks.
CURRENCY LOSS. Currency loss of $0.4 million in fiscal 1995 was primarily
due to a $1.3 million loss caused by the devaluation of the Mexican peso, partly
offset by currency gains. In fiscal 1994, the Company had a currency gain of
$0.1 million. See "--Liquidity and Capital Resources."
NET EARNINGS. Net earnings of $11.0 million for fiscal 1995 were $7.0
million lower than the $18.0 million net earnings for fiscal 1994. The decline
in net earnings was a result of (i) significantly higher interest expense and
(ii) a nonrecurring expense for the settlement of a litigation dispute involving
an environmental matter of a former operation, partially offset by (i) increased
earnings from operations and (ii) lower taxes.
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL. Historically, the Company's primary sources of liquidity have
been cash from operations and borrowings under various credit facilities. The
Company's business is somewhat seasonal. For fiscal 1996, quarterly net sales as
a percentage of total sales were approximately %, %, % and %,
respectively, for the first through the fourth quarters of the fiscal year. In
addition, for fiscal 1996, quarterly income from operations as a percentage of
total income from operations was approximately %, %, % and %,
respectively, for the first through fourth quarters of such fiscal year. Many
sporting goods marketed by Spalding, especially golf products, experience higher
levels of sales in the spring and summer months. The Company's need for cash
historically has been greater in its first and second quarters when cash
generated from operating activities coupled with drawdowns from bank lines have
been invested in receivables and inventories.
Operating activities generated $ million, $16.6 million and $35.6
million in cash flow in each of the 1996, 1995 and 1994 fiscal years,
respectively. [insert description of 1996 compared to 1995]. The
36
<PAGE>
reduction in cash flow from operating activities in the 1995 fiscal year
compared to the 1994 fiscal year of $19 million was primarily due to an $18.7
million increase in working capital as inventories increased to support higher
sales volumes as well as Spalding's entry into premium golf club lines, and
receivables increased due to strong 1995 fiscal year end sales activity and
Spalding incentive programs.
The primary sources of cash flows from financing activities are from
borrowings under credit agreements available to the Company and certain foreign
subsidiaries and other indebtedness of the Company. The Company's principal
credit agreements prior to the Recapitalization were a $450 million maximum
credit commitment dated October 13, 1994 and an April 17, 1996 $40 million
maximum commitment interim loan agreement. Certain foreign subsidiaries of the
Company utilize various non-U.S. bank financing arrangements with a maximum
aggregate availability of U.S. $49.2 million. The Company's other indebtedness
consists primarily of financing agreements with various government agencies to
finance the costs of a manufacturing facility and equipment with scheduled
repayments through the year 2010. As part of the Recapitalization, all
indebtedness except for the non-U.S. bank financing was repaid and terminated.
Capital expenditures were $ million, $15.4 million and $19.1 million
in fiscal 1996, 1995 and 1994, respectively. In addition, Evenflo expended
$7.5 million in fiscal 1993 and 1994 to build a new manufacturing facility in
Canton, Georgia. All other capital expenditures were used primarily for new
product introductions and to upgrade existing production equipment. In
addition, on May 17, 1994, the Company purchased the Acquired Trademarks for
$176 million. A significant element of the capital expenditures for fiscal
1996 was investments to expand golf ball production and such expansion will
continue into fiscal 1997, resulting in capital expenditures for fiscal 1997
being above historical levels. See "Business--Spalding--Manufacturing,
Product Procurement and Raw Materials."
POST-RECAPITALIZATION. Following the Recapitalization, the Company's
principal sources of liquidity will be from cash flow generated from operations
and borrowing under the $250 million Revolving Credit Facility. The Company's
principal uses of liquidity will be to provide working capital, meet debt
service requirements and finance the Company's strategic plans.
The Financings include (i) $650 million under the Credit Facilities
comprised of a $400 million Term Loan Facility and a $250 million Revolving
Credit Facility, (ii) $200 million of Notes, (iii) $150 million of Preferred
Stock, and (iv) the $221 million Equity Investment. The proceeds from the Credit
Facilities, Notes, Preferred Stock and Equity Investment were used to effect the
Recapitalization and pay fees and expenses in connection therewith. At September
30, 1996, the Company borrowed the entire $400 million under the Term Loan
Facility and had additional availability of $ million under the Revolving
Credit Facility (reduced to reflect $ million of outstanding letters of credit
and bankers' acceptances).
37
<PAGE>
The $400 million Term Loan Facility consists of (i) $175 million seven year
Term Loan A, (ii) $87.5 million eight year Term Loan B, (iii) $87.5 million nine
year Term Loan C and (iv) $50 million nine and one half year Term Loan D. These
Term Loans will amortize as follows:
<TABLE>
<S> <C> <C> <C> <C>
TERM TERM TERM TERM
YEAR LOAN A LOAN B LOAN C LOAN D
- ----------------------------------------------------- --------- ----------- ----------- -----------
(DOLLARS IN MILLIONS)
1.................................................... $ 0.0 $ 0.0 $ 0.0 $ 0.0
2.................................................... 15.0 1.0 1.0 0.5
3.................................................... 25.0 1.0 1.0 0.5
4.................................................... 25.0 1.0 1.0 0.5
5.................................................... 30.0 1.0 1.0 0.5
6.................................................... 30.0 1.0 1.0 0.5
7.................................................... 50.0 1.0 1.0 0.5
8.................................................... 81.5 1.0 0.5
9.................................................... 80.5 0.5
9.5.................................................. 46.0
--------- ----------- ----------- -----------
$ 175.0 $ 87.5 $ 87.5 $ 50.0
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
The Term Loan Facility is also subject to mandatory prepayment with the
proceeds of certain asset sales and certain debt offerings and a portion of
Excess Cash Flow (as defined in the Credit Facilities). The Revolving Credit
Facility will terminate seven years after the date of the Recapitalization.
The Old Notes were issued in an aggregate amount equal to $200 million in
principal amount with cash interest payable semianually in arrears and a
maturity ten years from the date of issuance. See "Description of the Exchange
Notes--Principal, Maturity and Interest".
The Preferred Stock was issued with a $150 million aggregate liquidation
preference and has a required redemption twelve years after the date of
issuance. The Preferred Stock does not pay cash dividends. See "Description of
Preferred Stock."
CURRENCY HEDGING. The Company uses forward exchange contracts to hedge up
to six month transaction exposures from U.S. dollar purchases made by its
non-U.S. operations.
INFLATION
Inflation has not been material to the Company's operations within the
periods presented.
38
<PAGE>
BUSINESS
GENERAL
The Company is a leading global marketer, manufacturer and licensor of
branded consumer products serving the golf, sporting goods and infant and
juvenile product markets. Spalding is one of the most recognized consumer
product companies serving the sporting goods industry, and in 1995, sold more
golf balls, basketballs and softballs than any other company in the U.S. Evenflo
is the largest domestic manufacturer of juvenile car seats, juvenile stationary
activity products and breastfeeding products and is widely recognized by new
mothers for high quality, safety-tested infant and juvenile products. The
Company markets its products in over 100 countries and had pro forma net sales
of $694 million in fiscal 1995.
Spalding was founded in 1876 by Hall of Fame baseball pitcher Albert G.
Spalding and is one of the oldest, largest and best-known sporting goods
companies in the world. Spalding produced the first official major league
baseball in 1876 and the first basketballs and volleyballs in the 1890's.
Spalding has a leading market position in these product lines today and is
currently the exclusive supplier of the official NBA basketball and American
Volleyball Association ("AVA") volleyball. Additional early achievements were
the first U.S.-made footballs, golf clubs, golf balls, tennis rackets and tennis
balls. Spalding introduced the first "dimpled" golf ball in the United States in
1908; the first two-piece, solid golf ball in 1966, which today is the most
commonly played type of ball; and the Surlyn cut-resistant golf ball cover in
1971. More recently, Spalding introduced the Top-Flite Strata Tour golf ball, a
premium ball that uses a patented multi-layer core and ZS Balata cover, the
first oversized golf ball, sold under the Top-Flite Magna brand name, the
patented Top-Flite Tour golf club, the titanium Top-Flite Tour irons, the Muscle
graphite shaft and the ZK-Composite basketball.
Evenflo was established in 1920, and its early successes came from the
development in 1935 of the modern nursing bottle nipple, which is held in place
with a screw-on bottle cap, versus the then-standard nipples which were
stretched over the bottle top. Evenflo has since developed a large number of
innovative infant feeding products, including the first fully transparent baby
bottle, the first decorated nursers, the first convertible (infant to toddler)
car seat to pass applicable federal testing standards, and the first juvenile
stationary activity product. Evenflo seeks to distinguish itself from its
competitors by continually developing innovative, high quality products and
offering them at competitive prices.
The Company has its principal executive office at 601 South Harbour Island
Boulevard, Suite 200, Tampa, Florida 33602-3141. The Company's telephone number
is (813) 204-5200.
COMPETITIVE STRENGTHS
SPALDING
Leading Market Share in Key Product Areas. In fiscal 1995, Spalding was the
U.S. market share leader in golf balls (35% market share in units), basketballs
(48% market share in net sales), and softballs (27% market share in net sales).
In 1995, Spalding held the leading U.S. market share position in products that
generated 60% of its pro forma net sales. Spalding sold approximately 25 million
dozen golf balls in fiscal 1995, approximately 30% more (by units) than its
nearest competitor. The Company believes that Top-Flite is the most played golf
ball in the world. By leveraging its strong market position in core product
lines, Spalding is able to increase net sales and profit margins by introducing
new lines of related products, such as Top-Flite Tour golf clubs and Top-Flite
Strata Tour golf balls, or line extensions in existing products, such as
ZK-Composite basketballs and volleyballs.
Strong Brand Identity. Spalding enjoys a 91% brand awareness among sports
participants in the U.S. due to its 120-year tradition of developing and
manufacturing high quality sporting goods products. The Company believes that
the NBA's exclusive endorsement of Spalding basketballs since
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1983, along with the endorsement of Spalding products by professional athletes
such as Lee Trevino, Mark O'Meara, Payne Stewart, Craig Stadler, D.A. Weibring,
Bill Glasson, Hakeem Olajuwon, Shaquille O'Neal, Rebecca Lobo and Orel
Hershiser, has contributed to Spalding's high level of domestic and
international brand awareness and strong market positions. Spalding pursues
domestic and international growth through new product introductions, line
extensions and licensing arrangements under its well established brand names,
including Spalding, Top-Flite, Etonic and Dudley. In addition, Spalding's strong
brand identity in its key product areas increases licensing opportunities for
apparel, footwear and other products. Sales of licensed Spalding products
totaled approximately $318 million in fiscal 1995, up from approximately $186
million in fiscal 1991, a compound annual growth of 14%. Spalding realized
royalty income from such licensed sales of $13 million in fiscal 1995.
Emphasis on Product Development and Innovation. In recent years, the
Company has derived a significant percentage of its net sales from new product
introductions and line extensions. For the nine months ended June 30, 1996, over
33% of Spalding's net sales came from new products and line extensions
introduced during the twelve months ended June 30, 1996. Spalding currently
holds more than 125 U.S. patents, 55 of them in golf ball technology alone.
Spalding introduced the first dimpled golf ball in the U.S., invented the first
two piece golf ball, developed and patented the blended Surlyn cut-resistant
golf ball cover and in May 1996 introduced the Top-Flite Strata Tour, Spalding's
latest product offering in the premium golf ball market. In addition, Spalding
has recently introduced one of the first titanium irons in the market, and the
popularity of Spalding's patented ZK-Composite materials for basketballs and
volleyballs has contributed to Spalding's success in both of these markets.
Low Cost Producer. Spalding is the largest golf ball manufacturer in the
U.S. and, as a result of its highly automated manufacturing process and focus on
improving efficiency, believes it is one of the lowest cost golf balls producers
in the world. Since 1991, Spalding has reduced costs per unit by 10%, reduced
average per ball production time from eight days to less than 30 hours and
increased its production capacity by approximately 45%, while improving product
quality levels.
Quality Customer Service and Support. Spalding believes that quality
customer service is a critical factor for success in the branded consumer
products market. Spalding has developed a highly integrated, on-line software
system which allows Spalding to expedite order entry, respond rapidly to retail
customer questions regarding product specifications and custom orders and direct
consumers to convenient retail locations that stock Spalding products. In
response to the growing need to assist retailers with their efforts to improve
purchasing efficiencies, Spalding offers customized computer-to-computer order
entry, just-in-time inventory control and other specialized services.
EVENFLO
Strong Market Share in Key Product Areas. In 1995, Evenflo was the U.S.
market leader (by net sales) in juvenile car seats (35% market share), juvenile
stationary activity products (in excess of 50% market share) and breastfeeding
products (50% market share). In 1995, Evenflo held leading market share
positions in products that generated over 55% of its net sales. In 1995, Evenflo
had one of the leading domestic market positions (by net sales) in play yards
(27% market share) and reusable nursing systems (24% market share). Evenflo
believes that its strong market shares are attributable to its design of
safety-tested products that appeal to parents' desires for fashionable products
that add convenience to the child care process. The breadth of Evenflo's product
line permits it to compete effectively in international markets and Evenflo has
significant net sales in certain international markets.
Strong Brand Identity. With a strong brand awareness among new mothers in
the U.S., Evenflo is one of the most widely recognized names in the infant and
juvenile products industry. Evenflo believes that its long history of developing
safety-tested, innovative products (Evenflo introduced the first nursing bottle
system in 1935) is responsible for the high levels of brand loyalty achieved by
its products. In addition, the strength of Evenflo products in the car seat and
high chair markets which are
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"core" products (required products for most families with infants and juveniles)
contributes to customers recognizing Evenflo as a brand name associated with
high quality consumer products. Evenflo is able to introduce new lines and
related products, such as Evenflo's car seat/stroller combination, or product
innovations, such as the stationary Exersaucer, by leveraging its strong brand
name awareness.
Emphasis on Innovation and Product Development and Safety Testing. Evenflo
has developed a number of innovative infant and juvenile products, including the
first fully transparent baby bottle, the first decorated nurser, the first
convertible car seat to pass applicable Federal testing standards, and the first
juvenile stationary activity product. In 1994, Evenflo successfully introduced
the stationary Exersaucer infant exerciser as a safer alternative to infant
walkers. Evenflo's most recent car seat offering, the On My Way introduced in
1994, with its ergonomically correct Carry Right handle, has gained a leading
market share in the infant car seat segment. By designing a car seat that
attaches to a stroller to form the new On My Way Travel System, Evenflo has
opened incremental growth opportunities in strollers. Each new product Evenflo
developes is subjected to extensive evaluation to ensure it meets Evenflo's
standards for quality and safety.
Quality Customer Service and Support. Evenflo believes that effective
customer service is essential to maintaining the brand loyalty of new parents,
grandparents and other purchasers of infant and juvenile products. Evenflo has
established toll free customer service numbers for consumers with questions
relating to Evenflo products. Like Spalding, Evenflo offers customized
computer-to-computer order entry, just-in-time inventory control and other
specialized services to its customers.
BUSINESS STRATEGY
SPALDING
Spalding's objective is to be a leading worldwide supplier of high quality
sporting goods products serving the needs of sports participants of all skill
levels. Spalding seeks to achieve this objective through the following
strategies, as well as by growing through selective acquisitions:
Increase Market Share in Golf Products. Spalding intends to increase market
share in each golf product market segment, particularly the premium golf market,
by pursuing the following strategies:
. Introducing frequent improvements in golf ball technology. Spalding's
introduction of the Top-Flite Strata Tour golf ball marks the fourth
consecutive year in which Spalding has introduced a new line of advanced
performance golf balls. With its patented multi-layer core and ZS Balata
cover, the Top-Flite Strata Tour outperforms other premium grade golf
balls in distance and spin comparisons. The Top-Flite Strata Tour has
been one of the most successful product launches in the Company's history
and has increased Spalding's sales through the attractive on-course pro
shop channel. Through the introduction of the Top-Flite Strata Tour,
along with further enhancements to Spalding's high volume Top-Flite XL
and Top-Flite Magna brands, Spalding intends to expand its presence in
the premium golf ball market while maintaining its unit leadership in the
mid-priced golf ball market.
. Increasing sales of premium golf clubs. Spalding entered the premium golf
club market in 1994 to capitalize on the strength of the Top-Flite name
and establish Top-Flite as a major brand in the $1.2 billion U.S.
wholesale golf club market, which is highly fragmented and has grown 13%
annually over the past five years. Since the beginning of the 1996 golf
season, Top-Flite Tour irons have been one of the most played irons on
the PGA Senior Tour. In addition, Spalding's premium golf club sales have
increased to $19 million for the first nine months of fiscal 1996 from $9
million for the same period in fiscal 1995. Spalding recently introduced
its first titanium Top-
41
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Flite Tour irons and its new Muscle graphite shaft which further improves
the Company's position in the premium golf club market.
. Expanding and upgrading its line of golf accessories. The acquisition of
Etonic, the second best selling golf shoe brand in the U.S., extends the
Company's golf franchise to golf shoes and gloves, as well as enhances
the Company's distribution into on-course golf pro shops and high-end
golf retailers. Etonic currently offers over 70 styles of golf shoes
which are endorsed by several of the leading PGA tour professionals,
including Phil Mickelson. The Company intends to capitalize on the
acquisition of Etonic by introducing new shoe and glove products which
complement the Top-Flite line of equipment and accessories.
Continue New Sporting Goods Product Innovations and Introductions. Spalding
intends to expand on its leading market share in basketballs, softballs and
volleyballs by continuing to develop new products in related categories.
Spalding will continue to introduce high end, innovative products for its
sporting goods segment, such as a new dimpled softball, a "soft-touch"
volleyball and premium soccer balls. Spalding also intends to continue
developing new high performance products for the increasing number of women
participating in competitive sports and the growing international market for
sporting goods. In addition, Spalding intends to utilize its Warner Bros.
license for Looney Tunes to become a leader in the growing licensed character
segment of the athletic products industry.
Grow International Sales. Although Spalding already markets its products in
over 95 countries, management believes that significant additional opportunities
exist to increase international sales, especially in Latin America, China, and
other nations in Southeast Asia. In addition to new geographic opportunities,
Spalding believes that significant international opportunities are available for
growth from both existing product lines as well as new product introductions due
to the growing international popularity of golf, basketball and volleyball.
Spalding believes that its brand name recognition in the U.S. coupled with
important product endorsements, particularly the NBA and touring golf
professionals, will allow Spalding to continue to expand in international
markets.
Selectively Expand Licensing Program. Spalding intends to selectively
expand its brand name to additional product categories and new markets,
particularly outside the U.S. Spalding is currently one of the world's leading
sports brand licensors with over 100 worldwide licenses. The Spalding and Top-
Flite brand names are licensed in over 45 product categories, including the
Hakeem Olajuwon shoe line by Mercury International Trading Corp., one of the
largest shoe manufacturers in the world, and an apparel line by Mitsubishi
Corporation in Japan. Spalding also recently entered into a 15-year exclusive
U.S. licensing agreement with the Sara Lee Corp., one of the largest apparel
manufacturers in the U.S. and the maker of Champion, Coach, Hanes and L'eggs
products, for apparel products in the mid-price range.
EVENFLO
Evenflo's objective is to be a worldwide leader in serving the infant and
juvenile hardgoods products markets with high quality products and excellence in
customer service. Evenflo seeks to achieve this objective by pursuing the
following strategies, as well as by growing through selective acquisitions:
Increase Market Share Through New Product Innovations. Evenflo expects to
introduce numerous new products in its juvenile furniture and infant feeding
markets in the next twelve months. Evenflo is the leading seller of infant and
juvenile car seats in the U.S. and will seek to increase its market share with
the 1996 launch of the Medallion, a high-end convertible (infant to toddler) car
seat. Evenflo intends to use its recent success with the On My Way Travel
System, a combination car seat and stroller system, to increase sales of
strollers. Evenflo intends to introduce products similar to its multi-functional
Phases high chair, which was introduced in late 1995 and converts from infant
feeding seat to high chair to booster seat and then to a play table and chair.
The success of the Phases high chair has
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increased Evenflo's share (by net sales) of the U.S. high chair market from
approximately 5% in 1994 to 13% for the six months ended June 30, 1996.
Grow International Sales. Evenflo's international sales have grown at a
compound annual rate of more than 12% from fiscal 1991 to fiscal 1995. Evenflo
intends to continue to increase sales in international markets, which are highly
fragmented with many competitors that generally do not have the brand name,
breadth of product offerings or economies of scale possessed by Evenflo. In
addition, Evenflo expects that its strength in car seats will be an advantage in
certain foreign markets such as Korea and Singapore which have recently enacted
mandatory child restraint laws. To effectively compete in international markets,
Evenflo develops product, packaging and marketing strategies specific to
targeted markets in conjunction with key foreign distributors.
Selectively Expand Licensed Product Offering. Evenflo anticipates that
sales of products featuring popular, licensed cartoon characters will provide
increased revenue opportunities as consumers purchase additional products based
upon the appeal of the licensed character. Evenflo has been a licensee of Disney
Babies for feeding products since 1985. In addition, Evenflo introduced a number
of new products featuring licensed characters, such as Peter Rabbit & Friends,
Paddington Bear and Precious Moments during fiscal 1996. Evenflo is evaluating
other licensed characters for use with both its furniture and feeding product
lines.
SPALDING
Spalding, with pro forma net sales of $484 million in fiscal 1995, is a
leader in the $2.4 billion U.S. wholesale golf industry and in the $57 billion
U.S. wholesale sporting goods industry, with some of the most widely recognized
branded consumer product names such as Spalding, Top-Flite, Etonic and Dudley.
Spalding's brand names are currently featured on over 2,000 products with an
emphasis on three primary categories: (i) golf products, (ii) products for other
sporting goods segments, such as basketball, diamond sports (baseball and
softball), volleyball and soccer and (iii) licensed athletic products, including
apparel and footwear. To broaden Spalding's line of golf products, in July 1996
the Company acquired Etonic's line of golf accessories, including the second
best selling golf shoe brand in the U.S., golf gloves and apparel. Spalding's
international sales have grown to $156 million, or 32% of Spalding's pro forma
net sales in fiscal 1995, due in large part to the growing popularity of golf,
basketball and volleyball outside the United States.
Spalding had leading market shares in 1995 in many of its key products
areas as demonstrated by the following table:
<TABLE>
<S> <C> <C>
PRODUCT U.S. MARKET SHARE U.S. MARKET RANK
- ------------- ------------------ ------------------
Golf Balls 35% #1
Basketballs 48% #1
Softballs 27% #1
</TABLE>
GOLF PRODUCTS
General. Golf products are Spalding's largest product category, generating
worldwide net sales of more than $318 million in fiscal 1995, or approximately
66% of Spalding's total pro forma net sales. Spalding is the U.S. market share
leader in the manufacture and marketing of golf balls, primarily under its
Top-Flite brand name, as well as an industry leader in introducing innovative
new golf products. Spalding offers a comprehensive array of golf clubs, golf
bags, golf shoes and other golf accessories. In addition to golf balls,
Spalding's golf products are endorsed by leading golf professionals including
Lee Trevino, Payne Stewart, Bill Glasson, Craig Stadler, Mark O'Meara and D.A.
Weibring. Spalding golf club products are played worldwide by over 100 touring
golf professionals and many PGA club professionals.
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The golf industry has been growing both in the United States and worldwide,
particularly among younger players, seniors and women. In 1995, according to the
National Golf Foundation ("NGF"), approximately 25 million people played
approximately 490 million rounds of golf in the United States, and approximately
two million people are estimated to have played golf for the first time. In
addition, in the United States, the total number of golf courses increased from
13,004 in 1991 to over 15,390 in 1995. While the number of golfers (defined by
the NGF as an individual age 12 or older who played at least one round of golf)
and rounds played increased only moderately from 1986 through 1994, total
spending by golfers increased by 8.6% compounded annually over the same period.
For 1995, total wholesale expenditures on all golf products were estimated at
over $5 billion worldwide and at over $2.4 billion in the United States.
The Company believes that the following industry trends will favorably
impact the number of golfers, rounds of golf played and number of golf
facilities in future years:
. An aging U.S. population, with more retired individuals, is expected to
provide increasing demand for golf. The NGF estimates that approximately
25% of U.S. golfers in 1995 were over the age of fifty and that these
golfers played a disproportionate 47% of the total rounds played.
. Beginning golfers tend to be young and relatively affluent. A 1995 NGF
report estimates that almost 56% of beginning golfers are under age 30,
61% are from households where annual income exceeds $40,000, and, of that
latter percentage, 21% are from households where annual income exceeds
$75,000.
. During 1995, 309 golf courses opened in the United States, which
represents a 33% increase over golf course openings in 1994. From 1991 to
1995 the number of golf courses open for play increased by approximately
18%. According to the NGF, at year end 1995, over 800 golf courses were
under construction, with approximately 500 golf courses scheduled to open
during 1996.
The Company believes that numerous golf markets are developing worldwide.
In addition to the popularity of golf in Australia, Japan and New Zealand, the
Company believes that Asian markets, such as China, Hong Kong, India, Korea,
Malaysia and Thailand, and the South American markets, may experience
significant growth in numbers of players and rounds played. Spalding believes
that Top-Flite's strong brand name and experience in international markets will
be a competitive advantage in these emerging markets.
Golf Balls. Spalding was the leading manufacturer of golf balls in the $580
million U.S. wholesale market in 1995 and with worldwide net sales of $211
million is a leader in the global golf ball market. Spalding currently markets
its line of golf balls under numerous names including Top-Flite Strata Tour,
Top-Flite Tour, Top-Flite Magna, Top-Flite XL, Top-Flite Z-Balata and Flying
Lady(R). Spalding believes that its family of Top-Flite golf balls has sold more
golf balls than any other family of golf balls in the world. Spalding introduced
a number of golf ball line extensions in fiscal 1996, including the new
Top-Flite Strata Tour, Top-Flite Magna EX, Top-Flite Hot XL in a 15-pack,
Top-Flite Z-Balata, Top-Flite Tour SDTM and Top-Flite XL 90/100 balls, as well
as improved range balls. Spalding focuses its marketing efforts on pro shops,
off-course golf specialty shops, sporting goods stores and other retail outlets
where the Top-Flite name is widely recognized. In addition, the Company seeks to
increase sales to women, who have represented the fastest growing segment of the
golf market.
Spalding believes that the golf ball market is highly receptive to new
product development, and therefore, Spalding seeks to lead the industry in
product innovation. For example, Spalding introduced the first two-piece golf
ball in 1966 and the blended Surlyn golf ball cover in 1971, which virtually
eliminated cutting of the cover. In 1986, Spalding introduced the Tour Edition
golf ball, the first two-piece golf ball to be accepted on the professional
tour. In 1993, Spalding introduced the first successful oversized golf ball,
marketed under the Top-Flite Magna name. Spalding recently introduced the Top-
Flite Strata Tour, an innovative design that uses a patented, multi-layered core
and a patented cover to
44
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improve performance. Through its research and development efforts, Spalding has
successfully introduced a new line of advanced performance golf balls in each of
the last four years (the Top-Flite Strata Tour, Top-Flite Z-Balata, Top-Flite
Magna and Top-Flite Tour brands). Spalding also customizes its golf balls with
customers' names or logos (a market which management believes to represent 20%
of the total golf ball market).
Golf Clubs. In fiscal 1995, sales of Spalding golf clubs generated $58
million in net sales. In 1995, U.S. wholesale sales of golf clubs were estimated
at $1.2 billion. Spalding offers a wide range of golf clubs for the recreational
and professional golfer at various price points marketed primarily under the
Top-Flite Tour, Top-Flite Magna, Executive(R) and Top-Flite Intimidator brand
names. Spalding formed a new division in 1995, the Top-Flite Golf Club Company,
to capitalize on the strength of the Top-Flite brand name and establish
Top-Flite as a major brand in the golf club market. Since the beginning of the
1996 golf season, Top-Flite Tour irons have been extensively used on the Senior
Tour and Terry Dill, who uses the Top Flite Intimidator driver exclusively, has
earned the number one ranking for distance drivers on the Senior Tour as of
August 31, 1996. In addition, professional players that play Top-Flite clubs
have seven victories in PGA sponsored events in 1996. The Company believes that
the increased exposure of Top-Flite golf products on professional tours has
resulted in an increase in demand for Top-Flite golf club products. Net sales of
professional quality Top-Flite golf clubs have increased 98% during the nine
months ended June 30, 1996 over the comparable prior year period.
Spalding irons incorporate technological and design features, such as
perimeter weighting, graphite shafts, graphite and titanium head inserts and
Top-Flite's patented stabilizer bar design. Through the use of computer-aided
design and modeling software, Spalding is continually developing new golf club
features. Spalding recently announced the introduction of its first titanium
Top-Flite Tour irons and its new Muscle graphite shaft.
Spalding's strategy is to design golf clubs for men, women and seniors of
all ability levels. Spalding pursues a pricing strategy that covers all price
points, using its Top-Flite Tour, Top-Flite Magna and Spalding brand names to
satisfy the high performance, recreational and value segments of the market,
respectively.
Golf Accessories. Spalding also designs and markets golf accessories,
including golf bags, club covers, tees, towels, sports luggage and hats. The
Etonic Acquisition reflects Spalding's strategy to expand and upgrade its line
of golf accessories by expanding Spalding's traditional offerings of golf
products to include Etonic golf shoes (which are ranked second in domestic
market share), Etonic golf gloves and Etonic golfwear. On a pro forma basis to
reflect the Etonic Acquisition, Spalding had fiscal 1995 net sales of $49
million of golf accessories. In 1995, the U.S. wholesale market for golf
accessories was approximately $480 million.
SPORTING GOODS PRODUCTS
The sporting goods products segment includes basketballs, a broad line of
softball and baseball products, volleyballs, soccer balls and other sports
products. Spalding's sporting goods products (other than golf) accounted for
$166 million of net sales in fiscal 1995, representing Spalding's second largest
product category with approximately 34% of total Spalding pro forma net sales.
Basketballs. Spalding produced the first basketball in 1894 and is the
market share leader in the estimated $98 million U.S. market for basketballs,
with $43 million of net sales in fiscal 1995. From fiscal 1991 to fiscal 1995,
Spalding's U.S. sales of basketballs increased approximately 83%. Through its
license which extends through January 1997, Spalding is the exclusive official
basketball of the NBA and has used this endorsement, as well as the endorsement
of professional players such as Hakeem Olajuwon and Shaquille O'Neal, to gain
worldwide market share in this product category.
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The worldwide market for basketballs has grown significantly over the past
several years and the total number of U.S. participants has increased from an
estimated 39 million in 1991 to 47 million in 1995. A significant trend has been
the increase in basketball awareness and participation internationally,
stimulated by the Olympics and the expansion of NBA television broadcasts.
Spalding continues to develop its leadership in the basketball market
through innovative product design such as the Zi/OTM (a new indoor/outdoor
basketball design). In 1991, Spalding introduced its ZK-Composite basketball,
which utilizes new composite materials technology and offers excellent
performance characteristics at lower price points than leather balls. The
ZK-Composite basketball is the official ball of the Continental Basketball
Association ("CBA"), USA Basketball, the Big East, the Big 12, National
Invitational Tournament ("NIT") and the Atlantic Coast Conference Basketball
Tournaments and many college teams. Internationally, the Spalding basketball is
the official basketball of professional leagues and national teams in more than
20 basketball markets, including Italy and France.
Diamond Sports Products. Spalding is a leading worldwide supplier of a
broad line of softball and baseball products, including balls, bats, gloves,
bags and other accessories. Spalding generated $30 million in net sales from
diamond sports products in fiscal 1995. Total wholesale expenditures in the
United States on diamond sports products were an estimated $348 million in 1995.
Spalding's Dudley Division is the leading supplier of softballs in the
world. In 1995, the Company estimated that Dudley captured approximately 27% of
the U.S. market for softballs. Dudley markets its products under the Dudley,
Thunder(R) and Tournament Plus II(R) names.
Spalding sells a broad line of baseball products worldwide under the
Spalding and Top-Flite names. Spalding has concentrated its marketing and
product development efforts primarily on the glove category for the past five
years which has resulted in an increase of 55% in net sales of baseball gloves
from fiscal 1991 to fiscal 1995. Spalding plans to concentrate on the high
performance bat market while continuing aggressive growth in the glove category
worldwide.
Volleyballs. Spalding produced the first volleyball in 1895 and today is a
leading provider of volleyballs in the U.S. Spalding markets volleyballs under
the Spalding, Top-Flite and AVATM names. Spalding's Top-Flite 18(R) is the
official ball of the American Volleyball Association (AVA) and the California
Beach Volleyball Association. The Company has entered into a commitment letter
with the NCAA to be the sole supplier of volleyballs to NCAA tournaments and to
obtain the exclusive right to use the NCAA logo on Spalding volleyballs.
Spalding sells eleven varieties of volleyballs, including a new line of
volleyballs featuring ZK-Composite technology.
Volleyball is a growing sport in the United States and worldwide. The
number of participants playing volleyball in the United States in 1995 was an
estimated 41 million, with 13 million beach volleyball participants. Total
wholesale expenditures in the United States on volleyballs were an estimated $82
million in 1995.
Soccer Balls. Spalding supplies top quality soccer balls for the U.S. and
international markets. Spalding markets its soccer balls primarily under the
Spalding name. Soccer has more participants and spectators than any other sport
in the world. The number of participants worldwide is estimated to be over 400
million. The Company estimates that there were approximately 17 million soccer
participants in the United States in 1995. Total wholesale expenditures in the
United States on soccer products, excluding footwear and apparel, were an
estimated $40 million in 1995.
Other Sports Products. Spalding markets a number of other sporting goods
and sports related products serving tennis, racquetball, handball, football and
other sports activities. Net sales of such items totaled $41 million in fiscal
1995.
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<PAGE>
LICENSING
Spalding is one of the leading general sports brand licensors with over 100
worldwide licensees. In exchange for royalty fees, Spalding grants licensees the
exclusive right to use specified Spalding trademarks in product categories and
geographical areas where Spalding does not enjoy competitive advantages as a
manufacturer of sporting goods. The Spalding and Top-Flite brand names, are
licensed in over 45 product categories, including the Hakeem Olajuwon shoe line
by Mercury International Trading Corp., one of the largest shoe manufacturers in
the world, and an apparel line by Mitsubishi Corporation in Japan. Other
Spalding licensed products include sportswear, footwear, sunglasses, luggage,
watches and camping equipment. Sales of licensed Spalding products totalled
approximately $318 million in fiscal 1995, up from approximately $186 million in
fiscal 1991, a compound annual growth rate of 14%. International sales of
licensed products increased from approximately $79 million in 1991 to $144
million in 1995, a compound annual growth rate of 16%. As a result of the strong
sales growth of its licensed products, Spalding realized royalty income of $13
million in fiscal 1995. Spalding also recently entered into a 15-year exclusive
U.S. licensing agreement with Sara Lee Corporation, one of the largest apparel
manufacturers in the United States and the maker of Champion, Coach, Hanes and
L'eggs products, for apparel products in the mid-priced range.
Spalding maintains quality control by inspecting licensed products to
ensure that the products bearing the Spalding and Top-Flite trademarks meet
Spalding's quality standards. Spalding believes that selectively licensing its
brand names for use on quality products promotes greater consumer awareness of
its name and increases its visibility in the marketplace. Spalding expects
continued growth and market penetration through licensing of footwear, active
apparel and accessories for all sports.
INTERNATIONAL
In recent years Spalding has achieved substantial growth in markets outside
the United States. Spalding sells or licenses its products in over 95 countries
through 110 independent distributors and 11 wholly-owned foreign subsidiaries in
Australia, Canada, France, Germany, Italy, Japan, Mexico, New Zealand, Spain,
Sweden and the United Kingdom. Spalding's international sales have grown from
$119 million in fiscal 1991 to $156 million in fiscal 1995. Spalding's
international sales represented approximately 36.3% of Spalding's worldwide
sales in fiscal 1995. For example, in 1995, Spalding entered into distribution
agreements with a Singapore-based distributor and retailer, and in China,
Spalding entered into a distribution and licensing agreement with Spalding's
primary inflated ball supplier for the past 20 years. This partner of Spalding
has opened a Spalding retail store in China and expects to open two additional
stores by December 1996.
Spalding sold more than 4.7 million dozen golf balls outside the United
States in fiscal 1995. Spalding believes that it has substantial market share in
golf balls in Japan, the United Kingdom, Sweden, France, Italy, Spain, Canada
and Australia.
Basketball sales outside the United States have increased significantly in
recent years. Expanded coverage of NBA games outside the United States has
helped Spalding achieve a 38% annual increase in its international sales of
basketballs over the past five years.
Due to the growing international popularity of golf, basketball and
volleyball, Spalding believes that opportunities exist to significantly increase
its international sales. Spalding seeks to promote sales internationally by
committing resources to advertising and promotional activities such as
sponsorships of or participation in golf tours, street basketball tournaments
and other sporting events.
SALES, MARKETING AND DISTRIBUTION
Spalding products are sold worldwide in over 95 countries through its
direct sales force of 136 employees and a network of approximately 110
independent distributors and 35 sales representative
47
<PAGE>
agencies. Spalding also has subsidiaries that engage principally in sales and
distribution operations in Australia, Canada, Japan, Mexico, New Zealand and
throughout Europe. Spalding sells its products directly to approximately 20,000
retailers, including pro shops and ranges, off-course golf specialty shops,
sporting goods stores and mass merchants. The Company also markets to
corporations for special events, the military and warehouse clubs and generates
sales from catalogs. Net sales to Spalding's four largest customers constituted
approximately 22% of Spalding's total net sales in fiscal 1995. For the nine
months ended June 30, 1996, net sales to Spalding's four largest customers
accounted for 16% of net sales. The decline in net sales concentration for
Spalding's four largest customers from fiscal 1995 to the nine months ended June
30, 1996 is primarily the result of a divestiture by one of such customers of a
sports retailer and seasonal fluctuations. No single customer accounted for more
than 10% of Spalding's worldwide net sales.
Spalding's products are endorsed by numerous professional athletes,
including golfers Lee Trevino, Mark O'Meara, D.A. Weibring, Bill Glasson, Payne
Stewart and Craig Stadler, basketball players Hakeem Olajuwon, Shaquille O'Neal
and Rebecca Lobo and baseball pitcher Orel Hershiser. Spalding's products also
carry endorsements from professional leagues, including the NBA, the CBA and the
AVA. Spalding believes that endorsements by professional athletes and
affiliations with sports organizations enhance Spalding's image and improve
sales of its products.
Spalding's golf marketing campaign incorporates all of its golf products,
including golf balls, golf clubs and golf accessories. Spalding's golf
advertising program is intended to develop Top-Flite as a global "megabrand" for
performance grade golf products. In 1996, Spalding has substantially expanded
its advertising campaign to include various commercials for its new Top-Flite
Strata Tour golf ball and its Top-Flite Tour club line.
RESEARCH AND DEVELOPMENT
Spalding has invested approximately $23 million from 1990 through 1995 in
its research and development activities. The Spalding research and development
department has developed more than 125 U.S. patents, including 55 in golf ball
technology, and consists of more than 70 scientists, engineers and technicians.
Spalding introduced the first dimpled golf ball in the U.S., invented the first
two-piece golf ball, developed and patented the blended Surlyn cut-resistant
golf ball cover and in May 1996, introduced the Top-Flite Strata Tour,
Spalding's latest introduction in the premium golf ball market. In addition,
Spalding has recently introduced one of the first titanium irons in the market
and the popularity of Spalding's patented ZK-Composite materials for basketballs
and volleyballs has contributed to number one market shares in both of these
markets. At June 30, 1996, Spalding had 85 patents pending at the U.S. Patent
and Trademark Office.
MANUFACTURING, PRODUCT PROCUREMENT AND RAW MATERIALS
The manufacture of Spalding products involves a number of highly
specialized processes. Spalding manufactures golf balls and some softballs,
assembles most of its golf clubs, and finishes custom golf balls at its own
facilities. Spalding's primary manufacturing facility is located in Chicopee,
Massachusetts and comprises approximately 700,000 square feet of manufacturing,
office and distribution space. In 1991, the Chicopee plant was redesigned and
renovated to allow a more continuous and automated production process. In 1989 a
new plant located in Gloversville, New York became fully operational for golf
ball production. In 1994, a second plant was built in Gloversville, New York,
and golf club production was consolidated at such facility in 1994. Due to
strong golf ball sales, the Company is currently manufacturing golf balls at
near capacity levels and plans to make significant capital expenditures over the
next several years to increase capacity levels. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources." Spalding believes that it is one of the lowest cost producers of
golf balls in the world.
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<PAGE>
Spalding utilizes third party manufacturers, located primarily in China,
Thailand, Taiwan and other countries in Southeast Asia, to produce virtually all
of its non-golf ball and most of its softball products. Products representing
approximately 49% of Spalding's net sales in fiscal 1995 were produced by such
third-party manufacturers. No supplier accounted for products representing more
than 3% of Spalding's fiscal 1995 net sales. Spalding believes it has
alternative sources of supply for substantially all of the products currently
produced by third party manufacturers. See "Risk Factors--Dependence on Foreign
Manufacturing."
Sourced products are manufactured according to Spalding's strict quality
control specifications. To assure the quality of its sourced products, the
Company works closely with third-party manufacturers, emphasizing product
reliability and performance standards and strict quality controls to which all
producers must adhere. Spalding continually monitors its sourced products to
ensure that they meet Spalding's quality standards. Certain of Spalding's
third-party manufacturers produce only Spalding products. In addition, Spalding
jointly develops new products with certain of its suppliers as part of
Spalding's increasingly global product development efforts. Spalding maintains a
liaison office in Taiwan with a staff of 11 to assist in the development of new
products.
The principal raw materials used by Spalding in the manufacture of its
products include synthetic rubber, ionomers, metals, synthetic leathers,
composite materials and other chemical compounds, as well as plastic, paper and
cardboard in packaging. While all raw materials are purchased from outside
sources, Spalding is not dependent upon a single supplier in any of its
operations for any material essential to its business or not otherwise
commercially available to the Company. Spalding has not experienced, and does
not anticipate, any material shortages of sourced products or supplies used in
manufacturing. Certain materials used in the production of golf balls are
petroleum derivatives and are therefore sensitive to fluctuations in the price
of oil.
COMPETITION
The sporting goods industry is highly competitive. Spalding competes
primarily on the basis of product features, brand recognition, quality and
price. Spalding competes with numerous national and international companies
which manufacture and distribute sporting goods and related equipment and sports
apparel. Certain of Spalding's competitors offer types of sports equipment not
sold by Spalding. Some of Spalding's competitors are larger and have
substantially greater financial and other resources than the Company. Spalding's
principal competitor across numerous market segments is Wilson Sporting Goods
Co. (a subsidiary of Amer Group Ltd.). Spalding also competes in individual
market segments against other competitors, including Acushnet Company (a
subsidiary of American Brands, Inc., the producer of Titleist(R), Footjoy(R) and
Cobra(R) golf products), Callaway Golf Inc., Karsten Manufacturing Corp.
(producers of Ping(R) golf products), Tommy Armour, Taylor Made (a subsidiary of
Salomon S.A.), Rawlings Sporting Goods Company, Inc. and Worth, Inc.
EVENFLO
Evenflo, with net sales of $210 million in fiscal 1995, is a leader in the
$1.9 billion U.S. market for juvenile and infant hardgood products, as well as a
market leader in such products in several international markets. Evenflo,
established in 1920, is one of the oldest and most recognized names in the
infant and juvenile products industry, with a 97% brand awareness for infant
feeding products among new mothers in the U.S. Evenflo brands, such as Evenflo,
Exersaucer and On My Way, currently appear on more than 400 products, with an
emphasis on two principal categories: (i) juvenile furniture, which includes car
seats, portable play yards, strollers, high chairs, cribs, activity products,
carriers and mattresses and (ii) infant feeding, which includes reusable and
disposable nurser systems, breastfeeding aids, oral development items, such as
pacifiers, and other baby care accessories. Evenflo has benefitted in recent
years by capitalizing on favorable demographic trends in the U.S. and abroad and
due to the
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<PAGE>
adoption of mandatory automobile child restraint laws in certain international
markets. Evenflo's international sales have grown to $40 million, or 19% of
Evenflo's net sales, in fiscal 1995.
Evenflo has leading market shares (by dollars based on net sales in 1995)
in many of its key product areas as demonstrated by the following table.
<TABLE>
<S> <C> <C>
PRODUCT U.S. MARKET SHARE U.S. MARKET RANK
- -------------------------------------------------------------------------- ----------------------- -----------------------
Juvenile Car Seats........................................................ 35% # 1
Stationary Activity Products (1).......................................... 76% # 1
Breastfeeding Products.................................................... 50% # 1
Play Yards................................................................ 27% # 2
Reusable Nursing Systems.................................................. 24% # 2
</TABLE>
- ---------------
(1) For the nine months ended June 30, 1996, the Company believes its market
share for stationary activity products is over approximately 50% due to the
entry of new competitors in the market created by Evenflo's introduction of
the Exersaucer.
JUVENILE FURNITURE PRODUCTS
Evenflo is a leader in the $1.25 billion U.S. market for juvenile furniture
products. Furniture operations generated fiscal 1995 sales of $156 million, or
74% of Evenflo's total net sales. In 1995, Evenflo maintained its number one
position in juvenile car seats and juvenile stationary activity products, as
well as a strong position in high chairs, play yards, infant beds and
mattresses.
Car Seats. Evenflo sold more juvenile car seats in the U.S. in 1995 than
any other company. Evenflo had fiscal 1995 worldwide net sales of $77 million in
the car seat market, including $11 million of net sales in international
markets. The U.S. juvenile car seat market was estimated at $189 million in 1995
and consists of infant car seats, convertible car seats and booster car seats.
For the first six months of 1996, Evenflo was number one in the overall juvenile
car seat market (by dollar sales) at 37%, with 55% market share in infant car
seats and 43% market share in convertible (infant to toddler) car seats (the
Company has a limited product offering in the low margin booster seat market).
Evenflo markets its juvenile car seats under the brand names Medallion,
Ultara I, Joy Ride(R), Travel Tandem, Trooper(R), Champion, ScoutTM, On My Way
and SidekickTM. Evenflo's car seats offer features such as detachable bases,
five-point harness systems, adjustable shields, removable pad and pillow inserts
and the exclusive Carry Right handle which incorporates a uniquely curved shape
designed for ease of carrying.
Exercise/Activity Products. Evenflo has emerged as one of the primary
participants in the U.S. market for exercise/activity products. This market,
which includes juvenile jumpers, walkers and stationary activity products,
represented sales of $69 million in 1995. Evenflo generated fiscal 1995 net
sales in this market of $24 million in the U.S., capturing 35% of the overall
market. Evenflo's strong market position is the result of the introduction of
its Exersaucer, a preferred alternative to traditional walkers. The Exersaucer
offers a new exercise and entertainment format which enables a child to play,
spin, rock and bounce in place, making the product a desirable alternative to
existing walkers and baby exercisers. The Exersaucer features a patented saucer
base which provides rocking action in all directions and stationary feet which
pull down to stop the rocking action when desired. In 1995, Evenflo expanded its
Exersaucer product line to include both lower and higher priced units as a means
of continuing to lead the category. In addition, Evenflo offers a line of
doorway jumpers for infants.
Strollers. The U.S. market for strollers was estimated at $169 million in
fiscal 1995, the largest hard goods market in the industry. Evenflo reentered
the stroller market in 1996, generating $5 million of stroller sales in the nine
months ended June 30, 1996. Evenflo believes that its On My Way Travel System,
which is designed to attach the On My Way car seat into a stroller to form a car
seat/stroller
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combination product, presents Evenflo with a substantial opportunity because it
can leverage its leadership position in car seats into a competitive advantage
in strollers.
Other Juvenile Furniture Products. During fiscal 1995, Evenflo generated
$16 million in net sales of portable play yards in the U.S., increasing its
market share from approximately 14% in fiscal 1994 to approximately 27% in
fiscal 1995. These share gains have largely resulted from new product
introductions such as the Happy Cabana(R) line of portable play yards
(introduced in 1995). Evenflo ranks fifth in the $58 million U.S. high chair
market with a 12% market share in fiscal 1995, having generated domestic net
sales of $7 million. Evenflo has gained substantial market share in high chairs,
largely a result of its Phases high chair line which was introduced in late
1995. The Phases high chair converts from an infant feeding seat to booster seat
to play table and chair. For the six months ended June 30, 1996, Evenflo had a
13% share of the high chair market.
Evenflo also markets various other juvenile furniture product lines,
including toddler beds, Jenny Lind cribs and mattresses. Such product lines
accounted for $18 million in 1995 net sales in the U.S.
INFANT FEEDING PRODUCTS
Evenflo is a leading competitor in the infant feeding products category and
generated fiscal 1995 net sales of approximately $54 million worldwide,
including $13 million of net sales in international markets. Sales in the infant
feeding market consist of breast pumps and other breastfeeding products,
reusable and disposable nurser systems and baby care items. Wholesale sales in
this segment of the juvenile products market totaled $435 million in 1995, up 9%
from 1994.
Reusable Nurser Systems. In fiscal 1995, Evenflo had $26 million in
worldwide net sales of reusable nurser products, including $9 million of net
sales in international markets. Evenflo's reusable nurser systems were the
second best selling brand in the U.S. Evenflo manufactures a full line of
nursers, nipples and accessories at all price points. Approximately 50% of the
reusable nursers sold by Evenflo in 1995 were decorated or featured licensed
characters. In 1996, Evenflo added three valuable nonexclusive licenses, Peter
Rabbit & Friends, Paddington Bear and Precious Moments, to its existing Disney
Babies license. In addition, angled nursers, a new category since 1994,
represent 20% of industry nurser sales, and Evenflo entered this market in
January 1996 with favorable results.
Breastfeeding Products. In fiscal 1995, Evenflo had $12 million in
worldwide net sales of breastfeeding products, which consist primarily of breast
pumps and pads. Evenflo maintained its number one position in 1995 in the U.S.
breastfeeding market with an estimated 50% domestic market share (by dollar
sales). Evenflo offers a complete line of breast pumps, including manual pumps
for both reusable and disposable nursers, as well as battery and electric
operated pumps. Evenflo also markets washable and disposable nursing pads.
Other Baby Care Products. In fiscal 1995, Evenflo had $16 million of net
sales of other baby products including 18% of international sales. Evenflo
offers products in most product categories of the baby care products market,
including playthings, pacifiers, bibs, oral development items, such as soothing
teethers, accessories and other feeding products, including bowls, cups and
utensils. Evenflo also markets an entire line of disposable bottle-feeding
items, including disposable bottle liners, nipples, holders and kits. Evenflo
benefits from the right to use the Disney Babies, Peter Rabbit & Friends,
Paddington Bear and Precious Moments licensed characters on several of its most
important products in the United States, as well as in numerous international
markets. In 1994, Evenflo introduced its Evenflo Babies collection, in which
pacifiers, teethers, cups and other baby accessory products are decorated with
Evenflo's own characters.
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INTERNATIONAL
Evenflo has had an international presence for over 50 years, selling its
products in over 60 countries, with subsidiaries in Canada, Mexico and the
Philippines. To date, international operations for Evenflo have focused largely
on infant feeding products and, in Canada, on juvenile furniture. International
sales represented approximately 19% of Evenflo's net sales in fiscal 1995 and
from 1991 through 1995 experienced a faster rate of growth than the growth rate
in net sales in the U.S. market (14% vs. 7%). Evenflo believes that higher birth
rates, increasing income levels and the lowering of trade barriers in certain
world markets present significant growth opportunities.
SALES, MARKETING AND DISTRIBUTION
Evenflo uses a sales force of 18 direct sales people, 48 manufacturer's
representatives and 35 independent brokers to sell to over 2,000 mass merchants,
supermarkets, drug stores, grocery stores, toy stores and other retail outlets.
For the nine months ended June 30, 1996, the five largest customers of Evenflo
represented approximately 49% of Evenflo's net sales with Toys "R" Us and
Wal-Mart representing 17% and 16%, respectively, of net sales for such period.
No other customer accounted for more than 10% of net sales for such nine-month
period.
Marketing efforts are focused on building brand identity through
advertising and packaging programs, and on repositioning several existing
product lines, such as soft/frame child carriers, high chairs, play yards,
mattresses and exercisers. Marketing programs are national in scope and
primarily consist of print advertising, trade and consumer promotions and
targeted sampling.
RESEARCH & DEVELOPMENT
Evenflo dedicates substantial resources to its product development efforts,
including 18 professionals in research and development. Evenflo's research and
development group has developed over 175 U.S. patents. Evenflo has developed a
number of of innovative infant and juvenile products, including the first fully
transparent baby bottle, the first decorated nurser, the first convertible
(infant to toddler) car seat to pass applicable federal testing standards and
the first juvenile stationary activity product. In 1994, Evenflo successfully
introduced the stationary Exersaucer baby exerciser as a safer alternative to
infant walkers. Evenflo's most recent car seat offering, the On My Way
introduced in 1994, with its ergonomically correct Carry Right handle, has
gained a leading market share in the infant car seat segment. By designing a car
seat that attaches to a stroller to form the new On My Way Travel System,
Evenflo has opened incremental growth opportunities in strollers. Each new
product Evenflo develops is subjected to extensive evaluation to ensure it meets
Evenflo's standards for quality and safety. At June 30, 1996, Evenflo had 32
patents pending at the U.S. Patent and Trademark Office.
In addition to Evenflo's in-house professionals, outside sources are used
for research and development, including individual designers/inventors, design
houses, universities and engineering services. As a leader in the U.S. car seat
market, Evenflo dedicates significant resources to the design and testing of its
car seat product line. In 1995, Evenflo formed a separate car seat technology
group to increase research and development efforts in this market.
MANUFACTURING, PROCUREMENT AND RAW MATERIALS
Evenflo maintains five primary manufacturing and assembly plants at
locations in Georgia, Ohio and Alabama and two in Mexico. Evenflo also operates
a distribution center in the Philippines and Canada. Evenflo manufactures
bottles and nipples and assembles certain infant feeding and baby care products
primarily at its facilities in Canton, Georgia and Mexico City. Car seats, high
chairs, mattresses and activity products are assembled at Evenflo's plant in
Piqua, Ohio. Jasper, Alabama
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<PAGE>
serves as a soft goods manufacturing feeder plant for the final assembly
operations in Ohio. Cribs are manufactured and assembled at Evenflo's facility
in Tijuana, Mexico.
In 1994, Evenflo consolidated its manufacturing facilities for infant
feeding and baby care products in a 293,500 square foot plant in Canton,
Georgia. The Canton facility is vertically integrated and as such manufactures
the majority of components used for the final assembly of baby care,
breastfeeding, nursers and other feeding products. Evenflo completed a
restructuring of its furniture products operations in 1993, consolidating
manufacturing into its Piqua, Ohio and Tijuana, Mexico plants. Evenflo's
consolidation has improved operating efficiency, provided for headcount
reductions and enhanced productivity levels. The consolidation has resulted in
productivity gains as measured by total personnel costs as a percentage of net
sales. Personnel costs were 17% of net sales in fiscal 1995 versus 21% in fiscal
1992.
Evenflo's sourced products are manufactured according to its specifications
by third-party manufacturers located within the U.S. and abroad, primarily in
China, Thailand, Taiwan, Hong Kong and other Southeast Asian countries. Products
representing 30% of Evenflo's net sales in fiscal 1995 were produced by such
third party manufacturers and no single supplier accounted for products
representing more than 8% of Evenflo's fiscal 1995 net sales. Evenflo
continually monitors its sourced products with a small staff headquartered in
Taiwan to ensure that products meet Evenflo's quality standards. Evenflo
believes it has alternative sources of supply for most of the products currently
produced by third party manufacturers. See "Risk Factors--Dependence on Foreign
Manufacturing."
The principal raw materials used by Evenflo in the manufacture of its
products include various plastic resins, natural and synthetic rubbers, textiles
and corrugated paper, all of which are normally readily available. While all raw
materials are purchased from outside sources, Evenflo is not dependent upon a
single supplier in any of its operations for any material essential to its
business or not otherwise commercially available to Evenflo. Evenflo does not
anticipate any significant material shortages or price movements in its inputs.
COMPETITION
The markets for Evenflo's products are highly competitive and are
characterized by the frequent introduction of new products, often accompanied by
major advertising and promotional programs. Evenflo competes primarily on the
basis of product quality, product features, price and brand name recognition.
Evenflo competes with numerous national and international companies which
manufacture and distribute infant feeding products and/or infant and juvenile
furniture. Some of Evenflo's competitors are larger and have substantially
greater financial and other resources than the Company. Evenflo's principal
competitors include Gerber Products Company, a subsidiary of Sandoz Ltd.,
Playtex Products, Inc., Johnson & Johnson, Kiddie Products, Inc., Safety 1st,
Inc., Century Products Company, Inc., Cosco Inc. (a subsidiary of Dorel
Industries Inc.), Fisher-Price (a division of Mattel, Inc.), Gerry Babies
Products Co., Inc. (a subsidiary of Huffy Corporation) and Graco Children's
Products, Inc.
The private label category has become increasingly competitive in both the
reusable and disposable bottle and nipple markets. The Company believes that
Evenflo has strong customer loyalty which has helped it compete with private
label products.
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<PAGE>
PROPERTIES
The following table sets forth information as of June 30, 1996 with respect
to the manufacturing, warehousing and office facilities used by the Company in
its businesses:
<TABLE>
<S> <C> <C> <C>
OWNED/ SQUARE
LOCATION DESCRIPTION LEASED FOOTAGE
- ------------------------------------------------------ ------------------------------------- --------- ---------
Spalding
Chicopee, MA...................................... Manufacturing/Warehousing/Office Owned 576,000
Chicopee, MA...................................... Manufacturing/Warehousing/Office Owned 134,900
Gloversville, NY.................................. Manufacturing/Warehousing/Office Leased 80,000
Gloversville, NY.................................. Manufacturing/Warehousing/Office Leased 35,750
Reno, NV.......................................... Warehousing/Office Leased 157,000
Brockton, MA...................................... Manufacturing/Warehousing/Office Leased 84,000
Richmond, ME...................................... Manufacturing Owned 61,000
Clinton, CT....................................... Retail Outlet Store Leased 3,000
Sellersville, PA.................................. Office Leased 1,200
West Palm Beach, FL............................... Golf equipment test site Leased 625
Woodbridge, Ontario............................... Manufacturing/Warehousing/Office Leased 85,000
Australia......................................... Manufacturing/Warehousing/Office Owned 62,000
Australia......................................... Warehousing/Office Leased 10,000
Australia......................................... Warehousing/Office Leased 2,600
Australia......................................... Warehousing/Office Leased 2,500
France............................................ Warehousing/Office Leased 10,549
Germany........................................... Warehousing/Office Leased 12,430
Italy............................................. Warehousing/Office Leased 13,347
Japan............................................. Warehousing/Office Leased 21,837
Japan............................................. Office Leased 5,578
Japan............................................. Office Leased 635
Mexico............................................ Warehousing/Office Leased 2,012
New Zealand....................................... Warehousing/Office Leased 5,573
New Zealand....................................... Warehousing/Office Leased 4,600
Spain............................................. Office Leased 9,216
Sweden............................................ Warehousing/Office Leased 14,672
Taiwan............................................ Warehousing/Office Leased 1,250
United Kingdom.................................... Warehousing/Office Leased 25,250
Evenflo
Canton, GA........................................ Manufacturing/Warehousing/Office Owned 293,500
Piqua, OH......................................... Manufacturing/Warehousing/Office Owned 210,400
Piqua, OH......................................... Warehousing/Office Leased 178,195
Piqua, OH......................................... Warehousing Leased 74,000
Piqua, OH......................................... Warehousing Leased 50,000
Piqua, OH......................................... Warehousing Leased 39,800
Jasper, AL........................................ Manufacturing/Office Owned 103,000
Jasper, AL........................................ Warehousing Leased 73,000
Mexico City, Mexico............................... Manufacturing/Warehousing/Office Owned 76,308
Tijuana, Mexico................................... Manufacturing Owned 50,061
Oakville, Ontario................................. Warehousing/Office Leased 26,780
Philippines....................................... Office Leased 2,422
Taiwan............................................ Office Leased 700
Corporate
Tampa, FL......................................... Office Leased 9,216
</TABLE>
54
<PAGE>
The Company's manufacturing and distribution facilities and U.S. sales
operations are generally located on owned premises or leased premises with a
purchase option. The Company conducts a significant portion of its international
sales operations on leased premises, which have remaining terms generally
ranging from two to five years. Substantially all leases contain renewal options
pursuant to which the Company may extend the lease terms in increments of three
to five years. The Company does not anticipate any difficulties in renewing its
leases as they expire.
The Company believes that its facilities are suitable for their present and
intended purposes and are adequate for the Company's current and expected levels
of operation.
TRADEMARKS AND PATENTS
The Company has proprietary rights to a number of trademarks which are
important to its business. Spalding, Top-Flite, Etonic and Dudley in the
sporting goods segment and Evenflo, On My Way, Hike 'n Roll(R), Ultara I, Joy
Ride, Champion, Snack 'n Play(R), Houdini(R), Johnny Jump-Up(R), Happy Camper(R)
and Exersaucer in the juvenile products segment, are considered material to the
Company's business.
The policy of the Company is to protect proprietary products by obtaining
patents for such products when practicable. At present, the Company owns over
300 U.S. patents and has over 100 U.S. applications pending. In addition, the
Company also maintains patent protection for certain of its products in other
countries. Significant patents include the Top-Flite Magna golf ball patent
issued December 28, 1993, which gives Spalding the exclusive right to produce
all golf balls equal to or larger than 1.70 inches in diameter with a modern
dimple pattern. The Top-Flite Strata Tour golf balls contains a core composition
made from a patented polymer and a ZS Balata outer cover for resiliency that is
also patented. Two portable play yard patents, issued in 1990 and 1991, cover a
very practical support and locking mechanism, thus giving the Company a
significant advantage over its competitors.
Although the Company believes that, collectively, its patents are important
to its business, the loss of any one patent would not have a material adverse
effect on the Company's business and results of operations. The Company actively
guards against trademark infringement through legal and other measures. See
"--Legal Proceedings."
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, and local
Environmental Laws that continue to be adopted and amended. These Environmental
Laws regulate, among other things, air and water emissions and discharges at the
Company's manufacturing facilities; the generation, storage, treatment,
transportation and disposal of solid and hazardous waste by the Company; the
remediation of environmental contamination; the release of toxic substances,
pollutants and contaminants into the environment at properties operated by the
Company and at other sites; and, in some circumstances, the environmental
condition of property prior to a transfer or sale (including certain facilities
previously owned or operated by the Company). Risks of significant costs and
liabilities are inherent in the Company's operations and facilities, as they are
with other companies engaged in like businesses. The Company believes, however,
that its operations are in substantial compliance with all applicable
Environmental Laws.
While historically the costs of environmental compliance have not had a
material adverse effect on the consolidated financial condition, results of
operations or cash flows of the Company, the Company cannot predict with
certainty its future costs of environmental compliance because of continually
changing compliance standards and technology. The Company expects that future
regulations and changes in the text or interpretation of existing Environmental
Laws may subject its operations to increasingly stringent standards. Compliance
with such requirements may make it necessary, at costs
55
<PAGE>
which may be substantial, to retrofit existing facilities with additional
pollution-control equipment and to undertake new measures in connection with the
storage, transportation, treatment and disposal of by-products and wastes.
The Company has been named as a potentially responsible party with respect
to the generation and disposal of hazardous substances at 16 sites under the
federal "Superfund" statute and/or certain analogous state statutes. Pursuant to
various federal, state and local laws and regulations, PRPs can become liable
for the costs of removal and/or remediation of those hazardous substances
disposed on, in or about such properties. The liability imposed by the Superfund
statute and analogous state statutes generally is joint and several and imposed
without regard to whether the generator knew of, or was responsible for, the
presence of such hazardous substances. The Company estimates the range of its
liabilities with respect to such sites to be approximately $0.6 million in the
aggregate.
Regulations resulting from the 1990 Amendments to the Clean Air Act (the
"1990 Amendments") that will pertain to the Company's manufacturing operations
are currently not expected to be promulgated until 1997 or later. The Company
cannot predict the level of required capital expenditures resulting from future
environmental regulations such as those forthcoming as a result of the 1990
Amendments; however, the Company does not anticipate expenditures that will be
required by such regulations to be material.
LEGAL PROCEEDINGS
Due to the nature of its products, the Company has been engaged in, and
will continue to be engaged in, the defense of product liability claims related
to its products, particularly with respect to juvenile car seats and cribs. Such
claims have caused the Company to incur material litigation and insurance
expenses. Since 1986, approximately 139 product liability lawsuits have been
brought against the Company, 89 of which related to juvenile car seats.
Over the past ten policy periods (April 1, 1986 to March 30, 1996),
reserves, out-of-pocket indemnities and expenses (exclusive of payments by
insurers and insurance premiums) for car seat claims (including damage awards,
settlements, attorneys' fees and other related expenses) have averaged
approximately $1.3 million per year, when allocated to the policy periods when
the related injuries occurred, while the total reserves, out-of-pocket
indemnities and expenses (exclusive of payments by insurers) for all product
liability claims have averaged approximately $1.8 million per year, on a similar
basis. From fiscal 1992 through fiscal 1996, the Company has incurred average
costs for out-of-pocket indemnities and expenses (exclusive of payments by
insurers and insurance premiums) for all product liability claims of
approximately $ million. The Company believes that it will incur average
annual litigation costs of similar levels over the next several years.
Since 1988, the Company has maintained product liability insurance in
varying amounts (at a cost of $1.2 million in fiscal 1996). The decision on
whether to carry product liability insurance and in what amounts has been based
on a number of factors, including, primarily, the then-prevailing cost of such
insurance in relation to product liability litigation expenses (including
judgments and settlements) and the Company's prior experience with product
liability claims. Each year the Company retains an independent actuarial service
to review all product liability data and to assist the Company in establishing
reserves for both known and incurred, but not reported, claims. However, from
December 1985 through March 1988, the Company was totally self-insured, although
only one of the 59 currently pending product liability claims relates to
incidents that occurred during that 28-month period.
Based on its experience with product liability claims, the amount of
reserves established for product liability claims against it and the levels of
insurance that it maintains, the Company believes that there are no product
liability claims pending which would have a material adverse effect on its
consolidated financial position, results of operations or cash flows. However,
due to the inherent uncertainty of litigation, it is possible that the Company
may be subject to adverse judgments which could be
56
<PAGE>
substantial in amount and may not be covered by insurance or reserves. In
addition, no assurance can be given that in the future a claim will not be
brought against the Company which would have a material adverse effect on its
consolidated financial position, results of operations or cash flows.
From time to time the Company also is involved in patent infringement
actions. The Company believes that it is not presently a defendant or plaintiff
in any patent infringement action, the outcome of which would have a material
adverse effect on its consolidated financial position, results of operations or
cash flows.
In addition to such product liability and patent infringement claims, the
Company is a party to various lawsuits arising in the ordinary course of
business. None of these other lawsuits is believed to be material with respect
to the business, assets and continuing operations of the Company.
EMPLOYEES
The Company's worldwide workforce consisted of approximately 3,000
employees (full- and part-time) as of September 30, 1996, excluding 207
Etonic employees who joined the Company July 25, 1996. Of the total number of
employees, approximately 2,250 were engaged in manufacturing, approximately
300 were engaged in marketing and sales and approximately 450 were engaged in
administration. Of the total number of employees, approximately 1,400 or 47%
were employed by Spalding, and approximately 1,500 or 52% were employed by
Evenflo.
At the Company's facilities, approximately 859 of the Company's employees
are represented under collective bargaining agreements, which agreements expire
from 1996 through 1998. The Company does not anticipate any difficulty in
extending or negotiating these agreements as they expire. The Company believes
that its labor relations are good and no material labor cost increases, other
than in the ordinary course of business, are anticipated.
SEGMENT INFORMATION
For information on sales by industry segment and foreign and domestic
operations and export sales, see Note S of the Notes to the Consolidated
Financial Statements appearing elsewhere in this Prospectus.
57
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the names, ages and positions with the Company of the
persons who will serve as directors and executive officers of the Company,
together with certain other key personnel, after the Closing. The terms of the
directors and executive officers of the Company expire annually upon the
election and qualification of successors at the annual meetings of shareholders.
<TABLE>
<S> <C> <C>
NAME AGE POSITION
- --------------------------------------- ----------- ---------------------------------------------------------------
Paul L. Whiting 52 President, Chief Executive Officer and Director
Robert K. Adikes 56 Vice President, Secretary and General Counsel
Stephen J. Dryer 54 Vice President and Controller
W. Michael Kipphut 43 Vice President and Treasurer
George A. Dickerman 57 President of Spalding Sports Worldwide Division
George A. Harris 49 President of Evenflo Company, Inc.
Henry R. Kravis 52 Director
George R. Roberts 52 Director
Michael T. Tokarz 46 Director
Marc S. Lipschultz 27 Director
Gustavo A. Cisneros 51 Director
</TABLE>
Paul L. Whiting has been a director of the Company since 1984, its Chief
Executive Officer since February 1996 and its President and Chief Operating
Officer since March 1994. From January 1991 through February 1994, he served as
the Senior Vice President, Chief Financial Officer and Treasurer of the Company
and from 1981 through 1990 he served as Vice President, Finance and Treasurer.
Mr. Whiting is a director of Pueblo Xtra International, Inc. Mr. Whiting joined
the Company in 1976.
Robert K. Adikes has been a Vice President of the Company since January
1990 and its Secretary since January 1986. He has been General Counsel since he
joined the Company in 1985.
Stephen J. Dryer has been a Vice President of the Company since January
1990 and its Controller since 1981. Mr. Dryer joined the Company in 1975.
W. Michael Kipphut joined the Company in September 1994 as Vice President
and Treasurer. From 1977 to September 1994, he served in various financial
capacities at Tyler Corporation (a diversified manufacturing company), and from
February 1994 through September 1994 as Vice President and Treasurer thereof.
George A. Dickerman has been the President of the Spalding Sports Worldwide
Division of the Company since 1981. Mr. Dickerman joined the Company in 1976. He
is the current Chairman of the Board of Trustees of The Basketball Hall of Fame,
past Chairman of The Sporting Goods Manufacturers Association and past Director
of the National Golf Foundation. He also serves on the Board of Trustees of
Northwestern Mutual Life Insurance Company.
George A. Harris has been the President of Evenflo Company, Inc. since
October 1, 1995. He joined Evenflo Juvenile Furniture Company, Inc., a
subsidiary of the Company, as President in November 1990 and was named President
of Evenflo companies in May 1995. He was Vice President, Sales and Marketing, of
the Coleman Company, Inc., Outdoor Products Division, prior to October 1990.
Henry R. Kravis is a Founding Partner of KKR and is a member of the limited
liability company which serves as the general partner of KKR. He is also a
director of American Re Corporation,
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<PAGE>
AutoZone, Inc., Borden, Inc., Bruno's, Inc., Duracell International Inc.,
Flagstar Companies Inc., Flagstar Corporation, IDEX Corporation, K-III
Communications Corporation, Merit Behavioral Care Corporation, Newsquest Capital
plc, Owens-Illinois, Inc., Owens-Illinois Group, Inc., Safeway, Inc., Union
Texas Petroleum Holdings, Inc., and World Color Press, Inc.
George R. Roberts is a Founding Partner of KKR and is a member of the
limited liability company which serves as the general partner of KKR. He is also
a director of AutoZone, Inc., Borden, Inc., Bruno's, Inc., Duracell
International Inc., Flagstar Companies Inc., Flagstar Corporation, IDEX
Corporation, K-III Communications Corporation, Merit Behavioral Care
Corporation, Newsquest Capital plc, Owens-Illinois, Inc., Owens-Illinois Group,
Inc., Red Lion Properties, Inc., Safeway, Inc., Union Texas Petroleum Holdings,
Inc., and World Color Press, Inc.
Michael T. Tokarz was a General Partner of KKR from January 1, 1993
until January 1, 1996 when he became a member of the limited liability
company which serves as the general partner of KKR. Prior to 1993, Mr. Tokarz
was an Executive at KKR. He is also a director of Flagstar Companies Inc.,
Flagstar Corporation, IDEX Corporation, K-III Communications Corporation,
and Safeway, Inc.
Marc S. Lipschultz has been an Executive at KKR since 1995. Prior thereto,
he was an investment banker with Goldman, Sachs & Co.
Gustavo A. Cisneros has been a director of the Company since 1984. Since
prior to 1990 he has been a direct or indirect investor in and a director of
certain companies forming part of a group with indirect beneficial ownership
interests in a number of diverse commercial enterprises in Venezuela and
elsewhere. Mr. Cisneros is also a director of Pueblo Xtra International, Inc.,
Perenchio Communications, Inc., PTI Holdings, Inc., and a Representative on the
Management Committee of The Univision Network Holding Limited Partnership. See
"Ownership of Common Stock."
Messrs. Kravis and Roberts are first cousins.
The business address of Messrs. Kravis, Tokarz and Lipschultz is 9 West
57th Street, New York, New York 10019 and of Mr. Roberts is 2800 Sand Hill Road,
Suite 200, Menlo Park, CA 94025. The business address of Mr. Cisneros is Avenida
La Salle, Colina Los Caobos, Caracas, Venezuela.
COMPENSATION OF DIRECTORS
All directors are reimbursed for their usual and customary expenses
incurred in attending all Board and committee meetings. It is anticipated that
each director who is not an employee of the Company will receive an aggregate
annual fee of $35,000, payable in quarterly installments. Directors who are also
employees of the Company receive no remuneration for serving as directors.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid, accrued or awarded by
the Company for the account of each of the chief executive officer and the four
most highly compensated executive officers (the "Named Executive Officers") for
their services in all capacities to the Company during the fiscal year ended
September 30, 1995.
59
<PAGE>
SUMMARY COMPENSATION TABLE FOR 1995
SALARY AND INCENTIVE COMPENSATION
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
LONG-TERM COMPENSATION
------------------------
ANNUAL COMPENSATION SECURITIES
--------------------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION OTHER ANNUAL OPTIONS/ LTIP ALL OTHER
DURING FISCAL 1995 SALARY BONUSES COMPENSATION(1) SARS PAYOUTS COMPENSATION
- -------------------------------- ----------- ----------- ------------- ------------- --------- -----------------
(UNITS)
Paul L. Whiting
President and Chief Executive
Officer......................... $ 330,000 $ 228,700 $ 64,055 -- -- --
George A. Dickerman
President of Spalding Sports
Worldwide Division............ 305,000 160,200 80,082 -- -- --
George A. Harris
President of Evenflo Company,
Inc............................. 187,600 150,000 7,718 -- $ 54,500 --
Stephen J. Dryer
Vice President and
Controller...................... 129,000 50,300 15,879 -- --
Robert K. Adikes................
Vice President, Secretary and
General Counsel................. 122,400 44,500 7,128 -- 50,081 --
</TABLE>
- ---------------
(1) Amounts represent above market return paid on deferred cash awards under the
Company's Long-Term Incentive Plan. See "--Long-Term Incentive Plan."
MANAGEMENT INCENTIVE BONUS PLAN
The Company maintains a Management Incentive Bonus Plan ("MIBP") for
certain identified key executives of the Company, including department managers
and executives senior thereto, including the Named Executive Officers, pursuant
to which eligible employees are awarded bonuses based on the Company's annual
operating profit (as determined in accordance with GAAP) as compared with a
target established prior to the beginning of the year. Awards under the MIBP
range within a guideline of 15% to 55% of annual salary payments, depending upon
a participant's position and commensurate responsibility. Spalding and Evenflo
MIBP objectives are set specifically for their operations, and the objectives of
the corporate staff relate to consolidated operations. If the annual results do
not meet the pre-established objectives, no bonus is earned. If annual results
exceed the pre-established objectives, the bonus paid is increased
proportionally, up to an additional bonus of no more than 100% of the employee's
guideline bonus percentage.
LONG-TERM INCENTIVE PLAN
The Long-Term Incentive Plan ("LTIP") provides certain key employees with
cash awards based upon the attainment of established financial goals for a
predefined period, generally three years. Each participant makes an election at
the beginning of each program period to receive full payments upon vesting or to
defer partial or total payment up to seven years. This cash payout is based upon
the value of a unit, which is determined by a net earnings formula set forth in
the LTIP and calculated as of the September 30 preceding the payment. The LTIP
has been in effect since 1985. Most participants have elected to defer all or a
portion of their cash award at the end of each cycle. The value of units for
which payment has been deferred is based on the net earnings formula set forth
in the LTIP.
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<PAGE>
The following table sets forth the awards during fiscal 1995 to the Named
Executive Officers under the LTIP.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<S> <C> <C> <C> <C> <C>
NAME AND NUMBER PERFORMANCE
PRINCIPAL OF UNITS OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
POSITION ----------------- PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
DURING MATURATION OR ---------------------------------------
FISCAL 1995 PAYOUT THRESHOLD TARGET MAXIMUM
- -------------------------------------- ---------------- ------------ ----------- ------------
Stephen J. Dryer
Vice President and Controller....... 118 1995-1997 $ 134,324 $ 134,324 $ 174,166
Robert K. Adikes
Vice President, Secretary and
General Counsel....................... 112 1995-1997 127,494 127,494 166,198
</TABLE>
1996 STOCK OPTION PLAN
The Company will adopt the 1996 Stock Purchase and Option Plan for Key
Employees of E&S Holdings Corporation and Subsidiaries (the "Plan") providing
for the issuance of shares of authorized but unissued or reacquired shares of
Common Stock, subject to adjustment to reflect certain events such as stock
dividends, stock splits, recapitalizations, mergers or reorganizations of or by
the Company. The Plan is intended to assist the Company in attracting and
retaining employees of outstanding ability and to promote the identification of
their interests with those of the stockholders of the Company. The Plan will
permit the issuance of Common Stock (the "Purchase Stock") and the grant of
Non-Qualified Stock Options and Incentive Stock Options (the "Options") to
purchase shares of Common Stock and other stock-based awards (the issuance of
Purchase Stock and the grant of Options and other stock-based awards pursuant to
the Plan being a "Grant"). Unless sooner terminated by the Company's Board of
Directors, the Plan will expire ten years after its approval by the Company's
stockholders. Such termination will not affect the validity of any Grant
outstanding on the date of termination.
The Compensation Committee of the Board of Directors will administer the
Plan, including, without limitation, the determination of the employees to whom
Grants will be made, the number of shares of Common Stock subject to each Grant,
and the various terms of such Grants. The Compensation Committee of the Board of
Directors may from time to time amend the terms of any Grant, but, except for
adjustments made upon a change in the Common Stock of the Company by reason of a
stock split, spin-off, stock dividend, stock combination or reclassification,
recapitalization, reorganization, consolidation, change of control, or similar
event, such action shall not adversely affect the rights of any participant
under the Plan with respect to the Purchase Stock and the Options without such
participant's consent. The Board of Directors will retain the right to amend,
suspend or terminate the Plan.
RETIREMENT PLANS
Spalding & Evenflo Retirement Account Plan ("SERA"). The Company sponsors
SERA, a cash balance defined benefit pension plan qualified under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), for all salaried
employees and the non-union Piqua, Ohio hourly employees. SERA covers all
eligible full-time employees who are over age 20 and have at least one year of
service. Annually, an addition is made to each participant's account based on a
percentage of the participant's pay for that year. The percentage ranges from 2%
of pay for employees under age 25 to 9% of pay for employees 60 and over. The
accounts are credited with interest at a rate determined annually by the
Company.
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<PAGE>
Supplemental Retirement Plan ("SRP"). As a supplement to the SERA, the
Company sponsors the non-qualified SRP which covers highly compensated employees
whose benefits are limited by compensation and benefit limitations under the
Code.
The estimated annual benefits payable under SERA and SRP upon retirement at
normal retirement age for each of the Named Executive Officers are as follows:
<TABLE>
<S> <C> <C>
YEAR ESTIMATED ANNUAL
ATTAINS BENEFIT IF RETIRES AT
NAME AGE 65 NORMAL RETIREMENT AGE(1)
- ------------------------------------------------------------------------------ ----------- ------------------------
Paul L. Whiting............................................................... 2008 $ 75,957
George A. Dickerman........................................................... 2004 80,624
George A. Harris.............................................................. 2012 56,200
Stephen J. Dryer.............................................................. 2007 26,901
Robert K. Adikes.............................................................. 2004 21,060
</TABLE>
- ---------------
(1) Under SERA and SRP the normal retirement age is 65. The estimated annual
benefits shown above are in the form of a single life annuity. Benefits have
been determined by assuming a 3.5% average rate of increase in compensation
levels and an annual interest credit at a 6.5% annual rate, which is the
1996 rate for the interest credit. Benefits are computed without reference
to limitations on compensation and benefits to which the SERA is subject
under the Code because any benefits for the Named Executive Officers that
are affected by such limitations are made up under the Company's
Supplemental Retirement Plan.
Savings Plus Plan. The Company sponsors a defined contribution plan
qualified under the Code, commonly referred to as a 401(k) plan, for all
salaried employees and the non-union Canton, Georgia and Gloversville, New York
hourly employees (the "Savings Plus Plan"). Participants may make pre-tax
contributions up to 15% of their aggregate annual salaries. The Company makes a
50% matching contribution on the first 6% of participant contributions. The
Company does not match participant contributions in excess of 6%.
MANAGEMENT STOCKHOLDER'S AGREEMENTS
In connection with the Recapitalization, the Company will enter into
stockholder's agreements (each, a "Management Stockholder's Agreement") with all
management employees that will be stockholders of the Company (each, a
"Management Stockholder").
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee of the Board of Directors
during fiscal 1996. During fiscal 1996, only members of the Board were involved
in deliberations concerning executive compensation.
No person who served during fiscal 1996 as an executive officer of the
Company serves or has served on the compensation committee or as a director of
another company, one of whose executive officers serves as a director of the
Company.
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<PAGE>
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial
owners of the Company's Common Stock by (i) all persons known to the Company to
own beneficially more than 5% of the Common Stock, (ii) each Director who is a
stockholder, (iii) the Chief Executive Officer and each of the Named Executive
Officers and (iv) all directors and Named Executive Officers as a group.
<TABLE>
<S> <C> <C>
NUMBER OF
NAME SHARES OWNED(1) PERCENTAGE
- ------------------------------------ ------------------------------------ -------------------
Strata L.L.C.(1).................... 44,200,000 88.4
9 West 57th Street
New York, New York 10019
Abarco N.V.(2)...................... 5,800,000 11.6
c/o ABN Trustcompany
(Curacao N.V.)
P.O. Box 224
15 Pietermaai
Curacao, Netherlands Antilles
Henry R. Kravis(1).................. -- --
George R. Roberts(1)................ -- --
Michael T. Tokarz(1)................ -- --
Marc S. Lipschultz(1)............... -- --
Paul L. Whiting(3).................. -- --
Robert K. Adikes(3)................. -- --
Stephen J. Dryer(3)................. -- --
W. Michael Kipphut(3)............... -- --
George A. Dickerman(3).............. -- --
George A. Harris(3)................. -- --
All officers and directors as a -- --
group(3)............................
</TABLE>
- ---------------
(1) Shares of Common Stock shown as beneficially owned by Strata L.L.C. are held
by Strata. Strata L.L.C. is the sole general partner of KKR Associates
(Strata). KKR Associates (Strata), a limited partnership, is the sole
general partner of Strata and possesses sole voting and investment power
with respect to such shares. Strata L.L.C. is a limited liability company
the managing members of which are Messrs. Henry R. Kravis and George R.
Roberts and the other members of which are Messrs. Robert I. MacDonnell,
Paul E. Raether, Michael W. Michelson, Michael T. Tokarz, James H. Greene,
Jr., Perry Golkin, Clifton S. Robbins, Scott M. Stuart and Edward A.
Gilhuly. Messrs. Kravis, Roberts and Tokarz are also directors of the
Company. Mr. Marc S. Lipschultz is a limited partner of KKR Associates
Strata and is also a director of the Company. Each of such individuals may
be deemed to share beneficial ownership of the shares shown as beneficially
owned by Strata L.L.C. Each of such individuals disclaim beneficial
ownership of such shares. An affiliate of Strata L.L.C. may own at Closing
less than 1% of the outstanding Common Stock.
(2) Certain trusts created by Ricardo Cisneros and Gustavo Cisneros each have
50% beneficial ownership of the shares of Abarco. Mr. Gustavo Cisneros is
also a director of the Company. Mr. Cisneros may be deemed to have
beneficial ownership of the shares beneficially owned by the trusts created
by him. Messrs. Cisneros disclaim beneficial ownership of such shares.
(3) Does not include shares of Common Stock to be reserved for options and other
stock purchase rights that are anticipated to be granted to management under
the Plan after the Closing. See "Management--1996 Stock Option Plan."
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<PAGE>
RELATED PARTY TRANSACTIONS
Strata L.L.C. beneficially owns approximately 88.4% of the Company's
outstanding Common Stock at Closing. The managing members of Strata L.L.C.
are Messrs. Henry R. Kravis and George R. Roberts and the other members of
which are Messrs. Robert I. MacDonnell, Paul E. Raether, Michael W.
Michelson, Michael T. Tokarz, James H. Greene, Jr., Perry Golkin, Clifton S.
Robbins, Scott M. Stuart and Edward A. Gilhuly. Messrs. Kravis, Roberts, and
Tokarz are also directors of the Company, as is Mr. Marc S. Lipschultz who is
a limited partner of KKR Associates (Strata). Each of the members of Strata
L.L.C. is also a member of the limited liability holding company which serves
as the general partner of KKR and Mr. Lipschultz is an executive of KKR. KKR,
an affiliate of Strata and Strata L.L.C., received a fee of $12 million for
negotiating the Recapitalization and arranging the financing therefor and,
from time to time in the future, KKR may receive customary investment banking
fees for services rendered to the Company in connection with divestitures,
acquisitions and certain other transactions. In addition, KKR has agreed to
render management, consulting and financial services to the Company for an
initial annual fee of $1 million. See "Management--Directors and Executive
Officers," "--Compensation Committee Interlocks and Insider Participation,"
"--Compensation of Directors" and "Ownership of Common Stock."
Strata L.L.C. is the general partner of KKR Associates (Strata), a Delaware
limited partnership, of which certain past and present employees of KKR and
partnerships and trusts for the benefit of the families of such past and present
employees and a former partner of KKR are the limited partners. KKR Associates
(Strata) is the general partner of Strata, which will own at Closing
approximately 88.4% of the outstanding Common Stock.
Strata has the right, under certain circumstances and subject to certain
conditions, to require the Company to register under the Securities Act shares
of Common Stock held by it pursuant to a registration rights agreement entered
into in connection with the Recapitalization and certain stockholders'
agreements. Such registration rights will generally be available to Strata until
registration under the Securities Act is no longer required to enable them to
resell the Common Stock owned by it. Such registration rights agreement
provides, among other things, that the Company will pay all expenses in
connection with the first six registrations requested by Strata and in
connection with any registration commenced by the Company as a primary offering.
In addition, other stockholders besides Strata, including certain members of
management, will be allowed to participate in any registration process, subject
to certain conditions and exceptions. Abarco has the right, under certain
circumstances and subject to certain conditions, to require the Company to
register under the Securities Act shares of Common Stock held by it pursuant to
a registration rights agreement entered into in connection with the
Recapitalization and a stockholders' agreement. Such registration rights include
demand registration rights for up to two offerings and piggyback rights. See
"Management--Management Stockholder's Agreements."
Strata purchased the 1,500,000 shares of Preferred Stock offered by the
Company in the Preferred Stock Offering. The Company and Strata entered into a
registration rights agreement whereby Strata will have the right commencing not
earlier than one year after the Issuance Date, subject to certain conditions, to
require the Company to register the sale of any or all of the Preferred Stock
under the Securities Act on up to three occasions at the Company's expense.
In connection with the Recapitalization, the Company redeemed Common Stock
owned beneficially by Abarco for aggregate consideration of $580 million and
redeemed shares of S&E owned by officers of S&E through a management stock plan
that was terminated upon Closing for aggregate consideration of $28 million.
Such officers financed in part their purchase of S&E shares by providing
promissory notes to the order of S&E and, in connection with the Closing, such
officers repaid in full such notes for approximately $7 million. See Note L to
the Consolidated Financial Statements for a description of such management stock
plan. In addition, the Named Executive Officers and certain
64
<PAGE>
other officers and key employees of the Company and its subsidiaries received a
bonus payment of $5 million in connection with the Recapitalization.
On May 17, 1994, the Company acquired the Acquired Trademarks, which are
substantially all of the non-U.S. trademarks related to the Company's business,
for consideration of $176 million. See Notes D and G to the Consolidated
Financial Statements for a description of the Company's purchase of the Acquired
Trademarks, of certain affiliate payables related to this purchase, and of the
related royalty payments for their use prior to such acquisition.
See Note A to the Consolidated Financial Statements for a description of
the Company's investment in affilated companies.
The Company and an affiliate of Abarco entered into a management agreement
providing for the performance by such Abarco affiliate of certain management
services for the Company. The Company paid such Abarco affiliate $0.8 million in
fiscal 1994 and 1995 and $ million in fiscal 1996, pursuant to such
management agreement. Such management agreement was terminated at Closing.
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DESCRIPTION OF CREDIT FACILITIES
The Credit Facilities are provided by a syndicate of banks and other
financial institutions led by Bank of America National Trust and Savings
Association, as administrative agent (the "Administrative Agent"), Merrill Lynch
Capital Corporation, as documentation agent, and Nationsbank, N.A. (South), as
syndication agent. The Credit Facilities provide for $400 million in term loans
("Terms Loans") and the Revolving Credit Facility provides for $250 million of
revolving credit loans ("Revolving Credit Loans"). The Revolving Credit Facility
includes borrowing capacity available for letters of credit and bankers'
acceptances, and for borrowings on same-day notice ("Swingline Loans"). The Term
Loans are comprised of Term Loan A ($175.0 million), which has a maturity of
seven years, Term Loan B ($87.5 million), which has a maturity of eight years,
Term Loan C ($87.5 million), which has a maturity of nine years, and Term Loan D
($50.0 million) which has a maturity of nine and one-half years. The Revolving
Credit Facility commitment will terminate seven years after the date of the
Recapitalization.
All Term Loans and Revolving Credit Loans will bear interest, at the
Company's option, at either: (a) a "base rate" equal to the higher of (i) the
federal funds rate plus 0.50% per annum or (ii) the Administrative Agent's prime
rate, plus (A) in the case of Term Loan A, a debt to EBITDA-dependent rate
ranging from 0.00% to 1.25% per annum, (B) in the case of Term Loan B, 1.75% per
annum, (C) in the case of Term Loan C, 2.25% per annum, (D) in the case of Term
Loan D, 2.75% per annum or (E) in the case of Revolving Credit Loans and
Swingline Loans, a debt to EBITDA-dependent rate ranging from 0.00% to 1.25% per
annum or (b) a "eurodollar rate" plus (i) in the case of Term Loan A, a debt to
EBITDA-dependent rate ranging from 0.625% to 2.25% per annum, (ii) in the case
of Term Loan B, 2.75% per annum, (iii) in the case of Term Loan C, 3.25% per
annum, (iv) in the case of Term Loan D, 3.75% per annum or (v) in the case of
Revolving Credit Loans, a debt to EBITDA-dependent rate ranging from 0.625% to
2.25% per annum. Swingline Loans may only be base rate loans.
The Company will pay a commitment fee calculated at a debt to
EBITDA-dependent rate ranging from 0.20% to 0.50% per annum of the available
unused commitment under the Revolving Credit Facility in effect on each day.
Such fee will be payable quarterly in arrears and upon termination of the
Revolving Credit Facility.
The Company will pay a letter of credit fee calculated at a debt to
EBITDA-dependent rate ranging from 0.50% to 2.125% per annum of the face amount
of each letter of credit and a fronting fee calculated at a rate equal to 0.125%
per annum of the face amount of each letter of credit. Such fees will be payable
quarterly in arrears and upon the termination of the Revolving Credit Faci lity.
In addition, the Company will pay customary transaction charges in connection
with any letters of credit.
The Company will pay customary fees for bankers acceptances.
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The Term Loans will be subject to the following amortization schedule:
<TABLE>
<S> <C> <C> <C> <C>
DATE FROM CLOSING TERM LOAN A TERM LOAN B TERM LOAN C TERM LOAN D
- ----------------------------------------------------- ------------- --------------- --------------- ---------------
(DOLLARS IN MILLIONS)
24 Mos............................................... $ 15.0 $ 1.0 $ 1.0 $ 0.5
36 Mos............................................... 25.0 1.0 1.0 0.5
48 Mos............................................... 25.0 1.0 1.0 0.5
60 Mos............................................... 30.0 1.0 1.0 0.5
72 Mos............................................... 30.0 1.0 1.0 0.5
84 Mos............................................... 50.0 1.0 1.0 0.5
96 Mos............................................... -- 81.5 1.0 0.5
108 Mos.............................................. -- -- 80.5 0.5
114 Mos.............................................. -- -- -- 46.0
------------- ------- ------- -------
$ 175.0 $ 87.5 $ 87.5 $ 50.0
------------- ------- ------- -------
------------- ------- ------- -------
</TABLE>
The Term Loans will be subject to mandatory prepayment (i) with the
proceeds of certain asset sales and certain debt offerings (excluding the
Offering) and (ii) on an annual basis with 50% of the Company's Excess Cash Flow
(as defined in the Credit Facilities) for so long as the ratio of the Company's
Total Debt (as defined in the Credit Facilities) to EBITDA (as defined in the
Credit Facility) is greater than 4.0 to 1.0. The Credit Facilities prohibit the
Company from repurchasing any Exchange Notes or Preferred Stock, subject to
limited exceptions. The Company's obligations under the Credit Facilities are
secured by a pledge of the stock of certain of its subsidiaries. In addition,
indebtedness under the Credit Facilities is guaranteed by the principal
subsidiaries of the Company. See "Description of the Exchange
Notes--Subordination" and "Risk Factors-- Subordination of Exchange Notes to
Senior Indebtedness," "--Adverse Consequences of Holding Company Structure" and
"-- Encumbrances on Assets to Secure Credit Facilities."
The Credit Facilities contain customary covenants and restrictions on the
Company's ability to engage in certain activities. In addition, the Credit
Facilities provide that the Company must meet or exceed certain interest
coverage and fixed charge ratios and must not exceed a leverage ratio.
The Credit Facilities include customary events of default.
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THE EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $200 million
aggregate principal amount of Exchange Notes for a like aggregate principal
amount of Old Notes properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to all of the Old Notes.
As of the date of this Prospectus, $200 million aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1996, to all holders
of Old Notes known to the Company. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions set
forth under "Certain Conditions to the Exchange Offer" below. The Company
currently expects that each of the conditions will be satisfied and that no
waivers will be necessary.
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were issued on September 30, 1996 in a transaction exempt
from the registration requirements of the Securities Act. Accordingly, the Old
Notes may not be reoffered, resold, or otherwise transferred unless so
registered or unless an applicable exemption from the registration and
prospectus delivery requirements of the Securities Act is available.
In connection with the issuance and sale of the Old Notes, the Company
entered into the Registration Rights Agreement, which requires the Company to
file with the Commission a registration statement relating to the Exchange Offer
not later than 45 days after the date of issuance of the Old Notes, and to use
its best efforts to cause the registration relating to the Exchange Offer to
become effective under the Securities Act not later than 105 days after the date
of issuance of the Old Notes and the Exchange Offer to be consummated not later
than 30 days after the date of the effectiveness of the Registration Statement
(or use its best efforts to cause to become effective by the 135th calendar day
after the Issuance Date a shelf registration statement with respect to resales
of the Old Notes). A copy of the Registration Rights Agreement has been filed as
an exhibit to the Registration Statement.
The Exchange Offer is being made by the Company to satisfy its obligations
with respect to the Registration Rights Agreement. The term "holder," with
respect to the Exchange Offer, means any person in whose name Old Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Old Notes are held of record by The Depository Trust Company. Other than
pursuant to the Registration Rights Agreement, the Company is not required to
file any registration statement to register any outstanding Old Notes. Holders
of Old Notes who do not tender their Old Notes or whose Old Notes are tendered
but not accepted would have to rely on exemptions to registration requirements
under the securities laws, including the Securities Act, if they wish to sell
their Old Notes.
The Company is making the Exchange Offer in reliance on the position of the
Staff of the Commission as set forth in certain interpretive letters addressed
to third parties in other transactions. However, the Company has not sought its
own interpretive letter and there can be no assurance that the Staff would make
a similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
Staff, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a Holder (other than any Holder who is a broker-dealer
or an "affiliate" of the Company within the meaning of Rule 405 of the
Securities Act) without
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further compliance with the registration and prospectus delivery requirements of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such Holder's business and that such Holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Notes. See "--Resale of Exchange Notes." Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution."
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of the
Old Notes. The terms of the Exchange Notes are identical in all material
respects to the terms of the Old Notes for which they may be exchanged pursuant
to this Exchange Offer, except that the Exchange Notes will generally be freely
transferable by holders thereof and will not be subject to any covenant
regarding registration. The Exchange Notes will evidence the same indebtedness
as the Old Notes and will be entitled to the benefits of the Indenture. See
"Description of Exchange Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old
Notes may be offered for sale, resold or otherwise transferred by any holder
without compliance with the registration and prospectus delivery provisions of
the Securities Act. Instead, based on an interpretation by the staff of the
Commission set forth in a series of no-action letters issued to third parties,
the Company believes that Exchange Notes issued pursuant to the Exchange Offer
in exchange for Old Notes may be offered for sale, resold and otherwise
transferred by any holder of such Exchange Notes (other than any such holder
that is a broker-dealer or 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 has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes and neither such holder nor any other
such person is engaging in or intends to engage in a distribution of such
Exchange Notes. Since the Commission has not considered the Exchange Offer in
the context of a no-action letter, there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer. Any holder who is an affiliate of the Company or who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes cannot rely on such interpretation by the staff of the Commission
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each holder, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution."
Interest on the Exchange Notes shall accrue from the last Interest Payment
Date on which interest was paid on the Old Notes so surrendered or, if no
interest has been paid on such Notes, from September 30, 1996.
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<PAGE>
Tendering holders of the Old Notes shall 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 the Old Notes
pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1996, unless the Company, in its sole discretion, has extended
the period of time for which the Exchange Offer is open (such date, as it may be
extended, is referred to herein as the "Expiration Date"). The Expiration Date
will be at least 20 business days after the commencement of the Exchange Offer
in accordance with Rule 14e-1(a) under the Exchange Act. The Company expressly
reserves the right, at any time or from time to time, to extend the period of
time during which the Exchange Offer is open, and thereby delay acceptance for
exchange of any Old Notes, by giving oral or written notice to the Exchange
Agent and by giving written notice of such extension to the holders thereof or
by timely public announcement no later than 9:00 a.m. New York City time, on the
next business day after the previously scheduled Expiration Date. During any
such extension, all Old Notes previously tendered will remain subject to the
Exchange Offer unless properly withdrawn.
The Company expressly reserves the right to (i) terminate or amend the
Exchange Offer and not to accept for exchange any Old Notes not theretofore
accepted for exchange upon the occurrence of any of the events specified below
under "Certain Conditions to the Exchange Offer" which have not been waived by
the Company and (ii) amend the terms of the Exchange Offer in any manner which,
in its good faith judgment, is advantageous to the Holders of the Old Notes,
whether before or after any tender of the Notes. If any such termination or
amendment occurs, the Company will notify the Exchange Agent and will either
issue a press release or give oral or written notice to the holders of the Old
Notes as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time. Unless the Company
terminates the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date, the Company will exchange the Exchange Notes for the Old Notes
on the Exchange Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of Old Notes may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature guarantees
and any other document required by the Letter of Transmittal, to the Exchange
Agent at its address set forth below on or prior to the Expiration Date (or
complying with the procedure for book-entry transfer described below) or (ii)
complying with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
INSURE TIMELY DELIVERY. NO OLD NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO
THE COMPANY.
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If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Old Notes are to be reissued) in the name
of the registered holder (which term, for the purposes described herein, shall
include any participant in The Depository Trust Company (also referred to as a
"book-entry transfer facility") whose name appears on a security listing as the
owner of Old Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a commercial bank or trust company located or
having an office, branch, agency or correspondent in the United States, or by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. (any of the foregoing hereinafter
referred to as an "Eligible Institution"). If the Exchange Notes and/or Old
Notes not exchanged are to be delivered to an address other than that of the
registered holder appearing on the note register for the Old Notes, the
signature in the Letter of Transmittal must be guaranteed by an Eligible
Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the Old
Notes at the book-entry transfer facility for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the book-entry transfer facility's system
may make book-entry delivery of Old Notes by causing such book-entry transfer
facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the book-entry
transfer facility, an appropriate Letter of Transmittal 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.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below on or prior to the Expiration Date, a letter,
telegram or facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) from an Eligible Institution
setting forth the name and address of the tendering holder, the names in which
the Old Notes are registered and, if possible, the certificate numbers of the
Old Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the Expiration Date, the Old
Notes in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the book-entry transfer
facility), will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Old Notes being tendered by the above-described
method are deposited with the Exchange Agent within the time period set forth
above (accompanied or preceded by a properly completed Letter of Transmittal and
any other required documents), the Company may, at its option, reject the
tender. Copies of the notice of guaranteed delivery ("Notice of Guaranteed
Delivery") which may be used by Eligible Institutions for the purposes described
in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer facility)
is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
from an Eligible Institution is received by the Exchange Agent. Issuances of
Exchange Notes in exchange for Old Notes tendered pursuant to a Notice of
Guaranteed Delivery or letter, telegram or facsimile transmission to
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<PAGE>
similar effect (as provided above) by an Eligible Institution will be made only
against deposit of the Letter of Transmittal (and any other required documents)
and the tendered Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or not to accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Old Notes, such Old Notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney 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 to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder, that neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and that
neither the holder nor any such other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Company, or if it is an affiliate it will
comply with the registration and prospectus requirements of the Securities Act
to the extent applicable.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old 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
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good and unencumbered title to the tendered Old Notes, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The Transferor 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 Old Notes or transfer ownership of such Old Notes on the account books
maintained by a book-entry transfer facility. The Transferor further agrees that
acceptance of any tendered Old Notes by the Company and the issuance of Exchange
Notes in exchange therefor shall constitute performance in full by the Company
of certain of its obligations under the Registration Rights Agreement. All
authority conferred by the Transferor will survive the death or incapacity of
the Transferor and every obligation of the Transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of such Transferor.
The Transferor certifies that it is not an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act and that it is acquiring
the Exchange Notes offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the distribution of such Exchange Notes. Each holder, other than
a broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of Exchange Notes. Each Transferor which is a
broker-dealer receiving Exchange Notes for its own account must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. 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 Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company will, for a period of 120 days after the Expiration
Date, make copies of this Prospectus available to any broker-dealer for use in
connection with any such resale.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent at the address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) specify the principal
amount of Notes to be withdrawn, (iv) include a statement that such holder is
withdrawing his election to have such Old Notes exchanged, (v) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered or as otherwise described above (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee under the Indenture register the transfer of such
Old Notes into the name of the person withdrawing the tender and (vi) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. The Exchange Agent will return the properly withdrawn Old
Notes promptly following receipt of notice of withdrawal. If Old Notes have been
tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn Old Notes or otherwise
comply with the book-entry transfer facility procedure. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by the Company and such determination will be final and binding on
all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in
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the case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the book-entry transfer facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account with
such book-entry transfer facility specified by the holder) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly on the Exchange Date, all Old Notes properly
tendered and will issue the Exchange Notes promptly after such acceptance. See
"Certain Conditions to the Exchange Offer" below. For purposes of the Exchange
Offer, the Company shall be deemed to have accepted properly tendered Old Notes
for exchange when, as and if the Company has given oral or written notice
thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note.
In all cases, issuance of Exchange Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Notes or a timely
book-entry confirmation of such Old Notes into the Exchange Agent's account at
the book-entry transfer facility, a properly completed and duly executed Letter
of Transmittal and all other required documents. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount than
the holder desires to exchange, such unaccepted or non-exchanged Old Notes will
be returned without expense to the tendering holder thereof (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such non-exchanged Old Notes will be credited to an account
maintained with such book-entry transfer facility) as promptly as practicable
after the expiration of the Exchange Offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company shall not be required to accept for exchange,
or to issue Exchange Notes in exchange for, any Old Notes and may terminate or
amend the Exchange Offer (by oral or written notice to the Exchange Agent or by
a timely press release) if at any time before the acceptance of such Old Notes
for exchange or the exchange of the Exchange Notes for such Old Notes, any of
the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency or regulatory authority or any
injunction, order or decree is issued with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or have a
material adverse effect on the contemplated benefits of the Exchange Offer
to the Company; or
(b) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company that is or may be adverse to the Company, or the
Company shall have become aware of facts that have or may have adverse
significance with respect to the value of the Old Notes or the Exchange
Notes or that may materially impair the contemplated benefits of the
Exchange Offer to the Company;
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(c) any law, rule or regulation or applicable interpretations of the
staff of the Commission is issued or promulgated which, in the good faith
determination of the Company, do not permit the Company to effect the
Exchange Offer; or
(d) any governmental approval has not been obtained, which approval
the Company, in its sole discretion, deems necessary for the consummation
of the Exchange Offer; or
(e) there shall have been proposed, adopted or enacted any law,
statute, rule or regulation (or an amendment to any existing law statute,
rule or regulation) which, in the sole judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer or have a material adverse effect on the contemplated benefits of the
Exchange Offer to the Company; or
(f) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes to be offered for resale,
resold and otherwise transferred by holders thereof (other than any such
holder that is an "affiliate" of the Issuer within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such
Exchange Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement with any person to
participate in the distribution of such Exchange Notes; or
(g) there shall have occurred (i) any general suspension of,
shortening of hours for, or limitation on prices for, trading in securities
on any national securities exchange or in the over-the-counter market
(whether or not mandatory), (ii) any limitation by any govermental agency
or authority which may adversely affect the ability of the Company to
complete the transactions contemplated by the Exchange Offer, (iii) a
declaration of a banking moratorium or any suspension of payments in
respect of banks by Federal or state authorities in the United States
(whether or not mandatory), (iv) a commencement of a war, armed hostilities
or other international or national crisis directly or indirectly involving
the United States, (v) any limitation (whether or not mandatory) by any
governmental authority on, or other event having a reasonable likelihood of
affecting, the extension of credit by banks or other leading institutions
in the United States, or (vi) in the case of any of the foregoing existing
at the time of the commencement of the Exchange Offer, a material
acceleration or worsening thereof.
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Old Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Old Notes). In addition, the
Company may amend the Exchange Offer at any time prior to the Expiration Date if
any of the conditions set forth above occur. Moreover, regardless of whether any
of such conditions has occurred, the Company may amend the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to holders of the Old
Notes.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. If the Company waives or amends the foregoing
conditions, it will, if required by law, extend the Exchange Offer for a minimum
of five business days from the date that the Company first gives notice, by
public announcement or otherwise, of such waiver or amendment, if the Exchange
Offer would otherwise expire within such five business-day period. Any
determination by the Company concerning the events described above will be final
and binding upon all parties.
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In addition, the Company will not accept for exchange any Old Notes
tendered, and no Exchange Notes will be issued in exchange for any such Old
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended. In any such event the Company is required to use every
reasonable effort to obtain the withdrawal of any stop order at the earliest
possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange.
EXCHANGE AGENT
Marine Midland Bank has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below:
<TABLE>
<S> <C>
By Hand/Overnight Courier: By Mail:
Marine Midland Bank Marine Midland Bank
Attn: Corporate Trust Administrator Attn: Corporate Trust Administrator
140 Broadway 140 Broadway
New York, New York 10006 New York, New York 10006
By Facsimile:
(212) 658-6425
Attn.: Corporate Trust Administrator
Telephone: (212) 658-6433
</TABLE>
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF
TRANSMITTAL, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER
OTHER THAN THE ONES SET FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE
A VALID DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this and other related documents to the beneficial owners of the Old
Notes and in handling or forwarding tenders for their customers.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $ , which includes fees and expenses of the Exchange Agent,
Trustee, registration fees, accounting, legal, printing and related fees and
expenses.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
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circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Old Notes
in such jurisdiction. In any jurisdiction in which the securities laws or blue
sky laws of which require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdication.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old 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 Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the carrying value of the Old Notes
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company upon the exchange of Exchange Notes for Old Notes. Expenses incurred in
connection with the issuance of the Exchange Notes will be amortized over the
term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. Old Notes not
exchanged pursuant to the Exchange Offer will continue to remain outstanding in
accordance with their terms. In general, the Old Notes may not be offered or
sold unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register the Old Notes under the Securities Act.
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of the Old Notes are
urged to consult their financial and tax advisors in making their own decision
on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights and limitations applicable thereto under the Indenture, except for
any such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
this Exchange Offer. All untendered Old Notes will continue to be subject to the
restrictions on
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transfer set forth in the Indenture. To the extent that Old Notes are tendered
and accepted in the Exchange Offer, the trading market for untendered Old Notes
could be adversely affected.
The Company may in the future seek to acquire subject to the terms of the
Indenture untendered Old Notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plan to acquire any Old Notes which are not tendered in the Exchange
Offer.
RESALE OF EXCHANGE NOTES
The Company is making the Exchange Offer in reliance on the position of the
Staff of the Commission as set forth in certain interpretive letters addressed
to third parties in other transactions. However, the Company has not sought its
own interpretive letter and there can be no assurance that the Staff would make
a similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
Staff, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a Holder (other than any Holder who is a broker-dealer
or an "affiliate" of the Company within the meaning of Rule 405 of the
Securities Act) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such Holder's business and that such
Holder is not participating, and has no arrangement or understanding with any
person to participate, in a distribution (within the meaning of the Securities
Act) of such Exchange Notes. However, any holder who is an "affiliate" of the
Company or who has an arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired pursuant to the Exchange
Offer, or any broker-dealer who purchased Old Notes from the Company to resell
pursuant to Rule 144A or any other available exemption under the Securities Act
(i) could not rely on the applicable interpretations of the Staff and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act. A broker-dealer who holds Old Notes that were acquired for its
own account as a result of market-making or other trading activities may be
deemed to be an "underwriter" within the meaning of the Securities Act and must,
therefore, deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of Exchange Notes. Each such broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the Exchange Notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the Exchange Notes for
offer or sale under the securities or blue sky laws of such jurisdictions as any
holder of the Exchange Notes reasonably requests in writing. Such registration
or qualification may require the imposition of restrictions or conditions
(including suitability requirements for offerees or purchasers) in connection
with the offer or sale of any Exchange Notes.
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DESCRIPTION OF THE EXCHANGE NOTES
The Old Notes were issued and the Exchange Notes offered hereby will be
issued under an indenture dated as of September 30, 1996 (the "Indenture")
between the Company, as issuer, and Marine Midland Bank, as trustee (the
"Trustee"). 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, as amended (the "Trust Indenture Act"). The Exchange
Notes are subject to all such terms, and holders of the Exchange Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of certain provisions of the Indenture describes the
material terms of the Indenture but does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. The definitions of certain
terms used in the following summary are set forth below under "Certain
Definitions." The Indenture is an exhibit to the Registration Statement of which
this Prospectus is a part.
On September 30, 1996, the Company issued $200 million aggregate principal
amount of Old Notes under the Indenture. The terms of the Exchange Notes are
identical in all material respects to the Old Notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
Old Notes for Exchange Notes. The Trustee will authenticate and deliver Exchange
Notes for original issue only in exchange for a like principal amount of Old
Notes. Any Old 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 Old Notes and
Exchange Notes then outstanding.
GENERAL
The Exchange Notes will mature on October 1, 2006, will be limited to
$200,000,000 aggregate principal amount and will be unsecured senior
subordinated obligations of the Company. Each Exchange Note will bear interest
at the rate set forth on the cover page hereof from September 30, 1996 or from
the most recent interest payment date to which interest has been paid or duly
provided for, payable on April 1, 1997 and semiannually thereafter on October 1
and April 1 in each year until the principal thereof is paid or duly provided
for to the Person in whose name the Exchange Note (or any predecessor Exchange
Note) is registered at the close of business on the September 15 or March 15
next preceding such interest payment date. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Exchange Notes will be exchangeable and transferable at the
office or agency of the Company in the City of New York maintained for such
purposes (which initially will be the Trustee); provided, however, that, at the
option of the Company, interest may be paid by check mailed to the address of
the Person entitled thereto as such address appears on the security register.
The Exchange Notes will be issued only in fully registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof. No
service charge will be made for any registration of transfer or exchange or
redemption of Exchange Notes, but the Company may require payment in certain
circumstances of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection therewith.
Old Notes that remain outstanding after the consummation of the Exchange
Offer and Exchange Notes issued in connection with the Exchange Offer will be
treated as a single class of securities under the Indenture.
SUBORDINATION
The payment of the Subordinated Note Obligations is subordinated in right
of payment, as set forth in the Indenture, to the prior payment in full in cash
equivalents of all Senior Indebtedness,
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whether outstanding on the date of the Indenture or thereafter incurred. 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 marshalling of the Company's assets and
liabilities, the holders of Senior Indebtedness will be entitled to receive
payment in full in cash equivalents of such Senior Indebtedness before the
holders of Exchange Notes will be entitled to receive any payment with respect
to the Subordinated Note Obligations, and until all Senior Indebtedness is paid
in full in cash equivalents, any distribution to which the holders of Exchange
Notes would be entitled shall be made to the holders of Senior Indebtedness
(except that holders of Exchange Notes may receive (i) shares of stock and any
debt securities that are subordinated at least to the same extent as the
Exchange Notes to Senior Indebtedness and any securities issued in exchange for
Senior Indebtedness and (ii) payments made from the trusts described under
"--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the
Subordinated Note Obligations (except in such subordinated securities or 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, or
of unreimbursed amounts under drawn letters of credit or in respect of bankers'
acceptances or fees relating to letters of credit or bankers' acceptances
constituting, Designated Senior Indebtedness occurs and is continuing beyond any
applicable period of grace (a "payment default") or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness that
permits holders of the Designated Senior Indebtedness as to which such default
relates to accelerate its maturity (a "non-payment default") and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from a
representative of holders of such Designated Senior Indebtedness. Payments on
the Exchange Notes, including any missed payments, may and shall be resumed (a)
in the case of a payment default, upon the date on which such default is cured
or waived or shall have ceased to exist or such Designated Senior Indebtedness
shall have been discharged or paid in full in cash equivalents and (b) in case
of a nonpayment default, the earlier of (x) the date on which such nonpayment
default is cured or waived, (y) 179 days after the date on which the applicable
Payment Blockage Notice is received (each such period, the "Payment Blockage
Period") or (z) the date such Payment Blockage Period shall be terminated by
written notice to the Trustee from the requisite holders of such Designated
Senior Indebtedness necessary to terminate such period or from their
representative. No new period of payment blockage may be commenced unless and
until 365 days have elapsed since the effectiveness of the immediately preceding
Payment Blockage Notice. However, if any Payment Blockage Notice within such
365-day period is given by or on behalf of any holders of Designated Senior
Indebtedness (other than the agent under the Senior Credit Facility), the agent
under the Senior Credit Facility may give another Payment Blockage Notice within
such period. In no event, however, may the total number of days during which any
Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate
during any 365 consecutive day period. 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 cured or waived for a period of not less than 90
days.
If the Company fails to make any payment on the Exchange Notes when due or
within any applicable grace period, whether or not on account of the payment
blockage provision referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the holders of the Exchange Notes
to accelerate the maturity thereof.
The Indenture further requires that the Company promptly notify holders of
Senior Indebtedness 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 insolvency, bankruptcy, administration, reorganization, receivership or
similar proceedings relating to the Company, holders of Exchange Notes may
recover less ratably than creditors of the Company who are holders of Senior
Indebtedness. As of September 30, 1996 the Company has approximately $
million of Senior
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Indebtedness outstanding and the Company has additional availability of $
million (reduced to reflect $ million of outstanding letters of credit and
bankers' acceptances) for borrowings under the Senior Credit Facility, all of
which would be Senior Indebtedness, if borrowed. Although the Indenture contains
limitations on the amount of additional Indebtedness that the Company may incur,
under certain circumstances the amount of such Indebtedness could be substantial
and, in any case, such Indebtedness may be Senior Indebtedness. See "--Certain
Covenants--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock."
The Company is a holding company that derives all of its operating income
and cash flow from its subsidiaries. Generally, claims of creditors of a
subsidiary, including trade creditors, secured creditors and creditors holding
indebtedness and guarantees issued by such subsidiary, and claims of preferred
stockholders (if any) of such subsidiary will have priority with respect to the
assets and earnings of such subsidiary over the claims of creditors of its
parent company, except to the extent the claims of creditors of the parent
company are guaranteed by such subsidiary. The Exchange Notes, therefore, will
be effectively subordinated to creditors (including trade creditors) and
preferred stockholders (if any) of the direct and indirect subsidiaries of the
Company. At September 30, 1996 the Company's subsidiaries had total liabilities
(including accrued expenses ($ million) and trade payables and bankers'
acceptances ($ million)) of $ million (including $ million of bankers'
acceptances) of Senior Indebtedness outstanding, including guarantees of
Indebtedness under the Senior Credit Facility. Although the Indenture limits the
incurrence of Indebtedness and Disqualified Capital Stock such limitation is
subject to a number of significant qualifications. Moreover, the Indenture does
not impose any limitation on the incurrence by the Company or its Restricted
Subsidiaries of liabilities that are not considered Indebtedness or Disqualified
Capital Stock under the Indenture. See "--Certain Covenants--Limitation on
Incurrence of Indebtedness and Issuance of Disqualified Stock."
"Designated Senior Indebtedness" means (i) Senior Indebtedness under the
Senior Credit Facility and (ii) any other Senior Indebtedness permitted under
the Indenture the principal amount of which is $50 million or more and that has
been designated by the Company as Designated Senior Indebtedness.
"Senior Indebtedness" means (i) the Obligations under the Senior Credit
Facility and (ii) 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, including, with respect
to (i) and (ii), interest accruing subsequent to the filing of, or which would
have accrued but for the filing of, a petition for bankruptcy, whether or not
such interest is an allowable claim in such bankruptcy proceeding.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
will not include (1) any liability for federal, state, local or other taxes owed
or owing by the Company, (2) any obligation of the Company to any of its
Subsidiaries, (3) any accounts payable or trade liabilities arising in the
ordinary course of business (including instruments evidencing such liabilities)
other than obligations in respect of bankers' acceptances and letters of credit
under the Senior Credit Facility, (4) 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 subordinate or junior to any other
Indebtedness, guarantee or obligation of the Company, (7) Indebtedness evidenced
by the Exchange Notes and (8) Capital Stock of the Company.
"Subordinated Note Obligations" means any principal of, premium, if any,
and interest on the Exchange Notes payable pursuant to the terms of the Exchange
Notes or upon acceleration, together with and including any amounts received
upon the exercise of rights of rescission or other rights of action (including
claims for damages) or otherwise, to the extent relating to the purchase price
of the Exchange Notes or amounts corresponding to such principal, premium, if
any, or interest on the Exchange Notes.
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The Exchange Notes will rank senior in right of payment to all Subordinated
Indebtedness of the Company. At the Issuance Date the Company had no
Subordinated Indebtedness and on the Exchange Date the Company will have no
Subordinated Indebtedness.
MANDATORY REDEMPTION
The Company will not be required to make mandatory redemptions or sinking
fund payments prior to maturity of the Exchange Notes.
OPTIONAL REDEMPTION
Except as described below, the Exchange Notes will not be redeemable at the
Company's option prior to October 1, 2001. From and after October 1, 2001, 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 a percentage of principal amount) set
forth below, plus accrued and unpaid interest thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on October
1 of each of the years indicated below:
<TABLE>
<S> <C>
REDEMPTION
YEAR PRICE
- ---------------------------------- -----------
2001.............................. 105.187%
2002.............................. 103.458%
2003.............................. 101.729%
2004 and thereafter............... 100.000%
</TABLE>
In addition, at any time or from time to time, on or prior to October 1,
1999, the Company may, at its option, redeem up to 40% of the aggregate
principal amount of Exchange Notes originally issued under the Indenture on the
Issuance Date at a redemption price equal to 110% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
redemption date, with the net proceeds of one or more Equity Offerings; provided
that at least $120 million aggregate principal amount of Exchange Notes remains
outstanding immediately after the occurrence of such redemption; provided
further such redemption occurs within 60 days of the date of closing of each
such Equity Offering. The Trustee shall select the Exchange Notes to be
purchased in the manner described under "Repurchase at the Option of
Holders--Selection and Notice."
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control. The Indenture provides that, upon the occurrence of a
Change of Control, the Company will make an offer to purchase all or any part
(equal to $1,000 or an integral multiple thereof) of the Exchange Notes pursuant
to the offer described below (the "Change of Control Offer") at a price in cash
(the "Change of Control Payment") equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase. The Indenture provides that within 30 days following any Change of
Control, the Company will mail a notice to each Holder of Exchange Notes issued
under the Indenture, with a copy to the Trustee, with the following information:
(1) a Change of Control Offer is being made pursuant to the covenant entitled
"Change of Control," and that all Exchange Notes properly tendered pursuant to
such Change of Control Offer will be accepted for payment; (2) the purchase
price and the purchase date, which will be no earlier than 30 days nor later
than 60 days from the date such notice is mailed, except as may be otherwise
required by applicable law (the "Change of Control Payment Date"); (3) any
Exchange Note not properly tendered will remain outstanding and continue to
accrue interest; (4) unless the Company defaults in the payment of the Change of
Control Payment, all Exchange Notes accepted for payment pursuant to the Change
of Control Offer will cease to accrue interest on the Change of Control Payment
Date; (5) Holders electing to have any Exchange Notes purchased pursuant to a
Change of Control Offer will be required to surrender the Exchange Notes, with
the form entitled "Option of Holder to Elect Purchase" on the
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reverse of the Exchange Notes completed, to the paying agent and at the address
specified in the notice prior to the close of business on the third Business Day
preceding the Change of Control Payment Date; (6) Holders will be entitled to
withdraw their tendered Exchange Notes and their election to require the Company
to purchase such Exchange Notes, provided that the paying agent receives, not
later than the close of business on the last day of the offer period, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Exchange Notes tendered for purchase, and a
statement that such Holder is withdrawing his tendered Exchange Notes and his
election to have such Exchange Notes purchased; and (7) that Holders whose
Exchange Notes are being purchased only in part will be issued new Exchange
Notes equal in principal amount to the unpurchased portion of the Exchange Notes
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof.
The Indenture provides that, prior to complying with the provisions of this
covenant, but in any event within 30 days following a Change of Control, the
Company will either repay all outstanding amounts under the Senior Credit
Facility or offer to repay in full all outstanding amounts under the Senior
Credit Facility and repay the Obligations held by each lender who has accepted
such offer or obtain the requisite consents, if any, under the Senior Credit
Facility to permit the repurchase of the Exchange Notes required by this
covenant.
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 or regulations are applicable in connection with the repurchase
of the Exchange Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
The Indenture provides that on the Change of Control Payment Date, the
Company will, to the extent permitted by law, (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
aggregate 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 that such Exchange Notes or portions thereof have been
tendered to and purchased by the Company. The Indenture provides that the paying
agent will promptly mail to each Holder of Exchange Notes the Change of Control
Payment for such Exchange Notes, and the Trustee will promptly authenticate and
mail to each Holder a new Exchange Note equal in principal amount to any
unpurchased portion of the Exchange Notes surrendered, if any, provided, that
each such new Exchange Note will be in a principal amount of $1,000 or an
integral multiple thereof. 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 Senior Credit Facility does, and future credit agreements or other
agreements relating to Senior Indebtedness to which the Company becomes a party
may, prohibit the Company from purchasing any Exchange Notes as a result of a
Change of Control and/or provide that certain change of control events with
respect to the Company would constitute a default thereunder. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing the Exchange Notes, the Company could seek the consent of its lenders
to the purchase of the 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 the Exchange Notes. In such case, the Company's failure to purchase
tendered Exchange Notes would constitute an Event of Default under the
Indenture. If, as a result thereof, a default occurs with respect to any Senior
Indebtedness, the subordination provisions in the Indenture would likely
restrict payments to the Holders of the Exchange Notes.
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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 (x) the Company, or its Restricted Subsidiaries, as the case
may be, receives consideration at the time of such Asset Sale at least equal to
the fair market value (as determined in good faith by the Company) of the assets
sold or otherwise disposed of and (y) at least 75% of the proceeds from such
Asset Sale when received consists of cash or Cash Equivalents; provided that the
amount of (a) 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 liabilities that are by their terms subordinated to the
Exchange Notes) that are assumed by the transferee of any such assets, (b) 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) and
(c) any Designated Noncash Consideration received by the Company or any of its
Restricted Subsidiaries in such Asset Sale having an aggregate fair market
value, taken together with all other Designated Noncash Consideration received
pursuant to this clause (c) that is at that time outstanding, not to exceed 5%
of Total Assets at the time of the receipt of such Designated Noncash
Consideration (with the fair market value of each item of Designated Noncash
Consideration being measured at the time received and without giving effect to
subsequent changes in value), shall be deemed to be cash for the 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, the Company or such Restricted Subsidiary
may apply the Net Proceeds from such Asset Sale, at its option, (i) to
permanently reduce Obligations under the Senior Credit Facility (and to
correspondingly reduce commitments with respect thereto) or other Senior
Indebtedness or Pari Passu Indebtedness (provided that if the Company shall so
reduce Obligations under Pari Passu Indebtedness, it will equally and ratably
reduce Obligations under the Exchange Notes), (ii) to secure Letter of
Credit/Bankers' Acceptance Obligations to the extent related letters of credit
have not been drawn upon or returned undrawn or related bankers' acceptances
have not matured, (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
Similar Business and/or (iv) to an investment in properties or assets that
replace the properties and assets that are the subject 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 or Investment Grade Securities. The Indenture will provide that any
Net Proceeds from the Asset Sale that are not invested 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 $10 million, the Company shall make an offer to all Holders of Exchange
Notes (an "Asset Sale Offer") to purchase the maximum principal amount of
Exchange Notes, that is an integral multiple of $1,000, that may be purchased
out of the Excess Proceeds at an offer price in cash equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
fixed for the closing of such offer, in accordance with the procedures set forth
in the Indenture. The Company will commence an Asset Sale Offer with respect to
Excess Proceeds within ten Business Days after the date that Excess Proceeds
exceeds $10 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 tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Exchange Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Exchange Notes to be purchased in the manner described
under the caption "Selection and Notice" below. Upon completion of any such
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
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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 or regulations are applicable in connection with the repurchase
of the Exchange Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
Selection and Notice. If less than all of the Exchange Notes are to be
redeemed at any time or if more Exchange Notes are tendered pursuant to an Asset
Sale Offer than the Company is required to purchase, selection of such Exchange
Notes for redemption or purchase, as the case may be, will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which such Exchange Notes are listed, or, if such Exchange
Notes are not so listed, on a pro rata basis, by lot or by such other method as
the Trustee shall deem fair and appropriate (and in such manner as complies with
applicable legal requirements); provided that no Exchange Notes of $1,000 or
less shall be purchased or redeemed in part.
Notices of purchase or redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase or
redemption date to each Holder of Exchange Notes to be purchased or redeemed at
such Holder's registered address. If any Exchange Note is to be purchased or
redeemed in part only, any notice of purchase or redemption that relates to such
Exchange Note shall state the portion of the principal amount thereof that has
been or is to be purchased or redeemed.
A new Exchange Note in principal amount equal to the unpurchased or
unredeemed portion of any Exchange Note purchased or redeemed in part will be
issued in the name of the Holder thereof upon cancellation of the original
Exchange Note. On and after the purchase or redemption date, unless the Company
defaults in payment of the purchase or redemption price, interest shall cease to
accrue on Exchange Notes or portions thereof purchased or called for redemption.
CERTAIN COVENANTS
Limitation on 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 distribution on account
of the Company's or any of its Restricted Subsidiaries' Equity Interests,
including any dividend or distribution payable in connection with any merger or
consolidation (other than (A) dividends or distributions by the Company payable
in Equity Interests (other than Disqualified Stock) of the Company or (B)
dividends or distributions by a Restricted Subsidiary of the Company so long as,
in the case of any dividend or distribution payable on or in respect of any
class or series of securities issued by a Subsidiary other than a Wholly Owned
Subsidiary, the Company or a Restricted Subsidiary of the Company receives at
least its pro rata share of such dividend or distribution in accordance with its
Equity Interests in such class or series of securities); (ii) purchase, redeem,
defease or otherwise acquire or retire for value any Equity Interests of the
Company; (iii) make any principal payment on, or redeem, repurchase, defease or
otherwise acquire or retire for value in each case, prior to any scheduled
repayment, or maturity, any Subordinated Indebtedness; 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 such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) immediately before and immediately after giving effect to such
transaction on a pro forma basis, the Company could incur $1.00 of
additional Indebtedness under the provisions of the first paragraph of
"--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock"; and
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(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the Issuance Date (including Restricted Payments permitted by clauses
(i), (ii) (with respect to the payment of dividends on Refunding Capital
Stock pursuant to clause (b) thereof), (v) and (ix) 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 fiscal quarter that first begins after the
Issuance Date 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, in the case such Consolidated Net Income
for such period is a deficit, minus 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 since immediately after the closing of the Recapitalization
from the issue or sale of Equity Interests (including Retired Capital Stock
(as defined below), but excluding cash proceeds and marketable securities
received from (A) the sale of Equity Interests to members of management,
directors or consultants of the Company and its Subsidiaries after the
Issuance Date to the extent such amounts have been applied to Restricted
Payments in accordance with clause (iv) of the next succeeding paragraph,
(B) the sale of $100,000,000 aggregate liquidation preference of Preferred
Stock sold on the Issuance Date (together with all shares of Preferred
Stock issued as dividends paid in kind on all Preferred Stock) and (C)
Excluded Contributions) or debt securities of the Company that have been
converted into such Equity Interests of the Company (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 amount
of cash and marketable securities contributed (other than Excluded
Contributions) to the capital of the Company following the Issuance Date,
plus (iv) 100% of the aggregate amount received in cash and the fair market
value of marketable securities (other than Restricted Investments) received
from (A) the sale or other disposition (other than to the Company or a
Restricted Subsidiary) of Restricted Investments made by the Company and
its Restricted Subsidiaries or (B) a dividend from, or the sale (other than
to the Company or a Restricted Subsidiary) of the stock of, an Unrestricted
Subsidiary (other than an Unrestricted Subsidiary the Investment in which
was made by the Company or a Restricted Subsidiary pursuant to clauses (vi)
or (x) below), plus (v) other Restricted Payments in an aggregate amount
not to exceed $15 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) (a) the redemption, repurchase, retirement or other acquisition
of any Equity Interests (the "Retired Capital Stock") or Subordinated
Indebtedness of the Company in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of, Equity Interests of the Company (other than any Disqualified
Stock) (the "Refunding Capital Stock"), and (b) if immediately prior to the
retirement of Retired Capital Stock, the declaration and payment of
dividends thereon was permitted under clause (v) of this paragraph, the
declaration and payment of dividends on the Refunding Capital Stock in an
aggregate amount per year no greater than the aggregate amount of dividends
per annum that was declarable and payable on such Retired Capital Stock
immediately prior to such retirement; provided, however, that at the time
of the declaration of any such dividends, no Default or Event of Default
shall have occurred and be continuing or would occur as a consequence
thereof;
(iii) the redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness of the Company made by exchange for, or out of
the proceeds of the substantially concurrent sale of, new Indebtedness of
the Company so long as (A) the principal amount of such new
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Indebtedness does not exceed the principal amount of the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired for value
(plus the amount of any premium required to be paid under the terms of the
instrument governing the Subordinated Indebtedness being so redeemed,
repurchased, acquired or retired), (B) such Indebtedness is subordinated to
the Senior Indebtedness and the Exchange Notes at least to the same extent
as such Subordinated Indebtedness so purchased, exchanged, redeemed,
repurchased, acquired or retired for value, (C) such Indebtedness has a
final scheduled maturity date later than the final scheduled maturity date
of the Exchange Notes and (D) such Indebtedness has a Weighted Average Life
to Maturity equal to or greater than the remaining Weighted Average Life to
Maturity of the Exchange Notes;
(iv) a Restricted Payment to pay for the repurchase, retirement or
other acquisition or retirement for value of common Equity Interests of the
Company held by any future, present or former employee, director or
consultant of the Company or any Subsidiary pursuant to any management
equity plan or stock option plan or any other management or employee
benefit plan or agreement; provided, however, that the aggregate Restricted
Payments made under this clause (iv) does not exceed in any calendar year
$5 million (with unused amounts in any calendar year being carried over to
the next two immediately succeeding calendar years subject to a maximum
(without giving effect to the following proviso) of $10 million in any
calendar year); provided further that such amount in any calendar year may
be increased by an amount not to exceed (i) the cash proceeds from the sale
of Equity Interests of the Company to members of management, directors or
consultants of the Company and its Subsidiaries that occurs after the
Issuance Date (to the extent the cash proceeds from the sale of such Equity
Interest have not otherwise been applied to the payment of Restricted
Payments by virtue of the preceding paragraph (c)) plus (ii) the cash
proceeds of key man life insurance policies received by the Company and its
Restricted Subsidiaries after the Issuance Date less (iii) the amount of
any Restricted Payments previously made pursuant to clauses (i) and (ii) of
this subparagraph (iv); and provided further that cancellation of
Indebtedness owing to the Company from members of management of the Company
or any of its Restricted Subsidiaries in connection with a repurchase of
Equity Interests of the Company will not be deemed to constitute a
Restricted Payment for purposes of this covenant or any other provision of
the Indenture;
(v) the declaration and payment of dividends to holders of any class
or series of Designated Preferred Stock (other than Disqualified Stock)
issued after the Issuance Date (including, without limitation, the
declaration and payment of dividends on Refunding Capital Stock in excess
of the dividends declarable and payable thereon pursuant to clause (ii));
provided, however, that for the most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date of issuance of such Designated Preferred Stock, after
giving effect to such issuance on a pro forma basis, the Company and its
Restricted Subsidiaries would have had a Fixed Charge Coverage Ratio of at
least 2.00 to 1.00;
(vi) Investments in Unrestricted Subsidiaries having an aggregate fair
market value, taken together with all other Investments made pursuant to
this clause (vi) that are at that time outstanding, not to exceed $20
million 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);
(vii) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise
price of such options;
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(viii) the issuance by the Company of shares of Preferred Stock as
dividends paid in kind on the Preferred Stock or on shares of Preferred
Stock so issued as payment in kind dividends;
(ix) the payment of dividends on the Company's Common Stock, following
the first public offering of the Company's Common Stock after the Issuance
Date, of up to 6% per annum of the net proceeds received by the Company in
such public offering, other than public offerings with respect to the
Company's Common Stock registered on Form S-8; and
(x) Investments in Unrestricted Subsidiaries that are made with
Excluded Contributions
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (iii), (iv), (v), (vi), (vii),
(viii), (ix) and (x), no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and provided further that
for purposes of determining the aggregate amount expended for Restricted
Payments in accordance with clause (c) of the immediately preceding paragraph,
only the amounts expended under clauses (i), (ii) (with respect to the payment
of dividends on Refunding Capital Stock pursuant to clause (b) thereof), (v) and
(ix) shall be included.
The Company designated all of the proceeds from the sale of the $50 million
liquidation preference of Preferred Stock issued immediately after the
Recapitalization as an Excluded Contribution.
As of the Issuance Date, 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 second to 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 determined as set forth in the last sentence of the definition of
"Investments." 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.
Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock. The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to (collectively, "incur" and collectively, an "incurrence" of) any Indebtedness
(including Acquired Indebtedness) or any shares of Disqualified Stock; provided,
however, that the Company may incur Indebtedness or issue shares of Disqualified
Stock if the Fixed Charge Coverage Ratio for the Company and its Restricted
Subsidiaries for the most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date of
such incurrence would have been at least 2.00 to 1.00 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 proceeds had occurred at the
beginning of such four-quarter period.
The foregoing limitations will not apply to:
(a) the incurrence by the Company of Indebtedness under the Senior
Credit Facility and the issuance and creation of letters of credit and
banker's acceptances thereunder (with letters of credit and banker's
acceptances being deemed to have a principal amount equal to the face
amount thereof) up to an aggregate principal amount of $675 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 and banker's acceptances under the Senior Credit Facility made
after the Issuance Date;
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(b) the incurrence by the Company of Indebtedness represented by the
Exchange Notes and the Old Notes and the issuance by the Company of the
Preferred Stock, in each case issued on the Issuance Date;
(c) Existing Indebtedness (other than (i) Indebtedness described in
clauses (a) and (b) and (ii) Indebtedness of any Foreign Subsidiary
outstanding on the Issuance Date together with any future Indebtedness of
any such Foreign Subsidiary incurred in connection with any undrawn
commitment or unused line of credit in each case existing on the Issuance
Date);
(d) Indebtedness (including Capitalized Lease Obligations) incurred by
the Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount which, when aggregated
with the principal amount of all other Indebtedness then outstanding and
incurred pursuant to this clause (d) (together with any Refinancing
Indebtedness with respect thereto), does not exceed $10 million;
(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; provided, however, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(f) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided, however, that (i) such Indebtedness
is not reflected on the balance sheet of the Company or any Restricted
Subsidiary (contingent obligations referred to in a footnote to financial
statements and not otherwise reflected on the balance sheet will not be
deemed to be reflected on such balance sheet for purposes of this clause
(i)) and (ii) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including noncash
proceeds (the fair market value of such noncash proceeds being measured at
the time received and without giving effect to any subsequent changes in
value) actually received by the Company and its Restricted Subsidiaries in
connection with such disposition;
(g) Indebtedness of the Company to a Restricted Subsidiary; provided
that any such Indebtedness is made pursuant to an intercompany note and is
subordinated in right of payment to the Exchange Notes; provided further
that any subsequent issuance or transfer of any Capital Stock or any other
event which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any other subsequent transfer of any such
Indebtedness (except to the Company or another Restricted Subsidiary) shall
be deemed, in each case to be an incurrence of such Indebtedness;
(h) Indebtedness of a Restricted Subsidiary to the Company or another
Restricted Subsidiary; provided that (i) any such Indebtedness is made
pursuant to an intercompany note and (ii) if a Guarantor incurs such
Indebtedness from a Restricted Subsidiary that is not a Guarantor such
Indebtedness is subordinated in right of payment to the Guarantee of such
Guarantor; provided
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further that any subsequent transfer of any such Indebtedness (except to
the Company or another Restricted Subsidiary) shall be deemed, in each case
to be an incurrence of such Indebtedness;
(i) Hedging Obligations that are incurred (1) for the purpose of
fixing or hedging interest 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 currency exchanges;
(j) 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;
(k) Indebtedness of any Guarantor in respect of such Guarantor's
Guarantee;
(l) Any Excluded Guarantee of any Restricted Subsidiary;
(m) Indebtedness of the Company and any of its Restricted Subsidiaries
not otherwise permitted hereunder in an aggregate principal amount, which
when aggregated with the principal amount of all other Indebtedness then
outstanding and incurred pursuant to this clause (m), does not exceed $75
million at any one time outstanding; provided, however that (i)
Indebtedness of a Restricted Subsidiary organized under the laws of the
United States, any State thereof, the District of Columbia or any territory
thereof, which when aggregated with the principal amount of all other
Indebtedness of such Restricted Subsidiaries then outstanding and incurred
pursuant to this clause (m), does not exceed $25 million at any one time
outstanding and (ii) Indebtedness of a Foreign Subsidiary, which when
aggregated with the principal amount of all other Indebtedness of Foreign
Subsidiaries then outstanding and incurred pursuant to this clause (m),
does not exceed $50 million (or the equivalent thereof in any other
currency) at any one time outstanding (Indebtedness of any Foreign
Subsidiary outstanding on the Issuance Date is deemed to have been incurred
and outstanding pursuant to this clause (m));
(n) any guarantee by the Company of Indebtedness or other obligations
of any of its Restricted Subsidiaries so long as the incurrence of such
Indebtedness incurred by such Restricted Subsidiary is permitted under the
terms of the Indenture;
(o) Preferred Stock issued as payment in kind dividends on Preferred
Stock and any shares of Preferred Stock issued as payment in kind dividends
thereon, such dividends made pursuant to the terms of the Certificate of
Designation for such Preferred Stock as in effect on the Issuance Date; and
(p) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness which serves to refund, refinance or
restructure any Indebtedness incurred as permitted under the first
paragraph of this covenant and clauses (b) and (c) above, or any
Indebtedness issued to so refund, refinance or restructure such
Indebtedness including additional Indebtedness incurred to pay premiums and
fees in connection therewith (the "Refinancing Indebtedness") prior to its
respective maturity; provided however that such Refinancing Indebtedness
(i) has a Weighted Average Life to Maturity at the time such Refinancing
Indebtedness is incurred which is not less than the remaining Weighted
Average Life to Maturity of Indebtedness being refunded or refinanced, (ii)
to the extent such Refinancing Indebtedness refinances Indebtedness
subordinated or pari passu to the Exchange Notes, such Refinancing
Indebtedness is subordinated or pari passu to the Exchange Notes at least
to the same extent as the Indebtedness being refinanced or refunded and
(iii) shall not include (x) Indebtedness of a Subsidiary that refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary; and provided further that subclauses (i) and (ii) of this
clause (p) will not apply to any refunding or refinancing of any Senior
Indebtedness.
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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
Pari Passu Indebtedness or Subordinated Indebtedness on any asset or property of
the Company or such Restricted Subsidiary, or any income or profits therefrom,
or assign or convey any right to receive income therefrom, 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.
The Indenture provides that no Guarantor will directly or indirectly
create, incur, assume or suffer to exist any Lien that secures obligations under
any pari passu Indebtedness or subordinated Indebtedness of such Guarantor on
any asset or property of such Guarantor or any income or profits therefrom, or
assign or convey any right to receive income therefrom, unless the Guarantee of
such Guarantor is equally and ratably secured with the obligations so secured or
until such time as such obligations are no longer secured by a Lien.
Merger, Consolidation, or Sale of All or Substantially All Assets. The
Indenture provides that the Company may not consolidate or merge with or into or
wind up 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, any 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
will have been made is a corporation organized or existing under the laws of the
United States, any state thereof, the District of Columbia, or any territory
thereof (the Company or such Person, as the case may be, being herein called the
"Successor Company"); (ii) the Successor Company (if other than the Company)
expressly assumes all the obligations of the Company under the Indenture and the
Exchange Notes pursuant to a supplemental indenture or other documents or
instruments in form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; (iv) immediately
after giving pro forma effect to such transaction, as if such transaction had
occurred at the beginning of the applicable four-quarter period, (A) the
Successor Company would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
covenant described under "--Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock" or (B) the Fixed Charge Coverage Ratio for the
Successor Company and its Restricted Subsidiaries would be greater than such
Ratio for the Company and its Restricted Subsidiaries immediately prior to such
transaction; (v) each Guarantor, if any, unless it is the other party to the
transactions described above, shall have by supplemental indenture confirmed
that its Guarantee shall apply to such Person's obligations under the Indenture
and the Exchange Notes; and (vi) the Company shall have delivered to the Trustee
an Officers' Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture. The Successor Company will succeed to, and be
substituted for, the Company under the Indenture and the Exchange Notes.
Notwithstanding the foregoing clause (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
State of the United States so long as the amount of Indebtedness of the Company
and its Restricted Subsidiaries is not increased thereby.
Each Guarantor, if any, shall not, and the Company will not permit a
Guarantor to, consolidate or merge with or into or wind up into (whether or not
such Guarantor 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, any Person unless (i) such
Guarantor is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) or to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made is a corporation organized or existing under the laws of the United
States, any state thereof, the District of Columbia, or any territory thereof
(such Guarantor or such Person, as the case may be, being herein called the
"Successor Guarantor"); (ii) the Successor Guarantor (if other than such
Guarantor)
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expressly assumes all the obligations of such Guarantor under the Indenture and
such Guarantor's Guarantee pursuant to a supplemental indenture or other
documents or instruments in form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) the Company shall have delivered to the Trustee an Officers' Certificate
and an opinion of counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the Indenture. The
Successor Guarantor will succeed to, and be substituted for, such Guarantor
under the Indenture and such Guarantor's Guarantee.
Transactions with Affiliates. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction") involving
aggregate consideration in excess of $5 million, unless:
(a) such Affiliate Transaction is on terms that are not materially
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
(b) the Company delivers to the Trustee with respect to any Affiliate
Transaction involving aggregate payments in excess of $10 million, a
resolution adopted by a majority of the Disinterested Directors of the
Board of Directors approving such Affiliate Transaction and set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies
with clause (a) above.
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 permitted by the provisions of the Indenture described above
under the covenant "--Limitation on Restricted Payments"; (iii) the payment of
customary annual management, consulting and advisory fees and related expenses
to KKR and its Affiliates; (iv) the payment of reasonable and customary regular
fees paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company or any Restricted Subsidiary; (v)
payments by the Company or any of its Restricted Subsidiaries to KKR and its
Affiliates made pursuant to any financial advisory, financing, underwriting or
placement agreement or in respect of other investment banking activities,
including, without limitation, in connection with acquisitions or divestitures
which are approved by a majority of the Disinterested Directors of the Company
in good faith; (vi) transactions in which the Company or any of its Restricted
Subsidiaries, as the case may be, delivers to the Trustee a letter from an
Independent Financial Advisor stating that such transaction is fair to the
Company or such Restricted Subsidiary from a financial point of view or meets
the requirements of clause (a) of the preceding paragraph; (vii) payments or
loans to employees or consultants which are approved by a majority of the
Disinterested Directors of the Company in good faith; (viii) any agreement as in
effect as of the Issuance Date or any amendment thereto (so long as any such
amendment is not disadvantageous to the holders of the Exchange Notes in any
material respect) or any transaction contemplated thereby; (ix) transactions
permitted by, and complying with, the provisions of the covenant described under
"--Merger, Consolidation, or Sale of All or Substantially All Assets"; (x) 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 Issuance Date 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 Issuance Date
shall only be permitted by this clause (x) 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; (xi) the payment of all fees and
expenses related to the Recapitalization and the Financings; and (xii)
transactions with customers, clients, suppliers, or purchasers or sellers of
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goods or services, in each case in the ordinary course of business 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 the Board of
Directors of the Company or the senior management thereof, or are on terms at
least as favorable as might reasonably have been obtained at such time from an
unaffiliated party.
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 to
become effective any consensual encumbrance or consensual restriction on the
ability of any such Restricted Subsidiary to:
(a) (i) pay dividends or make any other distributions to the Company
or any of its Restricted Subsidiaries on its Capital Stock or any other
interest or participation in, or measured by, its profits or (ii) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries;
(b) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(c) sell, lease, or transfer any of its properties or assets to the
Company, or any of its Restricted Subsidiaries;
except (in each case) for such encumbrances or restrictions existing under or by
reason of:
(1) contractual encumbrances or restrictions in effect on the Issuance
Date, including pursuant to the Senior Credit Facility and its related
documentation;
(2) the Indenture and the Exchange Notes and Old Notes;
(3) customary non-assignment or subletting provisions in leases
entered into in the ordinary course of business and consistent with past
practices;
(4) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature discussed in
clause (c) above on the property so acquired;
(5) applicable law or any applicable rule, regulation or order;
(6) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary of the Company in existence at the
time of such acquisition (but not created in contemplation thereof), 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;
(7) contracts for the sale of assets, including, without limitation
customary restrictions with respect to a Subsidiary pursuant to agreement
that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary;
(8) secured Indebtedness otherwise permitted to be incurred pursuant
to the covenants described under "Limitations on Incurrence of Indebtedness
and Issuance of Disqualified Stock" and "Liens" that limit the right of the
debtor to dispose of the assets securing such Indebtedness;
(9) customary provisions contained in leases and other agreements
entered into in the ordinary course of business;
(10) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
and
(11) any encumbrances or restrictions of the type referred to in
clauses (a), (b) and (c) above imposed by any amendments, modifications,
restatements, renewals, increases, supplements,
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refundings, replacements or refinancings of the contracts, instruments or
obligations referred to in clauses (c)(1) through (c)(10) above, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are, in the good
faith judgment of the Company's Board of Directors, no more restrictive
with respect to such dividend and other payment restrictions than those
contained in the dividend or other payment restrictions prior to such
amendment, modification, restatement, renewal, increase, supplement,
refunding, replacement or refinancing.
Limitation on Guarantees of Indebtedness by Restricted Subsidiaries. (a)
The Indenture provides that the Company will not permit any Restricted
Subsidiary to guarantee the payment of any Indebtedness of the Company or any
Indebtedness of any other Restricted Subsidiary unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Indenture providing for a Guarantee of payment of the Exchange Notes by such
Restricted Subsidiary except that (A) if the Exchange Notes are subordinated in
right of payment to such Indebtedness, the Guarantee under the supplemental
indenture shall be subordinated to such Restricted Subsidiary's guarantee with
respect to such Indebtedness substantially to the same extent as the Exchange
Notes are subordinated to such Indebtedness under the Indenture and (B) if such
Indebtedness is by its express terms subordinated in right of payment to the
Exchange Notes, any such guarantee of such Restricted Subsidiary with respect to
such Indebtedness shall be subordinated in right of payment to such Restricted
Subsidiary's Guarantee with respect to the Exchange Notes substantially to the
same extent as such Indebtedness is subordinated to the Exchange Notes; (ii)
such Restricted Subsidiary waives and will not in any manner whatsoever claim or
take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Guarantee; and (iii) such Restricted Subsidiary shall deliver to the Trustee an
Opinion of Counsel to the effect that (A) such Guarantee of the Exchange Notes
has been duly executed and authorized and (B) such Guarantee of the Exchange
Notes constitutes a valid, binding and enforceable obligation of such Restricted
Subsidiary, except insofar as enforcement thereof may be limited by bankruptcy,
insolvency or similar laws (including, without limitation, all laws relating to
fraudulent transfers) and except insofar as enforcement thereof is subject to
general principles of equity; provided that this paragraph (a) shall not be
applicable to any guarantee of any Restricted Subsidiary (x) that (A) existed at
the time such Person became a Restricted Subsidiary of the Company and (B) was
not incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary of the Company and (y) that guarantees the payment of
Obligations of the Company or any Restricted Subsidiary under the Senior Credit
Facility or any other bank facility which is designated as Senior Indebtedness
and any refunding, refinancing or replacement thereof, in whole or in part,
provided that such refunding, refinancing or replacement thereof constitutes
Senior Indebtedness and is not incurred pursuant to a registered offering of
securities under the Securities Act or a private placement of securities
(including under Rule 144A) pursuant to an exemption from the registration
requirements of the Securities Act, which private placement provides for
registration rights under the Securities Act (any guarantee excluded by
operations of this clause (y) being an "Excluded Guarantee").
(b) Notwithstanding the foregoing and the other provisions of the
Indenture, any Guarantee by a Restricted Subsidiary of the Notes shall provide
by its terms that it shall be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) the release or
discharge of the guarantee which resulted in the creation of such Guarantee,
except a discharge or release by or as a result of payment under such guarantee.
Limitation on Other Senior Subordinated Indebtedness. The Indenture
provides that the Company will not, and will not permit any Guarantor to,
directly or indirectly, incur any Indebtedness (including Acquired Indebtedness)
that is subordinate in right of payment to any Indebtedness of the
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Company or any Indebtedness of any Guarantor, as the case may be, unless such
Indebtedness is either (a) pari passu in right of payment with the Exchange
Notes or such Guarantor's Guarantee, as the case may be or (b) subordinate in
right of payment to the Exchange Notes, or such Guarantor's Guarantee, as the
case may be, in the same manner and at least to the same extent as the Notes are
subordinate to Senior Indebtedness or such Guarantor's Guarantee is subordinate
to such Guarantor's senior Indebtedness, as the case may be.
Reports and Other Information. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
or otherwise report on an annual and quarterly basis on forms provided for such
annual and quarterly reporting pursuant to rules and regulations promulgated by
the Securities and Exchange Commission (the "Commission"), the Indenture
requires the Company to file with the Commission (and provide the Trustee and
Holders with copies thereof, without cost to each Holder, within 15 days after
it files them with the Commission), (a) within 90 days after the end of each
fiscal year, annual reports on Form 10-K (or any successor or comparable form)
containing the information required to be contained therein (or required in such
successor or comparable form); (b) within 45 days after the end of each of the
first three fiscal quarters of each fiscal year, reports on Form 10-Q (or any
successor or comparable form); (c) promptly from time to time after the
occurrence of an event required to be therein reported, such other reports on
Form 8-K (or any successor or comparable form); and (d) any other information,
documents and other reports which the Company would be required to file with the
Commission if it were subject to Section 13 or 15(d) of the Exchange Act;
provided, however, the Company shall not be so obligated to file such reports
with the Commission if the Commission does not permit such filing, in which
event the Company will make available such information to prospective purchasers
of Exchange Notes, in addition to providing such information to the Trustee and
the Holders, in each case within 15 days after the time the Company would be
required to file such information with the Commission, if it were subject to
Sections 13 or 15(d) of the Exchange Act.
EVENTS OF DEFAULT AND REMEDIES
The following events constitute Events of Default under the Indenture:
(i) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal of, or premium on, if any, the
Exchange Notes whether or not such payment shall be prohibited by the
subordination provisions relating to the Exchange Notes;
(ii) default for 30 days or more in the payment when due of interest
on or with respect to the Exchange Notes whether or not such payment shall
be prohibited by the subordination provisions relating to the Exchange
Notes;
(iii) failure by the Company or any Guarantor for 30 days after
receipt of written notice given by the Trustee or the holders of at least
30% in principal amount of the Exchange Notes then outstanding to comply
with any of its other agreements in the Indenture or the Exchange Notes;
(iv) default under any mortgage, indenture or instrument under which
there is issued or by which there is 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 (other than Indebtedness owed to the Company or a Restricted
Subsidiary), whether such Indebtedness or guarantee now exists or is
created after the Issuance Date, if both (A) such default either (1)
results from the failure to pay any such Indebtedness at its stated final
maturity (after giving effect to any applicable grace periods) or (2)
relates to an obligation other than the obligation to pay principal of any
such Indebtedness at its stated final maturity and results in the holder or
holders of such Indebtedness causing such Indebtedness to become due prior
to its stated maturity and (B) the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at stated final maturity (after giving
effect to any applicable grace periods), or the maturity of which has been
so accelerated, aggregate $20 million or more at any one time outstanding;
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(v) failure by the Company or any of its Significant Subsidiaries to
pay final judgments aggregating in excess of $20 million, which final
judgments remain unpaid, undischarged and unstayed for a period of more
than 60 days after such judgment becomes final, and in the event such
judgment is covered by insurance, an enforcement proceeding has been
commenced by any creditor upon such judgment or decree which is not
promptly stayed;
(vi) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries; or
(vii) any Guarantee shall for any reason cease to be in full force and
effect or be declared null and void or any responsible officer of the
Company or any Guarantor denies that it has any further liability under any
Guarantee or gives notice to such effect (other than by reason of the
termination of the Indenture or the release of any such Guarantee in
accordance with the Indenture).
If any Event of Default (other than of a type specified in clause (vi)
above) occurs and is continuing under the Indenture, the Trustee or the Holders
of at least 30% in principal amount of the then outstanding Exchange Notes may
declare the principal, premium, if any, interest and any other monetary
obligations on all the then outstanding Exchange Notes to be due and payable
immediately; provided, however, that, so long as any Indebtedness permitted to
be incurred pursuant to the Senior Credit Facility shall be outstanding, no such
acceleration shall be effective until the earlier of (i) acceleration of any
such Indebtedness under the Senior Credit Facility or (ii) five business days
after the giving of written notice to the Company and the administrative agent
under the Senior Credit Facility of such acceleration. Upon the effectiveness of
such declaration, such principal and interest will be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising under clause (vi) of the first paragraph of this section, all
outstanding Exchange Notes will become due and payable without further action or
notice. Holders of 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 Indenture
provides that the Trustee may withhold from Holders of 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 addition, the
Trustee shall have no obligation to accelerate the Exchange Notes if in the best
judgment of the Trustee acceleration is not in the best interest of the Holders
of such Exchange Notes.
The Indenture provides that the Holders of a majority in aggregate
principal amount of the then outstanding Exchange Notes issued thereunder by
notice to the Trustee may on behalf of the Holders of all of such 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, premium, if any, or the principal of, any such Exchange Note held
by a non-consenting Holder. In the event of any Event of Default specified in
clause (iv) above, such Event of Default and all consequences thereof (including
without limitation any acceleration or resulting payment default) shall be
annulled, waived and rescinded, automatically and without any action by the
Trustee or the Holders of the Exchange Notes, if within 20 days after such Event
of Default arose (x) the Indebtedness or guarantee that is the basis for such
Event of Default has been discharged, or (y) the holders thereof have rescinded
or waived the acceleration, notice or action (as the case may be) giving rise to
such Event of Default, or (z) if the default that is the basis for such Event of
Default has been cured.
The Indenture provides that the Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required, within five Business Days, upon becoming aware of any
Default or Event of Default or any default under any document, instrument or
agreement representing Indebtedness of the Company or any Guarantor, to deliver
to the Trustee a statement specifying such Default or Event of Default.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor shall have any liability for any obligations of the Company or
the Guarantors under the Exchange Notes, the 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 the Exchange Notes by accepting a Exchange Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Exchange Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The obligations of the Company and the Guarantors, if any, under the
Indenture will terminate (other than certain obligations) and will be released
upon payment in full of all of the Exchange Notes. The Company may, at its
option and at any time, elect to have all of its obligations discharged with
respect to the outstanding Exchange Notes and have each Guarantor's obligation
discharged with respect to its Guarantee ("Legal Defeasance") and cure all then
existing Events of Default except for (i) the rights of Holders of outstanding
Exchange Notes to receive payments in respect of the principal of, premium, if
any, and interest on such Exchange Notes when such payments are due solely out
of the trust created pursuant to the Indenture, (ii) the Company's obligations
with respect to Exchange Notes concerning issuing temporary Exchange Notes,
registration of such 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 each Guarantor released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Exchange Notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment on other
indebtedness, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to the Exchange Notes,
(i) the Company 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, premium,
if any, and interest due on the outstanding Exchange Notes on the stated
maturity date or on the applicable redemption date, as the case may be, of
such principal, premium, if any, or interest on the outstanding Exchange
Notes;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions
and exclusions, (A) the Company has received from, or there has been
published by, the United States Internal Revenue Service a ruling or (B)
since the Issuance Date, there has been a change in the applicable U.S.
federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel in the United States shall confirm that,
subject to customary assumptions and exclusions, the Holders of the
outstanding Exchange Notes will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such Legal Defeasance and will
be subject to U.S. federal income tax on the same amounts, in the same
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manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Exchange Notes
will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
such 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 with respect to certain Events of Default on the date of such
deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or
any Guarantor is a party or by which the Company or any Guarantor is bound;
(vi) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions 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 under
any applicable U.S. federal or state law, and that the Trustee has a
perfected security interest in such trust funds for the ratable benefit of
the Holders;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of defeating, hindering, delaying or defrauding any creditors of the
Company or any Guarantor or others; and
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States (which opinion
of counsel may be subject to customary assumptions and exclusions) each
stating that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all Exchange Notes issued thereunder, when either (a) all such Exchange Notes
theretofore authenticated and delivered (except lost, stolen or destroyed
Exchange Notes which have been replaced or paid and Exchange Notes for whose
payment money has theretofore been deposited in trust and thereafter repaid to
the Company) have been delivered to the Trustee for cancellation; or (b) (i) all
such Exchange Notes not theretofore delivered to such Trustee for cancellation
have become due and payable by reason of the making of a notice of redemption or
otherwise or will become due and payable within one year and the Company or any
Guarantor has irrevocably deposited or caused to be deposited with such Trustee
as trust funds in trust an amount of money sufficient to pay and discharge the
entire indebtedness on such Exchange Notes not theretofore delivered to the
Trustee for cancellation for principal, premium, if any, and accrued interest to
the date of maturity or redemption; (ii) no Default or Event of Default with
respect to the Indenture or the Exchange Notes shall have occurred and be
continuing on the date of such deposit or shall occur as a result of such
deposit and such deposit will not result in a breach or violation of, or
constitute a default under, any other instrument to which the Company or any
Guarantor is a party or by which the Company or any Guarantor is bound; (iii)
the Company or any Guarantor has paid or caused to be paid all sums payable by
it under such Indenture; and (iv) the Company has delivered irrevocable
instructions to the Trustee under such Indenture to apply the deposited money
toward the payment of such Exchange Notes at maturity or the redemption date, as
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the case may be. In addition, the Company must deliver an Officers' Certificate
and an Opinion of Counsel to the Trustee stating that all conditions precedent
to satisfaction and discharge have been satisfied.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
any Guarantee and the Exchange Notes issued thereunder 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 consents obtained in
connection with a tender offer or exchange offer for the 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 outstanding Exchange Notes (including consents obtained
in connection with a tender offer or exchange offer for the Exchange Notes).
The Indenture provides that without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Exchange Notes held by a
nonconsenting Holder of the Notes): (i) reduce the principal amount of the
Exchange Notes whose Holders must consent to an amendment, supplement or waiver,
(ii) reduce the principal of or change the fixed maturity of any such Exchange
Note or alter or waive the provisions with respect to the redemption of the
Exchange Notes (other than provisions relating to the covenants described under
"--Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Exchange Note, (iv) waive a Default or Event
of Default in the payment of principal of, premium, if any, or interest 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 of such Exchange
Notes and a waiver of the payment default that resulted from such acceleration),
or in respect of a covenant or provision contained in the Indenture or any
Guarantee which cannot be amended or modified without the consent of all
Holders, (v) make any Exchange Note payable in money other than that stated in
such Exchange Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of such Exchange
Notes to receive payments of principal of, premium, if any, or interest on such
Exchange Notes, (vii) make any change in the foregoing amendment and waiver
provisions, (viii) impair the right of any Holder of the Exchange Notes to
receive payment of principal of, or interest on such Holder's Exchange Notes on
or after the due dates therefore or to institute suit for the enforcement of any
payment on or with respect to such Holder's Exchange Notes, or (ix) make any
change in the subordination provisions of the Indenture that would adversely
affect the holders of the Exchange Notes.
The Indenture provides that, notwithstanding the foregoing, without the
consent of any Holder of Exchange Notes, the Company, any Guarantor (with
respect to a Guarantee to which it is party) and the Trustee together may amend
or supplement the Indenture, any Guarantee or the Exchange Notes (i) to cure any
ambiguity, defect or inconsistency, (ii) to provide for uncertificated Exchange
Notes in addition to or in place of certificated Exchange Notes, (iii) to comply
with the covenant relating to mergers, consolidations and sales of assets, (iv)
to provide for the assumption of the Company's or any Guarantor's obligations to
Holders of such Exchange Notes, (v) to make any change that would provide any
additional rights or benefits to the Holders of the Exchange Notes or that does
not adversely affect the legal rights under the Indenture of any such Holder,
(vi) to add covenants for the benefit of the Holders or to surrender any right
or power conferred upon the Company, (vii) to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act or (viii) to add a Guarantor under the Indenture.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
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CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Indenture provides that the Holders of a majority in principal amount
of the outstanding Exchange Notes issued thereunder 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 person in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any Holder of
such Exchange Notes, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
GOVERNING LAW
The Indenture, the Exchange Notes and the Guarantees, if any, are, subject
to certain exceptions, governed by and construed in accordance with the internal
laws of the State of New York, without regard to the choice of law rules
thereof.
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. For
purposes of the Indenture, unless otherwise specifically indicated, the term
"consolidated" with respect to any Person refers to such Person consolidated
with its Restricted Subsidiaries, and excludes from such consolidation any
Unrestricted Subsidiary as if such Unrestricted Subsidiary were not an Affiliate
of such Person.
"Abarco" means Abarco N.V., a Netherlands Antilles corporation.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Restricted Subsidiary of such specified Person,
including 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 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, however,
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
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(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 Investment Grade
Securities or obsolete equipment in the ordinary course of business;
(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 "--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 Restricted Payment that is permitted to be made, and is
made, under the first paragraph of the covenant described above under
"Limitation on Restricted Payments";
(d) any disposition, or related series of dispositions, of assets
with an aggregate fair market value of less than $1 million; and
(e) any disposition of property or assets by a Restricted
Subsidiary to the Company or by the Company or a Restricted Subsidiary
to a Wholly-Owned Restricted Subsidiary.
"Capital Stock" means with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock of such Person, including, without limitation, if such Person is
a partnership, partnership interests (whether general or limited) and 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, such partnership.
"Capitalized 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 and reflected as a liability on
a balance sheet in accordance with GAAP.
"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, time
deposits 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 commercial bank having
capital and surplus in excess of $500 million, (iv) repurchase obligations for
underlying securities of the types described in clauses (ii) and (iii) entered
into with any financial institution meeting the qualifications specified in
clause (iii) above, (v) commercial paper rated A-1 or the equivalent thereof by
Moody's or S&P and in each case maturing within one year after the date of
acquisition, (vi) investment funds investing 95% of their assets in securities
of the types described in clauses (i)-(v) above, (vii) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's or S&P and (viii) Indebtedness or preferred stock issued by
Persons with a rating of "A" or higher from S&P or "A2" or higher from Moody's.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries, taken as a whole;
(ii) the Company becomes aware of (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) 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
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Permitted Holders and 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 total voting power of the Voting Stock of the Company
or such Person or group beneficially owns more of the total voting power of
the Voting Stock of the Company than the Permitted Holders and their
Related Parties;
(iii) the first day within any two-year period on which a majority of
the members of the Board of Directors of the Company are not Continuing
Directors; or
(iv) the Company consolidates with, or merges with or into, another
Person or sells, assigns, conveys, transfers, leases or otherwise disposes
of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other
property, other than (A) any such transaction where (1) the outstanding
Voting Stock of the Company is converted into or exchanged for (I) Voting
Stock (other than Disqualified Stock) of the surviving or transferee
corporation and/or (II) cash, securities and other property in an amount
which could be paid by the Company as a Restricted Payment under the
Indenture and (2) the "beneficial owners" of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving or transferee
corporation immediately after such transaction or (B) any such transaction
as a result of which the Permitted Holders or their Affiliates own a
majority of the total Voting Stock and Capital Stock of the surviving or
transferee corporation immediately after the transaction.
"Consolidated Depreciation and Amortization Expense" means with respect to
any Person for any period, the total amount of depreciation and amortization
expense and other noncash charges (excluding any noncash item that represents an
accrual, reserve or amortization of a cash expenditure for a future period) of
such Person and its Restricted Subsidiaries for such period on a consolidated
basis and otherwise determined in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period, the sum
of: (a) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, to the extent such expense was deducted in
computing Consolidated Net Income (including amortization of original issue
discount, non-cash interest payments, the interest component of Capitalized
Lease Obligations, and net payments (if any) pursuant to Hedging Obligations,
excluding amortization of deferred financing fees) and (b) consolidated
capitalized interest of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued, to the extent such expense was deducted in
computing Consolidated Net Income.
"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, and otherwise determined in accordance
with GAAP; provided, however, that (i) any net after-tax extraordinary gains or
losses (less all fees and expenses relating thereto) shall be excluded, (ii) any
net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions other than in the ordinary course of business
shall be excluded, (iii) the Net Income for such period of any Person that is
not a Subsidiary, or is an Unrestricted 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 or other payments paid in cash (or to the
extent converted into cash) to the referent Person or a Wholly Owned Restricted
Subsidiary thereof in respect of such period, (iv) the Net Income of any Person
acquired in a pooling of interests transaction shall not be included for any
period prior to the date of such acquisition and (v) the Net Income for such
period of any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that
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Restricted Subsidiary of its Net Income is not at the date of determination
permitted without any prior governmental approval (which has not been obtained)
or, directly or indirectly, by the 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, unless
such restriction with respect to the payment of dividends or in similar
distributions has been legally waived.
"Contingent Obligations" means, with respect to any Person, any obligation
of such Person guaranteeing any leases, dividends or other obligations that do
not constitute Indebtedness ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation against loss in respect thereof.
"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
Issuance Date 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 a Permitted Holder or its Affiliates or was nominated by a
Permitted Holder or its Affiliates or any designees of a Permitted Holder or its
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.
"Designated Noncash Consideration" means the fair market value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of the Company, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
"Designated Preferred Stock" means preferred stock of the Company (other
than Disqualified Stock) that is issued for cash (other than to a Restricted
Subsidiary) and is so designated as Designated Preferred Stock, pursuant to an
Officers' Certificate executed by the principal executive officer and the
principal financial officer of the Company, on the issuance date thereof, the
cash proceeds of which are excluded from the calculation set forth in paragraph
(c) of the "Restricted Payments" covenant.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions (except arising exclusively as a consequence of such member's
relationship to the Company).
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which, by its terms (or by the terms of any security into which
it is convertible or for which it is puttable or 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, in each case prior to the date 91 days after the
maturity date of the Exchange Notes; provided, however, that if such Capital
Stock is either (i) redeemable or repurchaseable solely at the option of such
Person or (ii) issued to employees of the Company or its Subsidiaries or to any
plan for the benefit of such employees, such Capital Stock shall not constitute
Disqualified Stock unless so designated.
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"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period plus (a) provision for taxes based on
income or profits of such Person for such period deducted in computing
Consolidated Net Income, plus (b) Consolidated Interest Expense of such Person
for such period, plus (c) Consolidated Depreciation and Amortization Expense of
such Person for such period to the extent such depreciation and amortization
were deducted in computing Consolidated Net Income, plus (d) any expenses or
charges related to any Equity Offering or Indebtedness permitted to be incurred
by the Indenture (including such expenses or charges related to the
Recapitalization and Financings) and deducted in such period in computing
Consolidated Net Income, plus (e) any expenses incurred prior to, or in
connection with, the Recapitalization and deducted in such period in computing
Consolidated Net Income related to the S&E Management Stock Ownership Plan, plus
(f) any expenses paid by the Company to, or for the benefit of, Abarco and its
affiliates prior to the Recapitalization for services provided by Abarco and its
affiliates to the Company and its Restricted Subsidiaries and deducted in such
period in computing Consolidated Net Income, plus (g) the amount of any
restructuring charge or reserve deducted in such period in computing
Consolidated Net Income, plus (h) without duplication, any other non-cash
charges reducing Consolidated Net Income for such period (excluding any such
charge which requires an accrual of a cash reserve for anticipated cash charges
for any future period), less, without duplication, (i) non-cash items increasing
Consolidated Net Income of such Person for such period (excluding any items
which represent the reversal of any accrual of, or cash reserve for, anticipated
cash charges in any prior period).
"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).
"Equity Offering" means any public or private sale of common stock or
preferred stock of the Company (excluding Disqualified Stock), other than public
offerings with respect to the Company's Common Stock registered on Form S-8.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Excluded Contributions" means net cash proceeds received by the Company
after the closing of the Recapitalization from (a) capital contributions and (b)
the private sale (other than to a Restricted Subsidiary or to any Company or
Subsidiary management equity plan or stock option plan or any other management
or employee benefit plan or agreement) of Capital Stock (other than Disqualified
Stock) of the Company, in each case designated as Excluded Contributions
pursuant to an Officers' Certificate executed by the principal executive officer
and the principal financial officer of the Company on the date such capital
contributions are made or the date such Equity Interests are sold, as the case
may be, the cash proceeds of which are excluded from the calculation set forth
in paragraph (c) of the "Restricted Payments" covenant.
"Existing Indebtedness" means Indebtedness of the Company or its Restricted
Subsidiaries in existence on the Issuance Date, plus interest accruing thereon,
after application of the net proceeds of the sale of the Exchange Notes as
described in this Prospectus.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of EBITDA of such Person for such period to the Fixed Charges
of such Person for such period. In the event that the Company or any of its
Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness
(other than repayments of revolving credit borrowings with respect to which the
related commitment remains outstanding) or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the 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
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preferred stock, as if the same had occurred at the beginning of the applicable
four-quarter period. For purposes of making the computation referred to above,
Investments, acquisitions, dispositions which constitute all or substantially
all of an operating unit of a business and discontinued operations (as
determined in accordance with GAAP) that have been made by the Company or any of
its Restricted Subsidiaries, including all mergers, consolidations and
dispositions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be calculated on
a pro forma basis assuming that all such Investments, acquisitions,
dispositions, discontinued operations, mergers, consolidations (and the
reduction of any associated fixed charge obligations and the change in EBITDA
resulting therefrom) had occurred on the first day of the four-quarter reference
period and without regard to clause (ii) of the definition of Consolidated Net
Income. If since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made any
Investment, acquisition, disposition which constitutes all or substantially all
of an operating unit of a business, discontinued operation, merger or
consolidation that would have required adjustment pursuant to this definition,
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
thereto for such period as if such Investment, acquisition, disposition,
discontinued operation, merger or consolidation had occurred at the beginning of
the applicable four-quarter period and without regard to clause (ii) of the
definition of Consolidated Net Income. For purposes of this definition, whenever
pro forma effect is to be given to a transaction, the pro forma calculations
shall be made in good faith by a responsible financial or accounting officer of
the Company. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest of such Indebtedness shall be calculated as
if the rate in effect on the Calculation Date had been the applicable rate for
the entire period (taking into account any Hedging Obligations applicable to
such Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed
to accrue at an interest rate reasonably determined by a responsible financial
or accounting officer of the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP. For purposes of making the
computation referred to above, interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness during the applicable period.
Interest on Indebtedness that may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rate, shall be deemed to have been based upon the rate actually
chosen, or, if none, then based upon such optional rate chosen as the Company
may designate.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (a) Consolidated Interest Expense of such Person for such period and (b) all
cash dividend payments (excluding items eliminated in consolidation) on any
series of preferred stock of such Person.
"Foreign Subsidiary" means a Restricted Subsidiary not organized or
existing under the laws of the United States, any State thereof, the District of
Columbia or any territory thereof.
"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 Issuance Date. For the purposes of the
Indenture, the term "consolidated" with respect to any Person shall mean such
Person consolidated with its Restricted Subsidiaries, and shall not include any
Unrestricted Subsidiary.
"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
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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 Securities or
a specific payment of principal of or interest on any such Government Securities
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
Securities or the specific payment of principal of or interest on the Government
Securities 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 or other obligations.
"Guarantee" means any guarantee of the obligations of the Company under the
Indenture and the Exchange Notes by any Person in accordance with the provisions
of the Indenture. When used as a verb, "Guarantee" shall have a corresponding
meaning. No Guarantees were issued in connection with the initial offering and
sale of the Old Notes.
"Guarantor" means any Person that incurs a Guarantee; provided that upon
the release and discharge of such Person from its Guarantee in accordance with
the Indenture, such Person shall cease to be a Guarantor. No Guarantees were
issued in connection with the initial offering and sale of the Old Notes.
"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 the Exchange Notes.
"Indebtedness" means, with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or bankers' acceptances (or reimbursement agreements in respect thereof),
(iii) representing the balance deferred and unpaid of the purchase price of any
property (including Capitalized Lease Obligations), except any such balance that
constitutes an accrued expense or trade payable or any other monetary obligation
of a trade creditor (whether or not an Affiliate), or (iv) representing any
Hedging Obligations, if and to the extent of any of the foregoing Indebtedness
(other than letters of credit and Hedging Obligations) that would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
(b) to the extent not otherwise included, any obligation by such Person to be
liable for, or to pay, as obligor, guarantor or otherwise, on the Indebtedness
of another Person (other than by endorsement of negotiable instruments for
collection in the ordinary course of business) and (c) to the extent not
otherwise included, Indebtedness of another Person secured by a Lien on any
asset owned by such Person (whether or not such Indebtedness is assumed by such
Person); provided, however, that Contingent Obligations incurred in the ordinary
course of business shall be deemed not to constitute Indebtedness.
"Independent Financial Advisor" means an accounting, appraisal, investment
banking firm or consultant to Persons engaged in Similar Businesses of
nationally recognized standing that is, in the judgment of the Company's Board
of Directors, qualified to perform the task for which it has been engaged.
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"Investment Grade Securities" means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding advances to customers,
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities issued by any other Person
and investments that are required by GAAP to be classified on the balance sheet
of the Company in the same manner as the other investments included in this
definition to the extent such transactions involve the transfer of cash or other
property. For purposes of the definition of "Unrestricted Subsidiary" and the
covenant described under "--Certain Covenants--Restricted Payments," (i)
"Investments" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of a
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Issuance Date" means the closing date for the sale and original issuance
of the Old Notes under the Indenture.
"Letter of Credit/Bankers' Acceptance Obligations" means Indebtedness of
the Company or any of its Restricted Subsidiaries with respect to letters of
credit or bankers' acceptances constituting Senior Indebtedness or Pari Passu
Indebtedness which shall be deemed to consist of (i) the aggregate maximum
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), (ii) the aggregate face amount of all unmatured bankers'
acceptances and (iii) the aggregate amount that has then been paid by, and not
reimbursed to, the issuers under such letters of credit or creation of such
bankers' acceptances.
"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);
provided that in no event shall an operating lease be deemed to constitute a
Lien.
"Moody's" means Moody's Investors Service, Inc.
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"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.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of 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 principal, premium (if any) and interest on Indebtedness
required (other than required by clause (i) of the second paragraph of "--
Repurchase at the Option of Holders--Asset Sales") to be paid as a result of
such transaction and any deduction of appropriate amounts to be provided by the
Company as a reserve in accordance with GAAP against any liabilities associated
with the asset disposed of in such transaction and retained by the Company after
such sale or other disposition thereof, including, without limitation, pension
and other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
such transaction.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and banker's acceptances), 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.
"Pari Passu Indebtedness" means (a) with respect to the Exchange Notes,
Indebtedness which ranks pari passu in right of payment to the Exchange Notes
and (b) with respect to any Guarantee, Indebtedness which ranks pari passu in
right of payment to such Guarantee.
"Permitted Holders" means Strata, KKR and any of their Affiliates.
"Permitted Investments" means (a) any Investment in the Company or any
Restricted Subsidiary; (b) any Investment in cash and Cash Equivalents or
Investment Grade Securities; (c) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person that is a Similar Business if as a result
of such Investment (i) such Person becomes a Restricted Subsidiary or (ii) 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; (d) any Investment in securities or other assets not constituting
cash or Cash Equivalents and received in connection with an Asset Sale made
pursuant to the provisions of "-- Repurchase at the Option of Holders--Asset
Sales" or any other disposition of assets not constituting an Asset Sale; (e)
any Investment existing on the Issuance Date; (f) advances to employees not in
excess of $5 million outstanding at any one time; (g) any Investment acquired by
the Company or any of its Restricted Subsidiaries (i) 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 (ii) 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; (h) Hedging
Obligations; (i) 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; (j) any Investment in a
Similar Business (other than an Investment in an
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Unrestricted Subsidiary) having an aggregate fair market value, taken together
with all other Investments made pursuant to this clause (j) that are at that
time outstanding, not to exceed 10% of Total Assets 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); (k)
Investments the payment for which consists of Equity Interests of the Company
(exclusive of Disqualified Stock); provided, however, that such Equity Interests
will not increase the amount available for Restricted Payments under clause (c)
of the "Restricted Payments" covenant; 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 5%
of Total Assets 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).
"Person" means any individual, corporation, partnership, 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.
"Preferred Stock" means $150,000,000 aggregate liquidation preference of
the 12 1/2% Preferred Stock issued by the Company on the Issuance Date and any
shares of Preferred Stock issued as payment in kind dividends thereon or on
shares of Preferred Stock so issued as payment in kind dividends.
"Recapitalization" means the acquisition of 88.4% of the common stock, par
value $.01 per share, of the Company by Strata pursuant to the Recapitalization
and Stock Purchase Agreement dated as of August 15, 1996 among the Company,
Strata and Abarco.
"Related Parties" means any Person controlled by a Permitted Holder,
including any partnership of which a Permitted Holder or its Affiliates is the
general partner.
"Repurchase Offer" means an offer made by the Company to purchase all or
any portion of a Holder's 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" means, at any time, any direct or indirect
Subsidiary of the Company that is not then 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."
"S&P" means Standard and Poor's Ratings Group.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Senior Credit Facility" means, that certain credit facility described in
this Prospectus among the Company and the lenders from time to time party
thereto, including any collateral documents, instruments and agreements executed
in connection therewith, and the term Senior Credit Facility shall also include
any amendments, supplements, modifications, extensions, renewals, restatements
or refundings thereof and any credit facilities that replace, refund or
refinance any part of the loans, other credit facilities or commitments
thereunder, including any such replacement, refunding or refinancing facility
that increases the amount borrowable thereunder or alters the maturity thereof,
provided, however,
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that, there shall not be more than one facility at any one time that constitutes
the Senior Credit Facility and, if at any time there is more than one facility
which would constitute the Senior Credit Facility, the Company will designate to
the Trustee which one of such facilities will be the Senior Credit Facility for
purposes of the Indenture.
"Significant Subsidiary" means any Subsidiary which would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the Issuance
Date.
"Similar Business" means a business, the majority of whose revenues are
derived from sales of consumer products or any business or activity that is
reasonably similar thereto or a reasonable extension, development or expansion
thereof or ancillary thereto.
"Strata" means Strata Associates L.P., a Delaware limited partnership.
"Subordinated Indebtedness" means any Indebtedness of the Company which is
by its terms subordinated in right of payment to the Exchange Notes.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) 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 of determination 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,
joint venture, limited liability company or similar entity of which (x) more
than 50% of the capital accounts, distribution rights, total equity and voting
interests or general or limited partnership interests, as applicable, are owned
or controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person or a combination thereof whether in the form
of membership, general, special or limited partnership or otherwise and (y) such
person or any Wholly Owned Restricted Subsidiary of such person is a controlling
general partner or otherwise controls such entity.
"Total Assets" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at
the time of determination is an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company (including any existing Subsidiary and any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary or any of its Subsidiaries owns any Equity Interests of, or
owns, or holds any Lien on, any property of, the Company or any Subsidiary of
the Company (other than any Subsidiary of the Subsidiary to be so designated),
provided that (a) any Unrestricted Subsidiary must be an entity of which shares
of the capital stock or other equity interests (including partnership interests)
entitled to cast at least a majority of the votes that may be cast by all shares
or equity interests having ordinary voting power for the election of directors
or other governing body are owned, directly or indirectly, by the Company, (b)
the Company certifies that such designation complies with the covenants
described under "--Certain Covenants--Restricted Payments" and (c) each of (I)
the Subsidiary to be so designated and (II) its Subsidiaries has not at the time
of designation, and does not thereafter, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to any
Indebtedness pursuant to which the lender has recourse to any of the assets of
the Company or any of its Restricted Subsidiaries. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that, immediately after giving effect to such designation, the Company could
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test described under "--
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Certain Covenants--Limitations on Incurrence of Indebtedness and Disqualified
Stock" on a pro forma basis taking into account such designation. Any such
designation by the Board of Directors shall be notified by the Company to the
Trustee by promptly filing with the Trustee a copy of the board resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing provisions.
"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
or Disqualified Stock, as the case may be, at any date, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the date of each successive scheduled principal payment of such
Indebtedness or redemption or similar payment with respect to such Disqualified
Stock multiplied by the amount of such payment, by (ii) the sum of all such
payments.
"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
100% 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 and one or
more Wholly Owned Subsidiaries of such Person.
BOOK-ENTRY DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form. Except as described in the next paragraph, the Exchange Notes
initially will be represented by a single, permanent global Exchange Note, in
definitive, fully registered form without interest coupons (the "Global Exchange
Note") and will be deposited with the Trustee as custodian for the Depository
Trust Company, New York, New York ("DTC") and registered in the name of a
nominee of DTC.
Holders of Exchange Notes who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange Note
(collectively referred to herein as the "Non-Global Holders") will be issued in
registered form (a "Certificated Exchange Note"). Upon the transfer of any
Certificated Exchange Note initially issued to a Non-Global Holder, such
Certificated Exchange Note will, unless the transferee requests otherwise or a
Global Exchange Note has previously been exchanged in whole for Certificated
Exchange Notes, be exchanged for an interest in such Global Exchange Note.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provision of Section 17A of the Exchange Act. DTC was created to hold securities
for its participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
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Upon the issuance of the Global Exchange Note, DTC or its custodian will
credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Exchange Note to the
accounts of persons who have accounts with such depositary. Such accounts
initially will be designated by or on behalf of the Initial Purchasers.
Ownership of beneficial interests in the Global Exchange Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in the Global
Exchange Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC or its nominee is the registered owner or holder of the
Global Exchange Note, DTC or such nominee, as the case may be, will be
considered the sole record owner or holder of the Exchange Notes represented by
such Global Exchange Note for all purposes under the Indenture and the Exchange
Notes. No beneficial owners of an interest in the Global Exchange Note will be
able to transfer that interest except in accordance with DTC's applicable
procedures.
Payments of the principal of, premium, if any, and interest on the Global
Exchange Note will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. Neither the Company, the Trustee, nor any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Exchange Note or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Exchange Note
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial ownership interests in the principal amount of such
Global Exchange Note, as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests in
such Global Exchange Note held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. If a Holder requires physical delivery of
Certificates Exchange Notes for any reason, including to sell Exchange Notes to
persons in states which require such delivery of such Exchange Notes or to
pledge such Exchange Notes, such holder must transfer its interest in the Global
Exchange Note, in accordance with the normal procedures of DTC and the
procedures set forth in the Indenture.
Neither the Company nor the Trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
Subject to certain conditions, any person having a beneficial interest in
the Global Exchange Note may, upon request to the Trustee, exchange such
beneficial interest for Exchange Notes in the form of Certificated Exchange
Notes. Upon any such issuance, the Trustee is required to register such
Certificates Exchange Notes in the name of, and cause the same to be delivered
to, such person or persons (or the nominee of any thereof). In addition, if DTC
is at any time unwilling or unable to continue as a depositary for the Global
Exchange Note and a successor depositary is not appointed by the Company within
90 days, the Company will issue Certificates Exchange Notes in exchange for the
Global Exchange Note.
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EXCHANGE OFFER; REGISTRATION RIGHTS
Exchange Offer. The Company and the Initial Purchasers entered into the
Registration Rights Agreement on the Issuance Date, pursuant to which the
Company agreed, for the benefit of the holders of the Old Notes, that it will,
at its own expense, (i) file a registration statement (the "Exchange Offer
Registration Statement") with the Commission with respect to the Exchange Offer
to exchange the Old Notes for Exchange Notes having substantially identical
terms in all material respects to the Old Notes (except that the Exchange Notes
will not contain terms with respect to transfer restrictions or interest rate
increases as described herein) within 45 calendar days after the Issuance Date,
(ii) use its best efforts to cause the Exchange Offer Registration Statement to
be declared effective by the Commission under the Securities Act within 105
calendar days after the Issuance Date and (iii) use its best efforts to
consummate the Exchange Offer within 135 calendar days after the Issuance Date.
Upon the Exchange Offer Registration Statement being declared effective, the
Company will offer the Exchange Notes in exchange for surrender of the Old
Notes. The Company will keep the Exchange Offer open for at least 30 business
days (or longer if required by applicable law) after the date that notice of the
Exchange Offer is mailed to the holders of the Old Notes. For each Old Note
surrendered to the Company pursuant to the Exchange Offer, the holder who
surrendered such Old Note will receive an Exchange Note having a principal
amount equal to that of the surrendered Old Note. Interest on each Exchange Note
will accrue from the last interest payment date on which interest was paid on
the Old Note surrendered in exchange therefor or, if no interest has been paid
on such Old Note, from the original issue date of such Old Note. Under existing
interpretations of the Commission contained in several no-action letters to
third parties, the Exchange Notes would generally be freely transferable by
holders thereof after the Exchange Offer without further registration under the
Securities Act (subject to certain representations required to be made by each
holder of Old Notes, as set forth below). However, any purchaser of Old Notes
who is an "affiliate" of the Company or who intends to participate in the
Exchange Offer for the purpose of distributing the Exchange Notes (i) will not
be able to rely on the interpretation of the staff of the Commission, (ii) will
not be able to tender its Old Notes in the Exchange Offer and (iii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or transfer of the Exchange Notes unless such sale
or transfer is made pursuant to an exemption from such requirements. In
addition, in connection with any resales of Exchange Notes, any broker-dealer (a
"Participating Broker-Dealer") which acquired the Old Notes for its own account
as a result of market making or other trading activities must deliver a
prospectus meeting the requirements of the Securities Act. The Commission has
taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the Exchange Notes (other than
a resale of an unsold allotment from the original sale of the Old Notes) with
the prospectus contained in the Exchange Offer Registration Statement. The
Company will agree to make available for a period of up to 120 days after
consummation of the Exchange Offer a prospectus meeting the requirements of the
Securities Act to any Participating Broker-Dealer and any other persons, if any,
with similar prospectus delivery requirements, for use in connection with any
resale of Exchange Notes. A Participating Broker-Dealer or any other person that
delivers such a prospectus to purchasers in connection with such resales will be
subject to certain of the civil liability provisions under the Securities Act
and will be bound by the provisions of the Registration Rights Agreement
(including certain indemnification rights and obligations thereunder).
Each holder of the Old Notes (other than certain specified holders) who
wishes to exchange Old Notes for Exchange Notes in the Exchange Offer will be
required to make certain representations, including representations that (i) any
Exchange Notes to be received by it will be acquired in the ordinary course of
its business, (ii) it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes, (iii) it is not an "affiliate" (as defined in Rule 405 under
the Securities Act) of the Company or, if it is such an affiliate, it will
comply with the registration and prospectus delivery requirements of the
Securities Act
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to the extent applicable and (iv) it is not acting on behalf of any person who
could not truthfully make the foregoing representations.
Shelf Registration. In the event that (i) any changes in law or the
applicable interpretations of the staff of the Commission do not permit the
Company to effect the Exchange Offer, (ii) for any other reason the Exchange
Offer is not consummated within 135 days after the Issuance Date, (iii) under
certain circumstances, if the Initial Purchasers shall so request or (iv) any
holder of Old Notes (other than the Initial Purchasers) is not eligible to
participate in the Exchange Offer, the Company will, at its expense, (a) as
promptly as reasonably practicable file a shelf registration statement (the
"Shelf Registration Statement") covering resales of the Old Notes, (b) use its
best efforts to cause the Shelf Registration Statement to be declared effective
under the Securities Act on or prior to 135 days after the Issuance Date and (c)
use its best efforts to keep effective the Shelf Registration Statement until
the earlier of three years from the Issuance Date or such shorter period ending
when all Old Notes covered by the Shelf Registration Statement have been sold in
the manner set forth and as contemplated in the Shelf Registration Statement or
when the Old Notes become eligible for resale pursuant to Rule 144 under the
Securities Act without volume restrictions, if any. The Company, will, in the
event of the filing of the Shelf Registration Statement, provide to each holder
of the Old Notes copies of the prospectus which is a part of the Shelf
Registration Statement, notify each such holder when the Shelf Registration
Statement has become effective and take certain other actions as are required to
permit unrestricted resales of the Old Notes. A holder of Old Notes that sells
its Old Notes pursuant to the Shelf Registration Statement generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement that are
applicable to such a holder (including certain indemnification rights and
obligations thereunder). In addition, each holder of the Old Notes will be
required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights Agreement
in order to have their Old Notes included in the Shelf Registration Statement
and to benefit from the provisions regarding liquidated damages set forth in the
following paragraph.
Although the Company intends to file the registration statements described
above, as required, there can be no assurance that such registration statements
will be filed, or, if filed, that they will become effective. In the event that
either (a) the Exchange Offer Registration Statement is not filed with the
Commission on or prior to the 45th calendar day following the Issuance Date, (b)
the Exchange Offer Registration Statement has not been declared effective on or
prior to the 105th calendar day following the Issuance Date or (c) the Exchange
Offer is not consummated or a Shelf Registration Statement is not declared
effective on or prior to the 135th calendar day following the Issuance Date, the
interest rate borne by the Old Notes shall be increased by one-quarter of one
percent per annum following such 45-day period in the case of clause (a) above,
following such 105-day period in the case of clause (b) above or following such
135-day period in the case of clause (c) above, which rate will be increased by
an additional one-quarter of one percent per annum for each 90-day period that
any additional interest continues to accrue; provided that the aggregate
increase in such annual interest rate may in no event exceed one percent. Upon
(x) the filing of the Exchange Offer Registration Statement after the 45-day
period described in clause (a) above, (y) the effectiveness of the Exchange
Offer Registration Statement after the 105-day period described in clause (b)
above or (z) the consummation of the Exchange Offer or the effectiveness of a
Shelf Registration Statement, as the case may be, after the 135-day period
described in clause (c) above, the interest rate borne by the Old Notes from the
date of such filing, effectiveness or consummation, as the case may be, will be
reduced to the original interest rate if the Company is otherwise in compliance
with this paragraph; provided, however, that if, after any such reduction in
interest rate, a different event specified in clause (a), (b) or (c) above
occurs, the interest rate may again be increased pursuant to the foregoing
provisions. Pending the announcement of
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a material corporate transaction, if the Company issues a notice that the Shelf
Registration Statement is unusable, or such a notice is required under
applicable securities laws to be issued by the Company, and the aggregate number
of days in any consecutive twelve-month period for which all such notices are
issued or required to be issued exceeds 30 days in the aggregate, then the
interest rate borne by the Old Notes will be increased by one-quarter of one
percent per annum following the date that such Shelf Registration Statement
ceases to be usable for a period of time in excess of the period permitted
above, which rate shall be increased by an additional one-quarter of one percent
per annum at the beginning of each subsequent 90-day period; provided that the
aggregate increase in such annual interest rate may in no event exceed one
percent per annum. Upon the Company declaring that the Shelf Registration
Statement is usable after the period of time described in the preceding
sentence, the interest rate borne by the Old Notes will be reduced to the
original interest rate if the Company is otherwise in compliance with this
paragraph; provided, however, that if after any such reduction in dividend rate
a different event of the kind described in the preceding event occurs, the
interest rate may again be increased pursuant to the foregoing provisions.
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, all the provisions of the Registration Rights Agreement, a copy
of which will be made available upon request to the Company.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Certificate of Incorporation of the Company at Closing authorizes
100,000,000 shares of common stock, par value $.01 per share (the "Common
Stock"), of which 50,000,000 shares are outstanding and 50,000,000 shares of
preferred stock, par value $.01 per share, of which 1,500,000 shares are
outstanding with the remainder issuable in series by resolution of the Board
of Directors of the Company. The Board of Directors of the Company, in its
sole discretion, may designate and issue one or more series of preferred
stock from the authorized and unissued shares of preferred stock, subject to
limitations imposed by law or the Company's Certificate of Incorporation. The
Board of Directors is empowered to determine the designation of and the
number of shares constituting a series of preferred stock; the dividend rate
for the series; the terms and conditions of any voting, conversion and
exchange rights for the series; the amounts payable on the series upon
redemption or the Company's liquidation, dissolution or winding-up; the
provisions of any sinking fund for the redemption of purchase of shares of
any series; and the preferences and relative rights among the series of
preferred stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share for each
share held of record on all matters submitted to a vote of stockholders. Subject
to preferential rights with respect to any series of preferred stock, holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors on the Common Stock out of funds legally available
therefor, and in the event of a liquidation, dissolution or winding-up of the
affairs of the Company, are entitled to share equally and ratably in all
remaining assets and funds of the Company. The holders of Common Stock have no
preemptive rights, cumulative voting rights, or rights to convert shares of
Common Stock into any other securities and are not subject to future calls or
assessments by the Company. All outstanding shares of Common Stock are fully
paid and nonassessable.
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DESCRIPTION OF THE PREFERRED STOCK
PREFERRED STOCK
The shares of Preferred Stock were issued pursuant to a certificate of
designations (the "Certificate of Designations"). The summary contained herein
of certain provisions of the Preferred Stock does not purport to be complete and
is qualified in its entirety by reference to the provisions of the Certificate
of Designations. The definitions of certain terms used in the Certificate of
Designations and in the following summary are set forth below under "--Certain
Definitions."
GENERAL
The Board of Directors adopted resolutions authorizing the issuance of up
to 10,000,000 shares of Preferred Stock, which consist of the 1,500,000 shares
of Preferred Stock issued in the Preferred Stock Offering plus additional shares
of Preferred Stock which may be used to pay dividends on the Preferred Stock.
The Company filed a Certificate of Designations with respect to the Preferred
Stock with the Secretary of State of the State of Delaware as required by
Delaware law. The Preferred Stock ranks junior in right of payment to all
liabilities and obligations (whether or not for borrowed money) of the Company
(other than Common Stock and any preferred stock of the Company which by its
terms is junior to, or on parity with, the Preferred Stock). In addition,
creditors and stockholders of the Company's subsidiaries will also have priority
over the Preferred Stock with respect to claims on the assets of such
subsidiaries. The Preferred Stock, when issued and paid for and when issued in
lieu of cash dividends, will be fully paid and non-assessable, and the holders
thereof will have no subscription or preemptive rights related thereto.
RANKING
The Preferred Stock, with respect to dividends and distributions upon the
liquidation, winding-up and dissolution of the Company, will rank (i) senior to
all classes of common stock and each other class of capital stock or series of
preferred stock established after the initial issuance of the Preferred Stock by
the Board of Directors which does not expressly provide that it ranks on a
parity with the Preferred Stock as to dividends and distributions upon the
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Junior Securities") and (ii) on a parity with any class of capital stock or
series of preferred stock issued by the Company established after the initial
issuance of the Preferred Stock by the Board of Directors, the terms of which
expressly provide that such class or series will rank on a parity with the
Preferred Stock as to dividends and distributions upon the liquidation,
winding-up and dissolution of the Company (collectively referred to as "Parity
Securities").
DIVIDENDS
Holders of Preferred Stock are entitled, when, as and if declared by the
Board of Directors to receive dividends on each outstanding share of the
Preferred Stock, at the annual rate of 12 1/2% of the then effective liquidation
preference per share of Preferred Stock. Dividends on the Preferred Stock are
payable quarterly in arrears on October 1, January 1, April 1 and July 1 of each
year, commencing on January 1, 1997. The right to dividends on the Preferred
Stock are cumulative (whether or not earned or declared), without interest, from
the date of issuance of the Preferred Stock. Dividends will be paid solely in
additional fully paid and non-assessable shares of Preferred Stock with an
aggregate liquidation preference equal to the amount of such dividends.
If any dividend payable on any dividend payment date is not declared or
paid in full in shares of Preferred Stock on such dividend payment date, the
amount payable as dividends on such dividend payment date that is not paid in
shares of Preferred Stock on such dividend payment date will be added to the
liquidation preference of the Preferred Stock on such dividend payment date
until such dividend is paid in additional fully paid and non-assessable shares
of Preferred Stock with an aggregate liquidation preference equal to the amount
of such dividends.
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No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Securities for any period unless full
cumulative dividends shall have been or contemporaneously are declared and paid
in full. If full dividends are not so paid, the Preferred Stock shall share
dividends pro rata with the Parity Securities. No dividends may be paid or set
apart for such payment on Junior Securities (except dividends on Junior
Securities in additional shares of Junior Securities), and no Junior Securities
or Parity Securities may be repurchased, redeemed or otherwise retired nor may
funds be set apart for payment with respect thereto, if full dividends have not
been paid on the Preferred Stock.
MANDATORY REDEMPTION
On October 1, 2008 (the "Mandatory Redemption Date"), the Company will be
required to redeem (subject to the legal availability of funds therefor) all
outstanding shares of Preferred Stock at a price equal to the liquidation
preference thereof plus all accumulated and unpaid dividends to the date of
redemption (including by way of a deemed increase in liquidation value).
OPTIONAL REDEMPTION
The Company at its option may, but shall not be required to, redeem for
cash the Preferred Stock (subject to contractual and other restrictions with
respect thereto and to the legal availability of funds therefor) at any time
after October 1, 2001, in whole or in part, at the redemption prices (expressed
as a percentage of the liquidation preference thereof) set forth below, together
with all accumulated and unpaid dividends to the redemption date (including an
amount equal to a prorated dividend for the period from the dividend payment
date immediately prior to the redemption date to the redemption date), if
redeemed during the twelve-month period beginning on October 1 of each of the
years indicated below:
<TABLE>
<S> <C>
YEAR PERCENTAGE
- --------------------------------------------------------------------------------- -----------
2001............................................................................. 106.25%
2002............................................................................. 105.00%
2003............................................................................. 103.75%
2004............................................................................. 102.50%
2005............................................................................. 101.25%
2006 and thereafter.............................................................. 100.00%
</TABLE>
In addition, at any time or from time to time, on or prior to October 1,
1999, the Company may, at its option, redeem for cash shares of Preferred Stock
having an aggregate liquidation preference of up to 40% of the sum of (i) the
aggregate liquidation preference of all shares of Preferred Stock originally
issued in the Preferred Stock Offering and (ii) the aggregate liquidation
preference of all shares of Preferred Stock issued as pay-in-kind dividends on
Preferred Stock on or prior to the date of redemption (such sum being the
"Liquidation Amount"), at a redemption price per share equal to 112.5% of the
liquidation preference of such shares, together with an amount equal to all
accumulated and unpaid dividends thereon to the redemption date (including an
amount equal to a prorated dividend for the period from the dividend payment
date immediately prior to the redemption date to the redemption date), with the
net proceeds of one or more Equity Offerings; provided that Preferred Stock
having an aggregate liquidation preference of at least 60% of the Liquidation
Amount shall remain outstanding immediately after giving effect to such
redemption and provided further that such redemption occurs within 60 days of
the date of closing of each such Equity Offering.
Furthermore, the Company may at any time on or prior to October 1, 1998 and
concurrently with or subsequent to the date on which the Company has redeemed
the maximum liquidation preference of Preferred Stock permitted to be redeemed
pursuant to the provisions of the preceding paragraph redeem for cash all and
not less than all of the Preferred Stock, outstanding, at a redemption price per
share equal to the liquidation preference thereof plus the Applicable Premium
plus accumulated and unpaid
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dividends to the redemption date (including an amount equal to a prorated
dividend for the period from the dividend payment date immediately prior to the
redemption date to the redemption date) with the net proceeds of an Equity
Offering; provided that such redemption occurs within 60 days of the date of
closing of such Equity Offering.
In the event of partial redemptions of Preferred Stock, the shares to be
redeemed will be determined pro rata or by lot, as determined by the Company,
except that the Company may redeem such shares held by any holders of fewer than
100 shares (or shares held by holders who would hold less than 100 shares as a
result of such redemption), without regard to such pro rata redemption
requirement.
PROCEDURE FOR REDEMPTION
On and after a redemption date, unless the Company defaults in the payment
of the applicable redemption price, dividends will cease to accumulate on shares
of Preferred Stock called for redemption, and all rights of holders of such
shares will terminate except for the right to receive the redemption price. The
Company will send a written notice of redemption by first class mail to each
holder of record of shares of Preferred Stock, not fewer than 30 days nor more
than 60 days prior to the date fixed for such redemption. Shares of Preferred
Stock issued and reacquired will, upon compliance with the applicable
requirements of Delaware law, have the status of authorized but unissued shares
of preferred stock of the Company undesignated as to series and may, with any
and all other authorized but unissued shares of preferred stock of the Company,
be designated or redesignated and issued or reissued, as the case may be, as
part of any series of preferred stock of the Company, except that any issuance
or reissuance of shares of Preferred Stock must be in compliance with the
Certificate of Designations.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, holders of Preferred Stock will be entitled to be paid out of the
assets of the Company available for distribution $100 per share, plus an amount
in cash equal to all accumulated and unpaid dividends thereon (including by way
of a deemed increase in liquidation value) to the date fixed for liquidation,
dissolution or winding-up of the Company (including an amount equal to a
prorated dividend from the last dividend payment date to the date fixed for
liquidation, dissolution or winding-up), before any distribution is made on any
Junior Securities, including, without limitation, on any Common Stock. If upon
any voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the amounts payable with respect to the Preferred Stock and all other
Parity Securities are not paid in full, the holders of the Preferred Stock and
the Parity Securities will share equally and ratably in any distribution of
assets of the Company in proportion to the full liquidation preference and
accumulated and unpaid dividends to which each is entitled. After payment of the
full amount of the liquidation preferences and accumulated and unpaid dividends
to which they are entitled, the holders of shares of Preferred Stock will not be
entitled to any further participation in any distribution of assets of the
Company. However, neither the sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all
of the property or assets of the Company nor the consolidation or merger of the
Company with one or more corporations shall be deemed to be a liquidation,
dissolution or winding-up of the Company.
The Certificate of Designations for the Preferred Stock does not contain
any provision requiring funds to be set aside to protect the liquidation
preference of the Preferred Stock, although such liquidation preference will be
substantially in excess of the par value of such shares of Preferred Stock. In
addition, the Company is not aware of any provision of Delaware law or any
controlling decision of the courts of the State of Delaware (the state of
incorporation of the Company) that requires a restriction upon the surplus of
the Company solely because the liquidation preference of the Preferred Stock
will exceed its par value. Consequently, there will be no restriction upon any
surplus of the Company solely because the liquidation preference of the
Preferred Stock will exceed the par value, and
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there will be no remedies available to holders of the Preferred Stock before or
after the payment of any dividend, other than in connection with the liquidation
of the Company, solely by reason of the fact that such dividend would reduce the
surplus of the Company to an amount less than the difference between the
liquidation preference of the Preferred Stock and its par value.
VOTING RIGHTS
Holders of the Preferred Stock have no voting rights with respect to
general corporate matters except as provided by law or as set forth in the
Certificate of Designations. The Certificate of Designations provides that if:
(a) dividends on the Preferred Stock are in arrears and unpaid for six
consecutive quarterly periods; (b) the Company fails to discharge its obligation
to redeem the Preferred Stock on the Mandatory Redemption Date or fails to
otherwise discharge any redemption obligation with respect to the Preferred
Stock; (c) the Company fails to make a Change of Control Offer if such offer is
required by the provisions set forth under "--Change of Control" below or fails
to purchase shares of Preferred Stock from holders who elect to have such shares
purchased pursuant to the Change of Control Offer; or (d) a breach or violation
of any of the provisions described under the caption "-- Certain Covenants"
occurs and the breach or violation continues for a period of 30 days or more
after the Company receives notice thereof specifying the default from the
holders of at least 30% of the shares of Preferred Stock then outstanding, then
the number of directors constituting the Board of Directors will be increased by
two directors and the holders of the majority of the then outstanding Preferred
Stock, voting or consenting, as the case may be, as one class, will be entitled
to elect two directors of the expanded Board of Directors. Such voting rights
will continue until such time as, in the case of a dividend default, all
dividends in arrears on the Preferred Stock are paid in full and, in all other
cases, any failure, breach or default giving rise to such voting rights is
remedied, at which time the term of the directors elected pursuant to the
provisions of this paragraph shall terminate. Each such event described in
clauses (a) through (d) above is referred to herein as a "Voting Rights
Triggering Event."
Any vacancy occurring in the office of the director elected by holders of
the Preferred Stock may be filled by the remaining directors elected by such
holders unless and until such vacancy shall be filled by such holders.
The Certificate of Designations also provides that the Company may not
amend the Certificate of Designations so as to affect adversely the specified
rights, preferences, privileges or voting rights of holders of shares of the
Preferred Stock, or authorize the issuance of any additional shares of Preferred
Stock, without the affirmative vote or consent of the holders of at least a
majority of the outstanding shares of Preferred Stock, voting or consenting, as
the case may be, as one class. The holders of at least a majority of the
outstanding shares of Preferred Stock, voting or consenting, as the case may be,
as one class, may also waive compliance with any provision of the Certificate of
Designations. The Certificate of Designations will also provide that (a) the
creation, authorization or issuance of any shares of Parity Securities or Junior
Securities or (b) the increase or decrease in the amount of authorized capital
stock of any class, including any preferred stock, shall not require the consent
of the holders of Preferred Stock and shall not be deemed to affect adversely
the rights, preferences, privileges or voting rights of holders of shares of
Preferred Stock.
Under Delaware law, holders of preferred stock will be entitled to vote as
a class upon a proposed amendment to the certificate of incorporation, whether
or not entitled to vote thereon by the certificate of incorporation, if the
amendment would increase or decrease the par value of the shares of such class,
increase or decrease the aggregate number of authorized shares of such class or
alter or change the powers, preferences or special rights of the shares of such
class so as to affect them adversely.
CHANGE OF CONTROL
The Certificate of Designations provides that, upon the occurrence of a
Change of Control, the Company will make an offer to purchase for cash all or
any part of the Preferred Stock pursuant to the
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offer described below (a "Change of Control Offer") at a price in cash (a
"Change of Control Payment") equal to 101% of the liquidation preference
thereof, plus all accumulated and unpaid dividends per share to the date of
purchase (including an amount equal to a prorated dividend for the period from
the dividend payment date immediately prior to the date of purchase to such
date). The Certificate of Designations provides that within 30 days following
any Change of Control, the Company will mail a notice to each holder of
Preferred Stock with a copy to the transfer agent, with the following
information: (a) a Change of Control Offer is being made pursuant to the
covenant entitled "Change of Control," and that all Preferred Stock properly
tendered pursuant to such Change of Control Offer will be accepted for payment;
(b) the purchase price and the purchase date, which will be no earlier than 30
days nor later than 60 days from the date such notice is mailed, except as may
be otherwise required by applicable law (the "Change of Control Payment Date");
(c) any Preferred Stock not properly tendered will remain outstanding and
continue to accumulate dividends; (d) unless the Company defaults in the payment
of the Change of Control Payment, all Preferred Stock accepted for payment
pursuant to the Change of Control Offer will cease to accumulate dividends on
the Change of Control Payment Date; (e) holders electing to have any shares of
Preferred Stock purchased pursuant to a Change of Control Offer will be required
to surrender such shares, properly endorsed for transfer, to the transfer agent
and registrar for the Preferred Stock at the address specified in the notice
prior to the close of business on the third Business Day preceding the Change of
Control Payment Date; (f) holders will be entitled to withdraw their tendered
shares of Preferred Stock and their election to require the Company to purchase
such shares, provided that the transfer agent receives, not later than the close
of business on the last day of the offer period, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the aggregate
liquidation preference of the Preferred Stock tendered for purchase, and a
statement that such holder is withdrawing his tendered shares of Preferred Stock
and his election to have such shares of Preferred Stock purchased; and (g) that
holders whose shares of Preferred Stock are being purchased only in part will be
issued new shares of Preferred Stock equal in aggregate liquidation preference
to the unpurchased portion of the shares of Preferred Stock surrendered, which
unpurchased portion must be equal to $1,000 in aggregate liquidation preference
or an integral multiple thereof.
The Certificate of Designations provides that, prior to complying with the
provisions of this covenant, but in any event within 30 days following a Change
of Control, the Company will either repay all Indebtedness of the Company or
offer to repay in full all outstanding Obligations held by each holder of such
Indebtedness and repay the Indebtedness held by each holder who has accepted
such offer or obtain the requisite consents, if any, under such Indebtedness
necessary to permit the repurchase of the Preferred Stock required by this
covenant.
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 or regulations are applicable in connection with the repurchase
of the Preferred Stock pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of the Certificate of Designations, the Company will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations described in the Certificate of Designations by virtue
thereof.
The Certificate of Designations will provide that on the Change of Control
Payment Date, the Company will, to the extent permitted by law, (a) accept for
payment all shares of Preferred Stock or portions thereof properly tendered
pursuant to the Change of Control Offer, (b) deposit with the transfer agent and
registrar an amount in cash equal to the aggregate Change of Control Payment in
respect of all shares of Preferred Stock or portions thereof so tendered and (c)
deliver, or cause to be delivered, to the transfer agent and registrar for
cancellation the shares of Preferred Stock so accepted together with an
Officers' Certificate stating that such shares of Preferred Stock or portions
thereof have been tendered to and purchased by the Company. The Certificate of
Designations provides that the transfer agent and registrar will promptly mail
to each holder of Preferred Stock the Change of Control Payment for such
Preferred Stock, and the transfer agent will promptly mail to each holder new
shares
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of Preferred Stock equal in aggregate liquidation preference to any unpurchased
portion of Preferred Stock 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 Credit Facilities, and future credit agreements or other agreements
relating to Indebtedness to which the Company becomes a party may, prohibit the
Company from purchasing any Preferred Stock as a result of a Change of Control
and/or provide that certain change of control events with respect to the Company
would constitute a default thereunder. In the event a Change in Control occurs
at a time when the Company is prohibited from purchasing the Preferred Stock,
the Company could seek the consent of the holders of such Indebtedness to the
purchase of the Preferred Stock 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 the
Preferred Stock. In such case, the Company's failure to purchase tendered
Preferred Stock would constitute a default under the Certificate of
Designations. If, as a result thereof, a default occurs with respect to any
Indebtedness, the funds remaining after the repurchase of such Indebtedness may
limit the Company's ability to repurchase the Preferred Stock.
The existence of a holder's right to require the Company to repurchase such
holder's Preferred Stock 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.
CERTAIN COVENANTS
Merger, Consolidation or Sale of All or Substantially All Assets. The
Certificate of Designations provides that the Company may not consolidate or
merge with or into or wind up 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, any 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 will have been made is a corporation organized or existing
under the laws of the United States, any state thereof, the District of
Columbia, or any territory thereof (the Company or such Person, as the case may
be, being herein called the "Successor Company"); (ii) the Preferred Stock shall
be converted or exchanged for and shall become shares of the Successor Company
(if other than the Company) having in respect of the Successor Company the same
rights and privileges that the Preferred Stock had immediately prior to such
transaction with respect to the Company; (iii) immediately after giving effect
to such transaction, no Voting Rights Triggering Event, and no event that after
the giving of notice or lapse of time or both would become a Voting Rights
Triggering Event, shall have occurred and be continuing; and (iv) the Company
shall have delivered to the transfer agent an Officers' Certificate and an
opinion of counsel, each stating that such consolidation, merger or transfer
comply with the Certificate of Designations. The Successor Company will succeed
to, and be substituted for, the Company under the Certificate of Designations.
Reports and Other Information. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
or otherwise report on an annual and quarterly basis on forms provided for such
annual and quarterly reporting pursuant to rules and regulations promulgated by
the Securities and Exchange Commission (the "Commission"), the Certificate of
Designations requires the Company to file with the Commission (and provide the
Holders with copies thereof, without cost to each Holder, within 15 days after
it files them with the Commission), (a) within 90 days after the end of each
fiscal year, annual reports on Form 10-K (or any successor or comparable form)
containing the information required to be contained therein (or required in such
successor or comparable form); (b) within 45 days after the end of each of the
first three fiscal quarters of each fiscal year, reports on Form 10-Q (or any
successor or comparable form); (c) promptly from time to time after the
occurrence of an event required to be therein reported, such other reports on
Form 8-K (or any successor or comparable form) and (d) any other information,
documents and other reports
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which the Company would be required to file with the Commission if it were
subject to Section 13 or 15(d) of the Exchange Act; provided, however, the
Company shall not be so obligated to file such reports with the Commission if
the Commission does not permit such filings, in which event the Company will
make available such information to prospective purchasers of the Preferred
Stock, in addition to providing such information to the Holders, in each case
within 15 days after the time the Company would be required to file such
information with the Commission, if it were subject to Sections 13 or 15(d) of
the Exchange Act.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Certificate of
Designations. Reference is made to the Certificate of Designations for a full
disclosure of all such terms, as well as any other capitalized terms used herein
for which no definition is provided.
"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, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Applicable Premium" means, with respect to any share of Preferred Stock
the present value of all remaining required dividend payments and payments with
respect to aggregate liquidation value due on such Preferred Stock and all
premium payments relating thereto assuming a redemption date of October 1, 2001,
computed using a discount rate equal to the Treasury Rate plus 100 basis points
minus (b) the then outstanding liquidation value of such Preferred Stock minus
(c) accrued dividends paid on the date of redemption.
"Capital Stock" means with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock of such Person, including, without limitation, if such Person is
a partnership, partnership interests (whether general or limited) and 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, such partnership.
"Capitalized 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 and reflected as a liability on
a balance sheet in accordance with GAAP.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries, taken as a whole;
(ii) the Company becomes aware of (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) 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 Holder and
its 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 total
voting power of the Voting Stock of the Company or such Person or group
beneficially owns more of the total voting power of the Voting Stock of the
Company than the Permitted Holder and its Related Parties; (iii) the first
day within any two-year period on which a majority of the members of the
Board of Directors of the company are not
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Continuing Directors; or (iv) the Company consolidates with, or merges with
or into, another Person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any Person,
or any Person consolidates with, or merges with or into, the Company, in
any such event pursuant to a transaction in which the outstanding Voting
Stock of the Company is converted into or exchanged for cash, securities or
other property, other than (A) any such transaction where (1) the
outstanding Voting Stock of the Company is converted into or exchanged for
(I) Voting Stock (other than Disqualified Stock) of the surviving or
transferee corporation and/or (II) cash, securities and other property in
an amount which could be paid by the Company as a Restricted Payment under
the Indenture and (2) the "beneficial owners" of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving or transferee
corporation immediately after such transaction or (B) any such transaction
as a result of which the Permitted Holder or its Affiliates own a majority
of the total Voting Stock and Capital Stock of the surviving or transferee
corporation immediately after the transaction.
"Comparable Treasury Issue" means the U.S. Treasury security selected by an
Independent Investment Banker as having a maturity on or about October 1, 2001
that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such business day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, or (B) if
the Company is unable to obtain both Reference Treasury Dealer Quotations, the
only such Quotation provided. "Reference Treasury Dealer Quotations" means, with
respect to each Reference Dealer and any redemption date, the average, as
determined by the Company, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Company by such Reference Dealer at 5:00 p.m. on the
third business day preceding such redemption date.
"Contingent Obligations" means, with respect to any Person, any obligation
of such person guaranteeing any leases, dividends or other obligations that do
not constitute Indebtedness ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation against loss in respect thereof.
"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
Issuance Date or (ii) was nominated for election or elected to such Board of
Directors with, or which 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 Holder or its Affiliates or was nominated by
the Permitted Holder or its Affiliates or any designees of the Permitted Holder
or its Affiliates on the Board of Directors.
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"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which, by its terms (or by the terms of any security into which
it is convertible or for which it is puttable or 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, in each case prior to the date 91 days after the
Mandatory Redemption Date; provided, however, that if such Capital Stock is
either (i) redeemable or repurchaseable solely at the option of such Person or
(ii) issued to employees of the Company or its Subsidiaries or to any plan for
the benefit of such employees, such Capital Stock shall not constitute
Disqualified Stock unless so designated.
"Equity Offering" shall mean any public or private sale of common stock or
preferred stock of the Company (excluding Disqualified Stock), other than public
offerings with respect to the Company's common stock registered on Form S-8.
"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 Issuance Date.
"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" shall mean a holder of shares of 12 1/2% Preferred Stock.
"Indebtedness" means, with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or bankers' acceptances (or reimbursement agreements in respect thereof),
(iii) representing the balance deferred and unpaid of the purchase price of any
property (including Capitalized Lease Obligations), except any such balance that
constitutes an accrued expense or trade payable or any other monetary obligation
of a trade creditor (whether or not an Affiliate), or (iv) representing any
Hedging Obligations, if and to the extent of any of the foregoing Indebtedness
(other than letters of credit and Hedging Obligations) that would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
(b) to the extent not otherwise included, any obligation by such Person to be
liable for, or to pay, as obligor, guarantor otherwise, on the Indebtedness of
another Person (other than by endorsement of negotiable instruments for
collection in the ordinary course of business) and (c) to the extent not
otherwise included, Indebtedness of another Person secured by a Lien on any
asset owned by such Person (whether or not such Indebtedness is assumed by such
Person); provided, however, that Contingent Obligations incurred in the ordinary
course of business shall be deemed not to constitute Indebtedness.
"Indenture" shall mean the Indenture dated as of September 30, 1996 between
the Company and Marine Midland Bank, as trustee.
"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 statues) of any jurisdiction);
provided that in no event shall an operating lease be deemed to constitute a
Lien.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and banker's acceptances), damages
and other liabilities payable under the documentation governing any
Indebtedness.
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"Officer's 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.
"Permitted Holder" means Strata Associates L.P., KKR and any of their
Affiliates.
"Person" shall mean any individual, partnership, corporation, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Reference Dealer" means each of Merrill Lynch, Pierce, Fenner & Smith
Incorporated and NationsBanc Capital Markets, Inc. and their respective
successors: provided, however, that if either of the foregoing Reference Dealers
shall cease to be a primary U.S. Government securities dealer in New York City
(a "Primary Treasury Dealer"), the Company shall substitute therefor another
Primary Treasury Dealer.
"Related Parties" means any person controlled by the Permitted Holder,
including any partnership of which the Permitted Holder or its Affiliates is the
general partner.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) 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 of determination 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,
joint venture, limited liability company or similar entity of which (x) more
than 50% of the capital accounts, distribution rights, total equity and voting
interests in general or limited partnership interests, as applicable, are owned
or controlled, directly or indirectly, by such person or one or more of the
other Subsidiaries of that Person or a combination thereof whether in the form
of membership, general, special or limited partnership or otherwise and (y) such
person or any Wholly Owned Subsidiary of such person is a controlling general
partner or otherwise controls such entity.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"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 or stockholders called for such purpose,
without the occurrence of any additional event or contingency.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
100% 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 and one or
more Wholly Owned Subsidiaries of such Person.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of the ownership of Exchange Notes as of the date hereof. Except
where noted, it deals only with Exchange Notes held as capital assets and does
not deal with special situations, such as those of dealers in securities or
currencies, financial institutions, life insurance companies, persons holding
Exchange Notes as a part of a hedging or conversion transaction or a straddle or
holders of Exchange Notes whose "functional currency" is not the U.S. dollar.
Furthermore, the discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and
judicial decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in federal income tax consequences
different from those discussed below. Persons considering the purchase,
ownership or disposition of Exchange Notes should consult their own tax advisors
concerning the federal income tax consequences in light of their particular
situations as well as any consequences arising under the laws of any other
taxing jurisdiction.
PAYMENTS OF INTEREST
Except as set forth below, stated interest on an Exchange Note will
generally be taxable to a United States Holder as ordinary income from domestic
sources at the time it is paid or accrued in accordance with the United States
Holder's method of accounting for tax purposes. As used herein, a "United States
Holder" of an Exchange Note means a holder that is a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
or an estate or trust the income of which is subject to United States federal
income taxation regardless of its source. A "Non-United States Holder" is a
holder that is not a United States Holder.
MARKET DISCOUNT
If a United States Holder purchases an Exchange Note for an amount that is
less than its stated principal amount, the amount of the difference will be
treated as "market discount" for federal income tax purposes, unless such
difference is less than a specified de minimis amount. Under the market discount
rules, a United States 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 the market discount which has
not previously been included in income and is treated as having accrued on such
Exchange Note at the time of such payment or disposition. In addition, the
United States Holder may be required to defer, until the maturity of the
Exchange Note or its earlier disposition in a taxable transaction, the deduction
of all or a portion of the interest expense on any indebtedness incurred or
continued to purchase or carry such Exchange Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Exchange Note, unless
the United States Holder elects to accrue on a constant interest method. A
United States Holder of an Exchange Note may elect to include market discount in
income currently as it accrues (on either a ratable or constant interest
method), in which case the rule described above regarding deferral of interest
deductions will not apply. This election to include market discount in income
currently, once made, applies to all market discount obligations acquired on or
after the first taxable year to which the election applies and may not be
revoked without the consent of the Internal Revenue Service ("IRS").
AMORTIZABLE BOND PREMIUM
A United States Holder that purchases an Exchange Note for an amount in
excess of the sum of all amounts payable on the Note after the purchase date
other than stated interest will be considered to have purchased the Exchange
Note at a "premium." A United States Holder generally may elect to
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amortize the premium over the remaining term of the Exchange Note on a constant
yield method. The amount amortized in any year will be treated as a reduction of
the United States Holder's interest income from the Exchange Note. Bond premium
on an Exchange Note held by a United States Holder that does not make such an
election will decrease the gain or increase the loss otherwise recognized on
disposition of the Exchange Note. The election to amortize premium on a constant
yield method once made applies to all debt obligations held or subsequently
acquired by the electing United States Holder on or after the first day of the
first taxable year to which the election applies and may not be revoked without
the consent of the IRS.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A United States Holder's tax basis in an Exchange Note will, in general, be
the United States Holder's cost therefor, increased by market discount
previously included in income by the United States Holder and reduced by any
amortized premium and any cash payments on the Note other than stated interest.
Upon the sale, exchange, retirement or other disposition of an Exchange Note, a
United States Holder will recognize gain or loss equal to the difference between
the amount realized upon the sale, exchange, retirement or other disposition
(less any accrued interest, which will be taxable as such) and the adjusted tax
basis of the Exchange Note. Such gain or loss will be capital gain or loss and
will be long-term capital gain or loss if at the time of sale, exchange,
retirement or other disposition the Exchange Note has been held for more than
one year. Under current law, net capital gains of individuals are, under certain
circumstances, taxed at lower rates than items of ordinary income. The
deductibility of capital losses is subject to limitations.
TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchanges of Old Notes for Exchange Notes will not constitute
recognition events for federal income tax purposes. Consequently, no gain or
loss will be recognized by Holders upon receipt of the Exchange Notes. For
purposes of determining gain or loss upon the subsequent sale or exchange of
Exchange Notes, a Holder's basis in Exchange Notes will be the same as such
Holder's basis in the Old Notes exchanged therefor. Holders will be considered
to have held the Exchange Notes from the time of their original acquisition of
the Old Notes.
NON-UNITED STATES HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be
required with respect to the payment by the Company or any Paying Agent of
principal or interest on an Exchange Note owned by a Non-United States
Holder, provided (i) that the beneficial owner does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote within the meaning of
section 871(h)(3) of the Code and the regulations thereunder, (ii) the
beneficial owner is not a controlled foreign corporation that is related to
the Company through stock ownership, (iii) the beneficial owner is not a
bank whose receipt of interest on an Exchange Note is described in section
881(c)(3)(A) of the Code and (iv) the beneficial owner satisfies the
statement requirement (described generally below) set forth in section
871(h) and section 881(c) of the Code and the regulations thereunder;
(b) no withholding of United States federal income tax will be
required with respect to any gain or income realized by a Non-United States
Holder upon the sale, exchange, retirement or other disposition of an
Exchange Note; and
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(c) an Exchange Note beneficially owned by an individual who at the
time of death is a Non-United States Holder will not be subject to United
States federal estate tax as a result of such individual's death, provided
that such individual does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of the company
entitled to vote within the meaning of section 871(h)(3) of the Code and
provided that the interest payments with respect to such Exchange Note
would not have been, if received at the time of such individual's death,
effectively connected with the conduct of a United States trade or business
by such individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Exchange Note, or a financial institution holding the Exchange
Note on behalf of such owner, must provide, in accordance with specified
procedures, a paying agent of the Company with a statement to the effect that
the beneficial owner is not a United States person. Pursuant to current
temporary Treasury regulations, these requirements will be met if (1) the
beneficial owner provides his name and address, and certifies, under penalties
of perjury, that he is not a United States person (which certification may be
made on an Internal Revenue Service Form W-8 (or successor form)) or (2) a
financial institution holding the Exchange Note on behalf of the beneficial
owner certifies, under penalties of perjury, that such statement has been
received by it and furnishes a paying agent with a copy thereof.
If a non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described in (a) above, payments of premium, if
any, and interest made to such non-United States Holder will be subject to a 30%
withholding tax unless the beneficial owner of the Exchange Note provides the
Company or its paying agent, as the case may be, with a properly executed (1)
IRS Form 1001 (or successor form) claiming an exemption from withholding under
the benefit of a tax treaty or (2) IRS Form 4224 (or successor form) stating
that interest paid on the Exchange Note is not subject to withholding tax
because it is effectively connected with the beneficial owner's conduct of a
trade or business in the United States.
If a non-United States Holder is engaged in a trade or business in the
United States and premium, if any, or interest on the Exchange Note is
effectively connected with the conduct of such trade or business, the non-United
States Holder, although exempt from the withholding tax discussed above, will be
subject to United States federal income tax on such interest on a net income
basis in the same manner as if it were a United States Holder. In addition, if
such holder is a foreign corporation, it may be subject to a branch profits tax
equal to 30% of its effectively connected earnings and profits for the taxable
year, subject to adjustments. For this purpose, such premium, if any, and
interest on an Exchange Note will be included in such foreign corporation's
earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of an Exchange Note generally will not be subject to United States
federal income tax unless (i) such gain or income is effectively connected with
a trade or business in the United States of the Non-United States Holder, or
(ii) in the case of a Non-United States Holder who is an individual, such
individual is present in the United States for 183 days or more in the taxable
year of such sale, exchange, retirement or other disposition, and certain other
conditions are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest and premium paid on Exchange Notes and to the
proceeds of sale of an Exchange Note made to United States Holders other than
certain exempt recipients (such as corporations). A 31 percent backup
withholding tax will apply to such payments if the United States Holder fails to
provide a taxpayer identification number or certification of foreign or other
exempt status or fails to report in full dividend and interest income.
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No information reporting or backup withholding will be required with
respect to payments made by the Company or any paying agent to Non-United States
Holders if a statement described in (a)(iv) under "Non-United States Holders"
has been received and the payor does not have actual knowledge that the
beneficial owner is a United States person.
In addition, backup withholding and information reporting will not apply if
payments of the principal, interest or premium on an Exchange Note are paid or
collected by a foreign office of a custodian, nominee or other foreign agent on
behalf of the beneficial owner of such Exchange Note, or if a foreign office of
a broker (as defined in applicable Treasury regulations) pays the proceeds of
the sale of an Exchange Note to the owner thereof. If, however, such nominee,
custodian, agent or broker is, for United States federal income tax purposes, a
United States person, a controlled foreign corporation or a foreign person that
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the United States, such payments will not be subject to
backup withholding but will be subject to information reporting, unless (1) such
custodian, nominee, agent or broker has documentary evidence in its records that
the beneficial owner is not a United States person and certain other conditions
are met or (2) the beneficial owner otherwise establishes an exemption.
Temporary Treasury regulations provide that the Treasury is considering whether
backup withholding will apply with respect to such payments of principal,
interest or the proceeds of a sale that are not subject to backup withholding
under the current regulations.
Payments of principal, interest and premium on an Exchange Note paid to the
beneficial owner of an Exchange Note by a United States office of a custodian,
nominee or agent, or the payment by the United States office of a broker of the
proceeds of sale of an Exchange Note, will be subject to both backup withholding
and information reporting unless the beneficial owner provides the statement
referred to in (a)(iv) above and the payor does not have actual knowledge that
the beneficial owner is a United States person or otherwise establishes an
exemption. Under proposed United States Treasury regulations not currently in
effect, backup withholding will not apply to such payments absent actual
knowledge that the payee is a United States person. The IRS recently proposed
regulations addressing certain withholding, certification and information rules
which could affect the treatment of the payment of the amounts described above
(the "Proposed Regulations"). The Proposed Regulations would provide alternative
methods for satisfying the certification requirement described in clause (a)
(iv) under "-- Non-United States Holders" above. The Proposed Regulations also
would require, in the case of Notes held by foreign partnerships, that (i) the
certification described in clause (a) (iv) under "--Non-United States Holders"
above be provided by the partners rather than by the foreign partnership and
(ii) the partnership provide certain information, including a United States
taxpayer identification number. A look through rule would apply in the case of
tiered partnerships. The Proposed Regulations are proposed to be effective for
payments made after December 31, 1997. There can be no assurance that the
Proposed Regulations will be adopted or as to the provisions they will include
if and when adopted in temporary or final form. Non-United States Holders should
consult their tax advisors regarding the application of these rules to their
particular situations, the availability of an exemption therefrom, the procedure
for obtaining such an exemption, if available, and the possible application of
the proposed United States Treasury regulations addressing the withholding and
information reporting rules.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
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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 Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. To the extent any such
broker-dealer participates in the Exchange Offer and so notifies the Company, or
causes the Company to be so notified in writing, the Company has agreed that a
period of 120 days after the date of this Prospectus, it will make this
Prospectus, as amended or supplemented, available to such broker-dealer for use
in connection with any such resale, and 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. In
addition, until , 1997 (90 days after the date of this Prospectus),
all dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at prevailing market prices at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers or any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New 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.
The Company has agreed to pay all expenses incident to the Exchange Offer
(other than commissions and concessions of any broker-dealers), subject to
certain prescribed limitations, and will indemnify the holders of the Old Notes
against certain liabilities, including certain liabilities that may arise under
the Securities Act.
By its acceptance of the Exchange Offer, any broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer hereby agrees to notify the
Company prior to using the Prospectus in connection with the sale or transfer of
Exchange Notes, and acknowledges and 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
or which may impose upon the Company disclosure obligations that may have a
material adverse effect on the Company (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 notified such broker-dealer that delivery
of the Prospectus may resume and has furnished copies of any amendment or
supplement to the Prospectus to such broker-dealer.
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LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Simpson
Thacher & Bartlett (a partnership which includes professional corporations), New
York, New York.
INDEPENDENT AUDITORS
The consolidated balance sheets as of September 30, 1994 and 1995 and
the consolidated statements of earnings, cash flows and shareholder's equity
(deficiency) for each of the three fiscal years in the period ended September
30, 1995 of E&S Holdings Corporation included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
---------
Consolidated Financial Statements
Independent Auditors' Report............................................................................ F-2
Consolidated Balance Sheets as of September 30, 1994 and 1995........................................... F-3
Statements of Consolidated Earnings for the years ended September 30, 1993, 1994 and 1995............... F-4
Statements of Consolidated Cash Flows for the years ended September 30, 1993, 1994 and 1995............. F-5
Statements of Consolidated Shareholder's Equity (Deficiency) for the years ended September 30, 1993,
1994 and 1995............................................................................................. F-6
Notes to Consolidated Financial Statements.............................................................. F-7
Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet as of (unaudited) June 30, 1996.................................... F-25
Condensed Statements of Consolidated Earnings for the (unaudited) nine months ended June 30, 1995 and
1996...................................................................................................... F-26
Condensed Statements of Consolidated Cash Flows for the (unaudited) nine months ended June 30, 1995 and
1996...................................................................................................... F-27
Condensed Statement of Consolidated Shareholder's Equity (Deficiency) for the (unaudited) nine months
ended June 30, 1996....................................................................................... F-28
Notes to Condensed Consolidated Financial Statements.................................................... F-29
</TABLE>
F-1
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
E&S Holdings Corporation:
We have audited the accompanying consolidated balance sheets of E&S Holdings
Corporation (a wholly-owned subsidiary of Abarco N.V.) and subsidiaries (the
"Company") as of September 30, 1994 and 1995, and the related statements of
consolidated earnings, cash flows and shareholder's equity (deficiency) for each
of the three fiscal years in the period ended September 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of September 30,
1994 and 1995, and the results of its operations and its cash flows for each of
the three fiscal years in the period ended September 30, 1995 in conformity with
generally accepted accounting principles.
As discussed in Notes H and J to Consolidated Financial Statements, the Company
changed its method of accounting for income taxes and for postretirement
benefits effective October 1, 1992 to conform with Statements of Financial
Accounting Standards No. 109 and 106, respectively.
DELOITTE & TOUCHE LLP
Tampa, Florida
August 30, 1996
F-2
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C>
1994 1995
ASSETS
Current assets:
Cash.................................................................................. $ 8,958 $ 26,104
Receivables, less allowance of $3,039 in 1994 and $3,247 in 1995...................... 134,257 145,650
Affiliate note receivable............................................................. 3,700 0
Inventories........................................................................... 78,993 88,782
Deferred income taxes................................................................. 10,132 9,666
Property, plant and equipment, net, to be distributed to Abarco....................... 7,418 7,028
Other................................................................................. 2,218 2,493
----------- -----------
Total current assets............................................................. 245,676 279,723
Property, plant and equipment, net...................................................... 66,457 69,918
Intangible assets, net.................................................................. 125,477 119,070
Affiliate note receivable............................................................... 10,375 0
Deferred income taxes on acquired non-U.S. trademarks................................... 57,259 53,346
Deferred financing costs................................................................ 178 11,453
Other................................................................................... 2,646 2,135
----------- -----------
Total assets..................................................................... $ 508,068 $ 535,645
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Non-U.S. bank loans................................................................... $ 7,161 $ 10,299
U.S. bank loan........................................................................ 150,000 0
Current maturities of long-term debt.................................................. 1,369 12,070
Accounts payable...................................................................... 110,916 114,296
Accrued expenses...................................................................... 53,797 54,290
Affiliate payable..................................................................... 32,000 0
Income taxes.......................................................................... 626 644
----------- -----------
Total current liabilities........................................................ 355,869 191,599
Long-term debt.......................................................................... 129,788 313,073
Deferred income taxes................................................................... 14,759 13,417
Pension................................................................................. 10,493 11,500
Postretirement benefits................................................................. 8,250 8,560
Deferred compensation................................................................... 6,310 5,920
Other................................................................................... 5,283 5,039
----------- -----------
Total liabilities................................................................ 530,752 549,108
Commitments and Contingencies (Notes N, O, P and Q)
Minority interest in consolidated subsidiary............................................ 0 (487)
Shareholder's equity (deficiency):
Common stock, $1 par value, 2,000 shares authorized and outstanding................... 2 2
Paid-in capital....................................................................... 53,898 53,898
Retained earnings (deficit)........................................................... (74,470) (63,065)
Currency translation adjustment....................................................... (2,114) (3,811)
----------- -----------
Total shareholder's equity (deficiency).......................................... (22,684) (12,976)
----------- -----------
Total liabilities and shareholder's equity (deficiency).......................... $ 508,068 $ 535,645
----------- -----------
----------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
1993 1994 1995
Net sales.................................................................. $ 536,244 $ 583,107 $ 634,157
Cost of sales.............................................................. 342,276 370,328 407,334
----------- ----------- -----------
Gross profit............................................................. 193,968 212,779 226,823
Selling, general and administrative expenses............................... 150,106 178,678 179,043
Royalty expense (income), net.............................................. (9,328) (12,789) (13,514)
Litigation settlement expense.............................................. 0 0 2,400
----------- ----------- -----------
Income from operations................................................... 53,190 46,890 58,894
Interest expense, net...................................................... 8,913 17,073 38,108
Currency loss (gain), net.................................................. 2,238 (144) 381
----------- ----------- -----------
Earnings before income taxes............................................. 42,039 29,961 20,405
Income taxes............................................................... 18,000 11,938 8,683
----------- ----------- -----------
Earnings before minority interest and cumulative effect of accounting
changes.................................................................... 24,039 18,023 11,722
Minority interest in net earnings of consolidated subsidiary............... 0 0 724
Cumulative effect of accounting changes:
Postretirement benefits, net of $3,080 tax benefit....................... 4,820 0 0
Income taxes............................................................. 4,800 0 0
----------- ----------- -----------
Net earnings............................................................. $ 14,419 $ 18,023 $ 10,998
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
1993 1994 1995
Increase (Decrease) in Cash
Cash flows from operating activities
Net earnings................................................................. $ 14,419 $ 18,023 $ 10,998
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation............................................................. 12,390 13,976 11,846
Intangibles amortization................................................. 7,080 6,454 6,441
Deferred income taxes.................................................... (1,470) (5,300) 3,037
Pension.................................................................. 1,390 3,493 1,007
Postretirement benefits.................................................. 7,950 300 310
Deferred compensation.................................................... 1,120 610 (390)
Non-cash compensation expense related to 1994 Management Stock Ownership
Plan......................................................................... 0 0 1,130
Deferred financing costs................................................. 260 59 2,225
Minority interest in consolidated subsidiary............................. 0 0 724
--------- ----------- ----------
Subtotal............................................................ 43,139 37,615 37,328
Receivables.............................................................. (7,274) (25,150) (11,393)
Inventories.............................................................. (2,461) 1,274 (9,789)
Current liabilities, excluding bank loans and affiliate payable.......... 12,686 22,669 2,761
Other.................................................................... (2,827) (767) (2,297)
--------- ----------- ----------
Net cash provided by operating activities........................... 43,263 35,641 16,610
Cash flows from investing activities
Capital expenditures......................................................... (25,348) (19,109) (15,381)
Acquisitions of non-U.S. trademarks from affiliate........................... 0 (8,250) 0
--------- ----------- ----------
Net cash flows used in investing activities......................... (25,348) (27,359) (15,381)
--------- ----------- ----------
Net cash provided before financing activities....................... 17,915 8,282 1,229
Cash flows from financing activities
Net borrowings (repayment) under credit agreements........................... 62,615 139,645 45,355
Net borrowings (repayment) of other indebtedness............................. (8,982) 2,990 1,769
Payment of new credit agreement financing costs.............................. (113) 0 (13,500)
Payment to acquire PXC&M common and preferred stock.......................... (71,500) 0 0
Payment to acquire non-U.S. trademarks in excess of affiliate carrying
value........................................................................ 0 (167,750) 0
Affiliate receivable and payable............................................. 0 17,925 (17,707)
--------- ----------- ----------
Net cash flows provided (used) by financing activities.............. (17,980) (7,190) 15,917
--------- ----------- ----------
Cash--net change............................................................. (65) 1,092 17,146
beginning of period.......................................................... 7,931 7,866 8,958
--------- ----------- ----------
end of period................................................................ $ 7,866 $ 8,958 $ 26,104
--------- ----------- ----------
--------- ----------- ----------
Supplemental cash flow data
Interest paid................................................................ $ 8,799 $ 16,367 $ 35,535
Income taxes paid............................................................ $ 20,362 $ 20,130 $ 6,072
Non-cash distribution of common and preferred stock of disengaged
subsidiary................................................................... $ 71,500 $ 0 $ 0
Non-cash acquisition of non-U.S. trademarks.................................. $ 0 $ 0 $ 14,293
Non-cash compensation accrual for 1994 Management Stock Ownership Plan....... $ 0 $ 0 $ 1,130
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDER'S EQUITY (DEFICIENCY)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
RETAINED CURRENCY
COMMON PAID-IN EARNINGS TRANSLATION
STOCK CAPITAL (DEFICIT) ADJUSTMENT TOTAL
September 30, 1992........................................ $ 2 $ 53,898 $ 73,626 $ 791 $ 128,317
Net earnings for the year................................. 0 0 14,419 0 14,419
Non-cash distribution of common and preferred stock of
disengaged subsidiary..................................... 0 0 (71,500) 0 (71,500)
Currency translation adjustment........................... 0 0 0 (3,433) (3,433)
----------- --------- ----------- ----------- -----------
September 30, 1993........................................ 2 53,898 16,545 (2,642) 67,803
Net earnings for the year................................. 0 0 18,023 0 18,023
Excess of purchase price at fair market value over book
value of non-U.S. trademarks acquired from affiliate.... 0 0 (109,038) 0 (109,038)
Currency translation adjustment........................... 0 0 0 528 528
----------- --------- ----------- ----------- -----------
September 30, 1994........................................ 2 53,898 (74,470) (2,114) (22,684)
Net earnings for the year................................. 0 0 10,998 0 10,998
Minority interest in consolidated subsidiary.............. 0 0 407 234 641
Currency translation adjustment........................... 0 0 0 (1,931) (1,931)
----------- --------- ----------- ----------- -----------
September 30, 1995........................................ $ 2 $ 53,898 $ (63,065) $ (3,811) $ (12,976)
----------- --------- ----------- ----------- -----------
----------- --------- ----------- ----------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
E&S Holdings Corporation and subsidiaries (the "Company") is a diversified,
global manufacturer and marketer of branded consumer products serving the
sporting goods and juvenile products markets under the primary trade names
Spalding, Top-Flite and Evenflo. The subsidiaries of the Company are E&S Realco,
Inc. ("Realco") and Spalding & Evenflo Companies, Inc. ("S&E") and subsidiaries,
of which Spalding Sports Worldwide ("Spalding") is a division and Evenflo
Company, Inc. ("Evenflo") is a wholly-owned subsidiary. Spalding markets and
licenses under the Spalding and Top-Flite trade names a wide variety of
recreational and athletic products such as golf balls, golf clubs, golf bags and
accessories, basketballs, volleyballs, footballs, soccer balls, softball and
baseball bats, balls and gloves, handballs, rackets and balls for tennis and
racquetball and clothing, shoes and equipment for many other sports. Evenflo
markets specialty juvenile products including reusable and disposable baby
bottle feeding systems, breastfeeding aids, pacifiers and oral development items
and other baby care products and accessories, as well as juvenile car seats,
high-chairs, play yards, cribs, dressers and changing tables, exercisers, child
carriers, activity products and mattresses.
Principles of Consolidation
The Company is a wholly-owned subsidiary of Abarco, N.V. ("Abarco"). The
consolidated financial statements include the accounts of E&S Holdings
Corporation and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
In 1993 the Company purchased a common stock interest (ultimately 65.3%)
and a preferred stock interest (ultimately 92.7%) in PXC&M Holdings, Inc. and
subsidiaries ("PXC&M") for $71,500 in cash. The other primary common shareholder
in PXC&M was another affiliate of Abarco and the Company. PXC&M was the ultimate
parent of Pueblo Xtra International, Inc. ("Pueblo"), a supermarket chain and
video tape franchise operating in Puerto Rico, South Florida and the U.S. Virgin
Islands. The operations of PXC&M were consolidated with the other operations of
the Company for the period from October 1, 1993 to May 8, 1996, at which date
the Company's common stock investment was reduced to less than 1% as a result of
the reorganization of PXC&M resulting from an equity investment by an Abarco
affiliate. As part of this reorganization, the Company's investment in PXC&M
preferred stock was redeemed in exchange for a promissory note from the Abarco
affiliate.
As described in Note T, on August 15, 1996 Strata Associates L.P.
("Strata") and Abarco entered into a Recapitalization and Stock Purchase
Agreement (the "Recapitalization Agreement") pursuant to which Strata will
acquire control of the Company (the "Recapitalization"). In connection with the
Recapitalization Agreement the Company will redeem a portion of the common stock
held by Abarco with a cash payment and the distribution of the Company's
investments in the affiliate promissory note discussed above and in the common
stock and note receivable of a real estate subsidiary of the Company. The
distribution of the PXC&M preferred stock and the write-off of the remaining
investment in the PXC&M common stock is analogous to a spin-off of the Company's
investment in PXC&M to Abarco; accordingly, the Company has retroactively
eliminated the operations of PXC&M from the accompanying consolidated financial
statements by treating the original investment in
F-7
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
PXC&M of $71,500 as a non-cash distribution of common stock and preferred stock
of a disengaged subsidiary for the year ended September 30, 1993, the year of
acquisition of PXC&M.
Fair Value of Financial Instruments
The estimated fair value of amounts reported in the consolidated financial
statements have been determined by using available market information and
appropriate valuation methodologies. The carrying value of all current assets
and current liabilities approximates fair value because of their short-term
nature. The fair value of long-term debt approximates the carrying value.
Inventories
Inventories are valued at the lower of cost or market (net realizable
value). Costs for all United States inventories and certain non-U.S. inventories
have been determined by use of the last-in, first-out method. Cost for the
majority of non-U.S. inventories has been determined by use of the first-in,
first-out method.
Property, Plant and Equipment
These assets are stated at cost and are depreciated principally using the
straight-line method over estimated useful lives which range from 3 to 20 years.
Certain assets are depreciated for income tax purposes using accelerated
methods. Assets that become fully depreciated are removed from the asset and
related accumulated depreciation accounts.
Property, plant and equipment, net, to be distributed to Abarco is carried
at cost less accumulated depreciation, which net amount does not exceed market.
Periodically, the Company evaluates the recoverability of the net carrying
value of its property, plant and equipment by estimating its fair value. The
fair value is compared to the carrying amount in the consolidated financial
statements. A deficiency in fair value relative to carrying amount is an
indication of the need for a writedown due to impairment. If the total of future
undiscounted cash flows were less than the carrying amount of the property,
plant and equipment, such carrying amount would be written down to the fair
value, and a loss on impairment recognized by a charge to earnings. The
Company's accounting policy complies with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."
Intangible Assets
Intangible assets are being amortized on the straight-line basis over the
remaining lives of the patents and over 40 years for the remaining intangibles.
The Company periodically reviews the carrying values of goodwill and other
intangible assets to assess recoverability and permanent impairments, if any,
would be recognized in current year operations.
Deferred Financing Costs
The costs incurred to obtain financing under the Credit Agreement and
Interest Agreement (each as defined below) have been capitalized and are
amortized to interest expense over the lives of the agreements, using the
straight-line method, which approximates the interest method.
F-8
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Income Taxes
Income tax expense is based on reported earnings before income taxes.
Deferred income taxes reflect the impact of temporary differences between the
amounts of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. In accordance with Statement of
Financial Accounting Standards No. 109, these deferred taxes are measured by
applying currently enacted tax laws.
The Company and its United States subsidiaries are parties to a tax sharing
agreement which provides that each member of the consolidated return group shall
pay its share of the consolidated tax liability based on the ratio of its
separate liability to the aggregate separate liabilities of all group members. A
member shall make or receive compensatory payments to the extent its separate
liability differs from its share of the group's liability.
Retirement Plans and Postretirement Benefits
Current service costs of retirement plans and postretirement healthcare and
life insurance benefits are accrued annually. Prior service costs resulting from
amendments to the plans are amortized over the average remaining service period
of employees expected to receive benefits.
Use of Estimates
The preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and judgments that affect the reported amounts of assets and
liabilities and the disclosures of contingencies at the date of the consolidated
financial statements and of revenues and expenses recognized during the
reporting period. Actual results could differ from these estimates.
Cash Flows
For purposes of the statements of consolidated cash flows, the Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
NOTE B--INVENTORIES
<TABLE>
<S> <C> <C>
SEPTEMBER 30,
--------------------
1994 1995
Finished goods........................................................ $ 55,359 $ 60,132
Work in process....................................................... 10,582 14,104
Raw materials......................................................... 13,052 14,546
--------- ---------
Total inventories.............................................. $ 78,993 $ 88,782
--------- ---------
--------- ---------
</TABLE>
The cost of 79% of 1994 and 1995 inventories was computed using the
last-in, first-out (LIFO) method of inventory valuation. Use of the LIFO method
increased the 1994 and 1995 year end inventories by $1,574 and $791.
F-9
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE C--PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<S> <C> <C>
SEPTEMBER 30,
------------------------
1994 1995
Land............................................................... $ 3,049 $ 2,914
Buildings and building improvements................................ 41,326 41,839
Machinery and equipment............................................ 89,535 88,342
----------- -----------
133,910 133,095
Accumulated depreciation........................................... (67,453) (63,177)
----------- -----------
Net property, plant and equipment........................... $ 66,457 $ 69,918
----------- -----------
----------- -----------
</TABLE>
NOTE D--INTANGIBLE ASSETS, NET
<TABLE>
<S> <C> <C>
SEPTEMBER 30,
------------------------
1994 1995
United States trademarks........................................... $ 80,303 $ 80,303
Non-U.S. trademarks................................................ 8,250 8,250
Patents............................................................ 33,500 33,500
Goodwill........................................................... 82,366 82,427
----------- -----------
204,419 204,480
Accumulated amortization........................................... (78,942) (85,410)
----------- -----------
Net intangible assets....................................... $ 125,477 $ 119,070
----------- -----------
----------- -----------
</TABLE>
Prior to May ]17, 1994 the Company paid royalties to an affiliate,
Dutchstar B.V. ("Dutchstar"), at a rate of 6% of net sales for sporting good
products sold by the Company and 3% to 5% of net sales for infant products sold
by the Company, in each case for the right to sell products bearing the
Company's name in countries other than the United States under certain non-U.S.
trademarks (the "Acquired Trademarks") owned by Dutchstar's parent company
Sahara Corp. Ltd. ("Sahara"), also an affiliate of the Company. The Company also
paid to Dutchstar all royalties (less expenses in certain cases) received from
third parties for the use of the Acquired Trademarks in countries other than the
United States. Total Acquired Trademark expense paid to Dutchstar was $11,043 in
1993, $6,280 in 1994 and $27 in 1995. Dutchstar, in turn, paid royalties to
Sahara for the use of the Acquired Trademarks in countries other than the United
States.
On May 17, 1994, Sahara sold the Acquired Trademarks to the Company for
aggregate consideration of $176,000, including a payable to Sahara of $32,000
and immediately thereafter the Company contributed the Acquired Trademarks to
Lisco Feeding, Inc., Lisco Furniture, Inc. and Lisco Sports, Inc. (collectively
the "Lisco Subsidiaries"), each a wholly-owned subsidiary of Lisco, Inc.
("Lisco, Inc."), a wholly-owned subsidiary of the Company. Each of Lisco, Inc.
and the Lisco Subsidiaries is a separate and distinct legal entity from the
Company. Lisco, Inc. and the Lisco Subsidiaries license the use of all the
trademarks and patents to the Company under exclusive long-term licenses until
September 30, 2000 with renewal options. The royalty income and expense related
to the use of these trademarks and patents are eliminated in the consolidated
financial statements of the Company.
F-10
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE D--INTANGIBLE ASSETS, NET--(CONTINUED)
Under generally accepted accounting principles the Acquired Trademarks were
not revalued to fair market value but were recorded at Sahara's net book value.
The purchase price of the Acquired Trademarks is included in the accompanying
1994 balance sheet as follows:
<TABLE>
<S> <C>
AMOUNT
Intangible assets--net book value of Sahara.................................... $ 8,250
Deferred income taxes--tax effect of excess purchase price..................... 58,712
Retained earnings--excess of purchase price at fair market value over book
value of non-U.S. trademarks acquired from affiliate........................... 109,038
------------
Fair market value of Acquired Trademarks....................................... $ 176,000
------------
------------
</TABLE>
The $8,250 carrying value of the Acquired Trademarks is being amortized
over 30 years for book purposes while the $176,000 fair market value is being
amortized over 15 years for income tax purposes. The $58,712 deferred income tax
effect will be reduced as the Company recognizes the tax benefit of the
difference between the carrying value of $8,250 and the tax basis of $176,000.
Under generally accepted accounting principles, the $109,038 excess purchase
price was charged to retained earnings.
NOTE E--ACCRUED EXPENSES
<TABLE>
<S> <C> <C>
SEPTEMBER 30,
--------------------
1994 1995
Compensation and other employee benefits.............................. $ 13,424 $ 17,358
Reserve for self insurance............................................ 11,568 12,654
Other, principally operating expenses................................. 28,805 24,278
--------- ---------
Total accrued expenses......................................... $ 53,797 $ 54,290
--------- ---------
--------- ---------
</TABLE>
The majority of the Company's group health and workers compensation
insurance programs are self insured. Commercial and product liability insurance
coverages are high deductible insured programs. Commercial liability deductibles
are $250 per occurrence and $1,000 in aggregate. Product liability deductibles
are $1,000 per occurrence and $3,000 in aggregate. As a supplement to these
programs the Company carries $75,000 in umbrella coverage. The reserve for self
insurance claims shown in the table above covers the deductibles and self
insurance programs and is based upon an annual review by the Company and its
independent actuary of claims filed and claims incurred but not yet reported.
F-11
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE F--NON-U.S. DEBT
The Company's non-U.S. subsidiaries have short-term bank financing
arrangements to support international working capital requirements. The
subsidiaries utilized these arrangements by use of direct bank borrowings,
discounting receivables, and letters of credit as follows:
<TABLE>
<S> <C> <C>
SEPTEMBER 30,
--------------------
1994 1995
Available lines of credit............................................. $ 47,500 $ 49,200
--------- ---------
--------- ---------
Amounts outstanding:
Direct bank borrowings......................................... $ 7,161 $ 10,299
Discounted receivables (netted against accounts receivable).... 12,400 13,770
Letters of credit.............................................. 4,039 5,831
--------- ---------
$ 23,600 $ 29,900
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1994 1995
Maximum borrowings........................................ $ 26,500 $ 25,900 $ 30,100
Weighted average outstanding balances..................... $ 20,200 $ 20,900 $ 24,700
Weighted average interest rates........................... 6.51% 4.76% 6.32%
</TABLE>
At September 30, 1995, the borrowings are mainly comprised of $17,800 in
Japanese yen and $9,400 in Australian dollars.
NOTE G--UNITED STATES DEBT
On May 17, 1994 the Company entered into a $150,000 interim bank financing
arrangement to purchase the non-U.S. trademarks. At the Company's option,
interest was based on either an "Alternative Base Rate" or a "Eurodollar Rate",
as defined. The loan was repaid from the initial funding under the Credit
Agreement.
The Company's U.S. operations have long-term bank financing arrangements to
support working capital needs and other general corporate requirements. The
operations utilized these arrangements
F-12
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE G--UNITED STATES DEBT--(CONTINUED)
primarily by use of direct bank borrowings, acceptances, and letters of credit.
The Company's borrowing activities are as follows:
<TABLE>
<S> <C> <C>
SEPTEMBER 30,
------------------------
1994 1995
Secured Credit Agreement
Revolving credit loans........................................... $ 0 $ 126,000
Term Loan A...................................................... 0 105,000
Term Loan B...................................................... 0 89,000
Unsecured Credit Agreement revolving credit loans.................. 124,645 0
Other indebtedness................................................. 6,512 5,143
----------- -----------
Total debt.................................................. 131,157 325,143
Current maturities of debt......................................... 1,369 12,070
----------- -----------
Long-term debt.............................................. $ 129,788 $ 313,073
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1993 1994 1995
Maximum borrowings.................................... $ 183,900 $ 198,300 $ 377,600
Weighted average outstanding balances................. $ 128,100 $ 170,700 $ 326,900
Weighted average interest rates....................... 4.37% 5.09% 10.13%
</TABLE>
As of September 30, 1994 and 1995 the credit agreements were utilized as
follows:
<TABLE>
<S> <C> <C>
SEPTEMBER 30,
------------------------
1994 1995
Borrowings under credit agreements................................. $ 124,645 $ 320,000
Acceptances (included in accounts payable)......................... 44,150 46,390
Letters of credit.................................................. 26,000 23,560
Non-U.S. bank loan guarantees...................................... 850 800
----------- -----------
$ 195,645 $ 390,750
----------- -----------
----------- -----------
</TABLE>
SECURED CREDIT AGREEMENT
On October 13, 1994, the Company entered into a secured credit agreement
(the "Credit Agreement") with nineteen lending institutions. The Credit
Agreement provided for a $450,000 maximum credit commitment, consisting of a
$250,000 revolving credit and a $110,000 term loan ("Term Loan A"), both of
which mature on October 13, 2000, and a $90,000 term loan ("Term Loan B"), which
matures on October 13, 2002. The term loans require quarterly amortization
through maturity. Borrowings may be used for working capital needs, special
facility obligations (letters of credit, acceptances, non-U.S. bank loan
guarantees, and currency exchange contracts), and for other general corporate
purposes. Special facility obligations are limited to a maximum of $90,000.
F-13
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE G--UNITED STATES DEBT--(CONTINUED)
The Company used the $319,000 proceeds from the initial funding under the
Credit Agreement as follows:
<TABLE>
<S> <C>
AMOUNT
Repayment of short-term interim loan, including interest........................ $ 150,152
Repayment of prior credit indebtedness, including interest and fees............. 145,361
Payment of affiliate payable.................................................... 17,707
Payment of bank loan financing costs............................................ 5,144
Working capital................................................................. 636
-----------
Total use of proceeds.................................................... $ 319,000
-----------
-----------
</TABLE>
The Company paid in full the $32,000 payable to Sahara relating to the
Acquired Trademarks by a cash payment of $17,707 and by assigning a note from an
affiliate of the Company with an outstanding principal balance of $14,075, plus
accrued interest of $218.
At the Company's option, interest is based on either an "Alternate Base
Rate", or a "Eurodollar Rate", as defined. Interest and fees are subject to
different pricing levels and are payable quarterly. Pricing levels are as
follows:
<TABLE>
<S> <C>
INTEREST OR FEE PRICING RANGE
- -------------------------------------------------------- --------------------------------------------------------
Alternate Base Rate
Revolver and Term Loan A.............................. Rate plus 150 basis points
Term Loan B........................................... Rate plus 200 basis points
Eurodollar Rate
Revolver and Term Loan A.............................. Rate plus 275 basis points
Term Loan B........................................... Rate plus 325 basis points
Special facility fee on utilized commitment
Acceptances........................................... Eurodollar margin minus 50 basis points
Trade letters of credit............................... Eurodollar margin minus 50 basis points
Standby letters of credit............................. Eurodollar margin minus 25 basis points
Commitment fee on unused commitment..................... 50 basis points
</TABLE>
If the Company meets certain financial ratios, the interest rate margins on
the revolver and Term Loan A shall be reduced 75 basis points in increments of
25 basis points. In addition, the Company pays a quarterly $25 agency fee to the
administrative agent.
The Credit Agreement is collateralized by domestic receivables and
inventories, all the stock of its domestic subsidiaries, 65% of the stock of the
Company's non-U.S. subsidiaries, and Abarco's investments in PXC&M stock. There
are restrictions which, among others, (i) require the Company to maintain
certain financial ratios, (ii) restrict the payment of cash dividends or the
cash redemption or repurchase of any shares of the Company's common stock, (iii)
prohibit certain transactions with affiliates, (iv) provide that 75% of the
"Excess Cash Flow", as defined in the Credit Agreement, must be used to reduce
both Term Loans A and B, (v) require the Company, in certain instances, to
maintain interest rate protection, and (vi) limit the amount of other U.S. and
non-U.S. borrowings, new investments in the Company's non-U.S. subsidiaries,
capital expenditures and the aggregate payments
F-14
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE G--UNITED STATES DEBT--(CONTINUED)
made under operating leases. The Credit Agreement also requires that the balance
outstanding under the revolving credit facility be reduced to $125,000 for a
period of 30 consecutive days during each fiscal year.
On December 12, 1994, the Company obtained interest rate protection (the
"Interest Agreement") on $125,000 of the outstanding borrowings. The Interest
Agreement provides for the Company to be reimbursed to the extent cumulative
interest on a 30 day Eurodollar Rate exceeds $22,906 for the accumulation period
beginning December 14, 1994 and ending December 16, 1996. As of September 30,
1995, $16,852 remains prior to any reimbursement under the terms of the Interest
Agreement.
Scheduled maturities of the Term Loans A and B are as follows:
<TABLE>
<S> <C> <C>
YEAR ENDING TERM TERM
SEPTEMBER 30, LOAN A LOAN B
1996............................................................... $ 10,000 $ 1,000
1997............................................................... 20,000 1,000
1998............................................................... 25,000 1,000
1999............................................................... 25,000 5,000
2000............................................................... 18,750 5,000
2001............................................................... 6,250 36,000
2002............................................................... 0 30,000
2003............................................................... 0 10,000
------------ ---------
Total....................................................... $ 105,000 $ 89,000
------------ ---------
------------ ---------
</TABLE>
UNSECURED CREDIT AGREEMENT
Prior to the new October 13, 1994 credit agreement the Company operated
under a $230,000 unsecured credit agreement which was used for working capital
needs and special facility obligations (letters of credit, acceptances, non-U.S.
bank loan guarantees, and currency exchange contracts). At the Company's option,
interest was based on either an "Alternate Base Rate", a "Eurodollar Rate", or a
"CD Rate", as defined.
OTHER INDEBTEDNESS
The other indebtedness consists primarily of financing agreements with
various government agencies to finance the cost of a manufacturing facility and
equipment. The borrowings have scheduled repayments through the year 2010.
F-15
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE H--INCOME TAXES
Earnings before income taxes, minority interest and cumulative effect of
accounting changes in the United States and outside the United States, along
with the components of the income tax provision, are as follows:
<TABLE>
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1994 1995
Earnings before income taxes, minority interest and cumulative effect of
accounting changes:
United States................................................................ $ 43,796 $ 30,553 $ 16,729
Other nations................................................................ (1,757) (592) 3,676
--------- --------- ---------
Total................................................................... $ 42,039 $ 29,961 $ 20,405
--------- --------- ---------
--------- --------- ---------
Income tax provision:
Current taxes:
Federal taxes............................................................. $ 19,448 $ 13,387 $ 3,201
State taxes............................................................... 2,710 1,653 88
Other nations' taxes...................................................... 2,084 2,198 2,358
--------- --------- ---------
Total................................................................... 24,242 17,238 5,647
Deferred taxes:
Federal taxes............................................................. (5,332) (4,013) 2,121
Other nations' taxes...................................................... (910) (1,287) 915
--------- --------- ---------
Total................................................................... (6,242) (5,300) 3,036
--------- --------- ---------
Total income taxes...................................................... $ 18,000 $ 11,938 $ 8,683
--------- --------- ---------
--------- --------- ---------
</TABLE>
The differences between the effective income tax rate and the U.S.
statutory rate are as follows:
<TABLE>
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1994 1995
U.S. Statutory rate............................................................ 35% 35% 35%
State income taxes, net of federal benefit..................................... 4 3 (3)
Non-U.S. tax rate differences.................................................. 1 2 9
Non-U.S. losses (earnings) for which no taxes were recorded.................... 3 1 (1)
Other.......................................................................... 0 (1) 3
--------- --------- ---------
Effective tax rate........................................................ 43% 40% 43%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Effective October 1, 1992, the Company elected early adoption of Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
SFAS 109 changes the method of accounting for income taxes to an asset and
liability approach from the deferred method required under Accounting Principles
Board Opinion No. 11. The cumulative effect of the change was a net increase in
deferred tax liabilities as of October 1, 1992 of $4,800 with a charge to
earnings of the same amount. Financial statements prior to 1993 have not been
restated to apply the provisions of SFAS 109.
Under the asset and liability method prescribed by SFAS 109, deferred
income taxes, net of appropriate valuation allowances, are provided for the
temporary differences between the financial
F-16
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE H--INCOME TAXES--(CONTINUED)
reporting and tax basis of assets and liabilities at currently enacted tax
rates. Temporary differences and carryforwards, excluding Acquired Trademarks,
are as follows:
<TABLE>
<S> <C> <C> <C> <C>
CURRENT NONCURRENT
NET DEFERRED TAX ASSET NET DEFERRED TAX LIABILITY
------------------------- --------------------------
1994 1995 1994 1995
Intangibles amortization.................................. $ 0 $ 0 $ 26,112 $ 25,335
Depreciation.............................................. 0 0 711 1,062
Accrued liabilities....................................... 7,909 7,499 0 0
Pension................................................... 0 0 (4,130) (4,587)
Postretirement benefits................................... 0 0 (3,218) (3,338)
Deferred compensation..................................... 0 0 (2,461) (2,309)
Non-U.S. net operating loss carryforwards................. 0 0 (7,572) (6,539)
Other..................................................... 2,223 2,167 0 (1,748)
------------ ----------- ------------ ------------
Total deferred income taxes.......................... 10,132 9,666 9,442 7,876
Valuation allowance on net operating losses............... 0 0 5,317 5,541
------------ ----------- ------------ ------------
Net deferred income taxes............................ $ 10,132 $ 9,666 $ 14,759 $ 13,417
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
On September 30, 1993, 1994 and 1995 undistributed earnings of non-U.S.
subsidiaries included in consolidated retained earnings amounted to $6,600,
$7,500 and $8,800. The Company intends to continue to indefinitely reinvest
these earnings, which reflect full provision for non-U.S. income taxes, to
expand its international operations. Accordingly, no provision has been made for
U.S. income taxes that might be payable upon repatriation of such earnings.
The Company's federal income tax returns through September 30, 1993 have
been examined by, and settled with, the Internal Revenue Service.
NOTE I--PENSION PLANS
The Company's United States operations have noncontributory, defined
benefit pension plans covering substantially all employees. These plans provide
employees with pension benefits that are based on either, age and compensation,
or are based on stated amounts for each year of service. The Company's funding
policy is to contribute annually the minimum amounts permitted by the Internal
Revenue Code. Plan assets are invested in a broadly diversified portfolio
consisting primarily of common stock and fixed income securities.
F-17
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE I--PENSION PLANS--(CONTINUED)
The September 30, 1994 and 1995 funded status of the Company's United
States defined benefit plans consists of the following:
<TABLE>
<S> <C> <C> <C> <C>
ASSETS EXCEED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
EXCEED ASSETS
-------------------- --------------------
1994 1995 1994 1995
Actuarial present value of benefits based on service to date and
present pay levels:
Vested.............................................................. $ 321 $ 415 $ 47,987 $ 49,437
Nonvested........................................................... 17 3 2,611 2,923
--------- --------- --------- ---------
Accumulated benefit obligation........................................ 338 418 50,598 52,360
Additional amounts related to projected pay increases................. 500 13 160 102
--------- --------- --------- ---------
Total projected benefit obligation based on service to date........... 838 431 50,758 52,462
Plan assets at fair value............................................. 460 515 42,502 45,522
--------- --------- --------- ---------
Projected benefit obligation in excess of (less than) plan assets..... 378 (84) 8,256 6,940
Unamortized net amount resulting from changes in plan experience and
actuarial assumptions................................................. (51) 389 (4,727) (834)
Unrecognized net transition obligation................................ (11) (10) 1,100 958
Unamortized prior service cost........................................ (321) (295) 4,246 4,085
--------- --------- --------- ---------
Pension liability (asset)............................................. $ (5) $ 0 $ 8,875 $ 11,149
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
On September 30, 1994 and 1995 the Company's United States pension
liability due currently was $10 and $1,469 and the long-term portion was $8,860
and $9,680.
The 1993, 1994 and 1995 pension expense of the Company's United States
defined benefit plans includes the following components:
<TABLE>
<S> <C> <C> <C>
1993 1994 1995
Benefits earned during the period.................................................. $ 1,510 $ 1,983 $ 2,225
Interest accrued on benefits earned in prior years................................. 3,813 3,690 3,865
Return on plan assets.............................................................. (3,720) (3,786) (3,510)
Net amortization................................................................... (21) (112) (331)
--------- --------- ---------
Pension expense of domestic defined benefit plans.................................. $ 1,582 $ 1,775 $ 2,249
--------- --------- ---------
--------- --------- ---------
</TABLE>
Assumptions used in the accounting for United States defined benefit plans
as of September 30, 1993, 1994 and 1995 were:
<TABLE>
<S> <C> <C> <C>
1993 1994 1995
Discount rate...................................................................... 7.5% 7.5% 7.5%
Rate of increase in compensation levels............................................ 4.5% 4.5% 4.5%
Expected long-term rate of return on assets........................................ 8.5% 8.5% 8.5%
</TABLE>
The Company's United States operations and most non-U.S. subsidiaries have
separate defined contribution plans. The purpose of these defined contribution
plans is generally to provide additional
F-18
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE I--PENSION PLANS--(CONTINUED)
financial security during retirement by providing employees with an incentive to
make regular savings. Company contributions to the plans are based on employee
contributions or compensation. The non-U.S. plans are integrated with the
benefits required by the laws of the various countries. The Company's defined
contribution plans' expenses totaled $1,493 in 1993, $1,818 in 1994, and $1,880
in 1995.
NOTE J--POSTRETIREMENT BENEFITS
The Company provides certain postretirement health care and life insurance
benefits for its domestic retired employees and their dependents. Substantially
all of the Company's United States employees may become eligible for those
benefits if they reach normal retirement age while working for the Company. Most
international employees are covered by government sponsored programs and the
cost to the Company is not significant. The Company does not fund retiree health
care benefits in advance and has the right to modify these plans in the future.
Effective October 1, 1992, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS 106 requires accrual
accounting for these benefits during employees' active service periods rather
than accounting for them on a cash basis at the time the benefits are paid. Upon
adoption, the Company elected to record the accumulated obligation of $7,900
pretax ($4,820 after-tax) as a one-time charge against earnings in the form of a
cumulative effect of an accounting change. The Company's cash flows have been
unaffected by this accounting change as the Company continues to fund
postretirement benefit costs as the claims are incurred.
The September 30, 1994 and 1995 status of the postretirement benefit plans
consists of the following:
<TABLE>
<S> <C> <C>
1994 1995
Actuarial present value of benefit obligation based on service to date:
Retirees................................................................................... $ 5,413 $ 5,251
Fully eligible active participants......................................................... 954 1,087
Other active participants.................................................................. 1,539 1,719
--------- ---------
Accumulated postretirement benefit obligation................................................ 7,906 8,057
Unamortized net amount resulting from changes in plan experience and actuarial assumptions... 487 627
--------- ---------
Postretirement benefit liability............................................................. $ 8,393 $ 8,684
--------- ---------
--------- ---------
</TABLE>
On September 30, 1994 and 1995 the postretirement benefit liability due
currently was $143 and $124 and the long-term portion was $8,250 and $8,560.
The 1993, 1994 and 1995 postretirement benefit expense includes the
following components:
<TABLE>
<S> <C> <C> <C>
1993 1994 1995
Benefits earned during the period........................................................ $ 89 $ 106 $ 122
Interest accrued on benefits earned in prior years....................................... 638 585 583
Net amortization......................................................................... 73 2 (20)
--------- --------- ---------
Postretirement benefit expense........................................................... $ 800 $ 693 $ 685
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-19
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE J--POSTRETIREMENT BENEFITS--(CONTINUED)
Assumptions used in the accounting for postretirement benefit plans as of
September 30, 1993, 1994 and 1995 were:
<TABLE>
<S> <C> <C> <C>
1993 1994 1995
Discount rate....................................................................... 8.5% 7.5% 7.5%
Rate of increase in compensation levels............................................. 6.0% 4.5% 4.5%
Assumed current year health care cost trend rate
Retirees under 65................................................................. 14.0% 14.0% 14.0%
Medicare eligible retirees........................................................ 14.0% 14.0% 14.0%
Assumed ultimate trend rate......................................................... 6.5% 6.5% 6.5%
Year ultimate health care cost rate will be achieved................................ 2007 2008 2009
Effect of 1% increase in health care cost trend rates
Accumulated postretirement benefit obligation..................................... $ 500 $ 620 $ 550
Annual aggregate benefit and interest costs....................................... $ 60 $ 60 $ 50
</TABLE>
NOTE K--DEFERRED COMPENSATION
The Company's long-term incentive compensation plans grant performance
awards to certain key employees which vest upon the attainment of preestablished
multi-year performance standards. The employees make an election at the
beginning of each plan to be paid fully upon vesting or to defer partial or
total payment up to seven years. The performance awards are payable in cash
based upon a net earnings formula, as defined, as of the September 30 preceding
the payment. Compensation is recorded each year for the effect of changes based
on the net earnings formula, as defined, for the vested awards of prior plans
and the estimated awards that will be vested in future periods. Compensation
expense under these plans was $459 in 1993, $2,096 in 1994 and $2,556 in 1995.
NOTE L--1994 MANAGEMENT STOCK OWNERSHIP PLAN
The 1994 Management Stock Ownership Plan authorizes 19,000 shares of S&E
Class A common stock to be available to a select number of the most senior
officers of the Company. On November 30, 1994 certain officers of S&E purchased
11,643 shares of Class A common stock for $8,643, which was based on the
estimated fair market value per share as determined by a Company formula based
on earnings, as defined. The officers paid $12 in cash and signed $2,581 full
recourse 7.74% secured promissory notes due November 30, 2001 and $6,050
nonrecourse 8.23% secured promissory notes due November 30, 2004 (collectively,
the "Management Notes"). The notes are collateralized by the pledge to S&E of
the Class A common stock purchased by the officer. Interest income to the
Company is either paid or capitalized on September 30 each year, at the option
of the officer. The officer promissory notes as well as the related Class A
common stock have been pledged to the lenders under the Credit Agreement until
the notes and accrued interest have been paid in full.
The Class A common stock is identical to the other common stock except it
is non-voting (prior to an initial public offering or change in control) and the
stock is restricted and non-transferable (except for limited put and call rights
of the program participants in the event of the officer's termination). The fair
market valuation is determined once a year by the executive committee, using a
specified multiple of EBITDA (earnings before interest, income taxes,
depreciation, and amortization) less outstanding debt.
F-20
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE L--1994 MANAGEMENT STOCK OWNERSHIP PLAN--(CONTINUED)
Compensation expense and an accrued liability to be paid upon termination
of the officers are recorded in the amount of any increase in value as
determined by the estimated fair market value formula. Compensation expense
related to the 1994 Management Stock Ownership Plan was $1,130 for the year
ended September 30, 1995 and the accrued liability as of September 30, 1995 was
$1,130.
The minority interest in consolidated subsidiary resulting from this stock
issuance represents the initial purchase price of the shares plus the officers'
share of the earnings of the subsidiary less the total of the unpaid balances of
the promissory notes and unpaid accrued interest. The unpaid balances of the
notes plus accrued interest was $9,212 as of September 30, 1995.
NOTE M--UNUSUAL EXPENSE ITEMS, NET
In 1993, the Company recorded a $3,790 charge to cost of sales to convert
two Evenflo manufacturing facilities to distribution centers and to close two
Spalding softball manufacturing facilities.
In 1995, the Company settled an indemnification dispute involving an
environmental matter of a former operation for $2,400.
NOTE N--LEASE COMMITMENTS
The Company leases certain manufacturing, warehousing and office
facilities, and equipment under various operating lease arrangements expiring
periodically through 2009. The Company has no material capital leases.
The following is a schedule by year of future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year at September 30, 1995:
<TABLE>
<S> <C>
YEAR ENDING
SEPTEMBER 30, AMOUNT
1996................................................................................ $ 2,929
1997................................................................................ 1,915
1998................................................................................ 980
1999................................................................................ 436
2000................................................................................ 206
Thereafter.......................................................................... 1,337
---------
Total minimum lease payments........................................................ $ 7,803
---------
---------
</TABLE>
Rental expense under these operating leases was $3,482 in 1993, $2,989 in 1994,
and $3,027 in 1995.
NOTE O--CURRENCY EXCHANGE CONTRACTS
The Company may from time to time enter into forward currency exchange
contracts to protect inventory purchases and affiliated note activities against
changes in future currency exchange rates. A forward currency exchange contract
is an agreement between two parties to buy or sell currency at a set price on a
future date. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is marked-to-market using the spot rate at
the end of each accounting period and the change in market value is recorded by
the Company as unrealized gain or loss. The Company records realized gains or
losses when the contract is settled, equal to the difference between the value
of the contract at the time it was opened and the value of the related inventory
purchases or
F-21
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE O--CURRENCY EXCHANGE CONTRACTS--(CONTINUED)
affiliated note activities. Risk may arise upon entering into these contracts
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar. As of September 30, 1994 and 1995, the Company had approximately
$10,980 and $15,086 of currency contracts outstanding, with unrealized currency
losses of approximately $248 and $30. These contracts mature within twelve
months.
NOTE P--CONCENTRATION OF CREDIT RISK
The Company sells a broad range of consumer products in North and South
America, Europe, and the Pacific Rim. Concentrations of credit risk with respect
to trade receivables are limited due to the large number of customers comprising
the Company's customer base. Ongoing credit evaluations of customers' financial
condition are performed and, generally no collateral is required. The Company
maintains reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations. During 1994 and 1995 the
Company's sales to one customer amounted to 11% of net sales. No other customer
exceeded 10% in the years ended September 30, 1993, 1994 and 1995.
NOTE Q--CONTINGENCIES
The Company is both a plaintiff and defendant in numerous lawsuits
incidental to its current and former operations, some alleging substantial
claims. In addition, the Company's operations are subject to federal, state, and
local environmental laws and regulations. The Company has entered into
settlement agreements with the U.S. Environmental Protection Agency and other
parties on several sites, and is still negotiating on other sites. The
settlement amounts and estimated liabilities are not significant.
After discussion with legal counsel, management is of the opinion that,
after taking into account the merits of defenses, insurance coverage and
established reserves, the ultimate resolution of these matters will not have a
material adverse effect in relation to the Company's consolidated financial
statements.
NOTE R--RELATED PARTY TRANSACTIONS
See Note A for a description of the Company's accounting for its investment
in PXC&M.
See Note A for a description of the Company's Tax Sharing Agreement.
See Notes D and G for a description of the Company's purchase of the
Acquired Trademarks, of certain affiliate payables related to this purchase, and
of the related royalty payments for their use prior to the acquisition.
See Note L for a description of the Company's 1994 Management Stock
Ownership Plan. Interest income recognized on the Management Notes totaled $581
for the 1995 fiscal year.
The Company received $424 and $438 of rental income from an affiliate of
Abarco in fiscal 1994 and 1995, respectively, for the lease of office space in
the building owned by Realco.
The Company and Finser Corporation, an affiliate of the Company, have
entered into a management agreement providing for the performance by Finser
Corporation of certain management services for the Company. The Company paid
Finser Corporation $820 in fiscal 1993, 1994 and 1995, pursuant to such
management agreement.
F-22
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE S--SEGMENT REPORTING
The following schedule presents information about the Company's continuing
operations in different industry segments and geographic locations:
<TABLE>
<S> <C> <C> <C>
1993 1994 1995
INDUSTRY SEGMENT
Net Sales
Spalding................................................................. $ 378,010 $ 411,574 $ 424,118
Evenflo.................................................................. 158,234 171,533 210,039
----------- ----------- -----------
Total net sales..................................................... $ 536,244 $ 583,107 $ 634,157
----------- ----------- -----------
----------- ----------- -----------
Operating Profit (Loss)
Spalding................................................................. $ 43,950 $ 48,697 $ 58,595
Evenflo.................................................................. 8,934 9,506 11,652
General Corporate expenses............................................... (1,932) (11,169) (9,334)
Interest expense, net.................................................... (8,913) (17,073) (38,108)
Litigation settlement expense............................................ 0 0 (2,400)
----------- ----------- -----------
Earnings before income taxes, minority interest and cumulative
effect of accounting changes............................................... $ 42,039 $ 29,961 $ 20,405
----------- ----------- -----------
----------- ----------- -----------
Identifiable Assets
Spalding................................................................. $ 281,479 $ 297,209 $ 325,777
Evenflo.................................................................. 105,975 123,211 135,658
General Corporate........................................................ 16,882 87,648 74,210
----------- ----------- -----------
Total assets........................................................ $ 404,336 $ 508,068 $ 535,645
----------- ----------- -----------
----------- ----------- -----------
Capital Expenditures
Spalding................................................................. $ 8,562 $ 8,988 $ 8,850
Evenflo.................................................................. 9,253 9,668 6,531
General Corporate........................................................ 7,533 453 0
----------- ----------- -----------
Total capital expenditures.......................................... $ 25,348 $ 19,109 $ 15,381
----------- ----------- -----------
----------- ----------- -----------
Depreciation and Amortization
Spalding................................................................. $ 14,031 $ 14,270 $ 12,362
Evenflo.................................................................. 5,415 5,568 5,518
General Corporate........................................................ 24 592 407
----------- ----------- -----------
Total depreciation and amortization................................. $ 19,470 $ 20,430 $ 18,287
----------- ----------- -----------
----------- ----------- -----------
GEOGRAPHIC LOCATION
Net Sales
United States............................................................ $ 392,061 $ 427,651 $ 465,515
Other nations............................................................ 144,183 155,456 168,642
----------- ----------- -----------
Total net sales..................................................... $ 536,244 $ 583,107 $ 634,157
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-23
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE S--SEGMENT REPORTING--(CONTINUED)
<TABLE>
<S> <C> <C> <C>
1993 1994 1995
Operating Profit (Loss)
United States............................................................ $ 52,052 $ 57,923 $ 64,683
Other nations............................................................ 832 280 5,564
General Corporate expenses............................................... (1,932) (11,169) (9,334)
Interest expense, net.................................................... (8,913) (17,073) (38,108)
Litigation settlement expense............................................ 0 0 (2,400)
----------- ----------- -----------
Earnings before income taxes and cumulative effect of accounting
changes.................................................................... $ 42,039 $ 29,961 $ 20,405
----------- ----------- -----------
----------- ----------- -----------
Identifiable Assets
United States............................................................ $ 317,461 $ 341,333 $ 382,699
Other nations............................................................ 69,993 79,087 78,736
General Corporate........................................................ 16,882 87,648 74,210
----------- ----------- -----------
Total assets........................................................ $ 404,336 $ 508,068 $ 535,645
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE T--EVENTS SUBSEQUENT TO BALANCE SHEET DATE
ACQUISITION OF ETONIC
In July 1996, the Company acquired the net assets of Etonic, which
manufactures and/or markets golf shoes, gloves and other golf accessories, as
well as an established line of running and walking shoes. The Etonic golf shoe
is the second best selling golf shoe in the United States. To complete the
acquisition of Etonic, the Company issued promissory notes of $54,043 to the
seller of Etonic in exchange for certain tangible assets subject to certain
liabilities with a net asset value of approximately (unaudited) $37,000. The
notes of $54,043 will become due and payable upon the consummation of the
Recapitalization and Stock Purchase Agreement described below. For the year
ended December 31, 1995, Etonic had net sales of approximately (unaudited)
$60,200. This acquisition will be accounted for using the purchase method.
RECAPITALIZATION AND STOCK PURCHASE AGREEMENT
On August 15, 1996, Abarco and Strata entered into the Recapitalization
Agreement pursuant to which Strata will acquire control of the Company. In
connection with the Recapitalization Agreement, Strata will acquire newly issued
shares of common stock, par value $1.00 per share, of the Company for $221,000.
The Company will use these proceeds, together with approximately $750,000 of
aggregate proceeds from certain financings to (a) repay $379,103 in existing
indebtedness including the Etonic notes of $54,043 in the aggregate described
above, (b) redeem a portion of the common stock held by Abarco for $563,447 of
which $505,951 will be paid in cash, (c) redeem for $27,457 all of the
subsidiary shares issued under the 1994 Management Stock Ownership Plan (see
Note L), and (d) pay an estimated $40,000 in transaction fees and expenses.
Immediately after the consummation of the Recapitalization Agreement, Strata
will own approximately 88.4% of the common stock and Abarco will retain
approximately 11.6% of the common stock. As part of the consideration paid to
Abarco, the Company will distribute its investments in an affiliate promissory
note (see Note A) and in the common stock and note receivable of a real estate
subsidiary of the Company.
F-24
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF (UNAUDITED) JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................................................. $ 8,277
Receivables, less allowance of $2,621 in 1996.................................................... 177,343
Affiliate note receivable........................................................................ 16,000
Inventories...................................................................................... 103,808
Deferred income taxes............................................................................ 11,889
Property, plant and equipment, net, to be distributed to Abarco.................................. 6,735
Other............................................................................................ 5,781
-------------
Total current assets........................................................................ 329,833
Property, plant and equipment, net................................................................. 67,859
Intangible assets, net............................................................................. 114,309
Deferred income taxes on acquired non-U.S. trademarks.............................................. 50,411
Deferred financing costs........................................................................... 9,753
Other.............................................................................................. 2,072
-------------
Total assets................................................................................ $ 574,237
-------------
-------------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Non-U.S. bank loans.............................................................................. $ 13,367
U.S. bank loan................................................................................... 16,000
Current maturities of long-term debt............................................................. 19,503
Accounts payable................................................................................. 111,683
Accrued expenses................................................................................. 68,407
Income taxes..................................................................................... 4,643
-------------
Total current liabilities................................................................... 233,603
Long-term debt..................................................................................... 305,557
Deferred income taxes.............................................................................. 14,126
Pension............................................................................................ 10,994
Postretirement benefits............................................................................ 8,704
Deferred compensation.............................................................................. 5,920
Other.............................................................................................. 2,420
-------------
Total liabilities........................................................................... 581,324
Commitments and Contingencies (Note B)
Minority interest in consolidated subsidiary....................................................... (246)
Shareholder's equity (deficiency):
Common stock, $1 par value, 2,000 shares authorized and outstanding.............................. 2
Paid-in capital.................................................................................. 53,898
Retained earnings (deficit)...................................................................... (56,441)
Currency translation adjustment.................................................................. (4,300)
-------------
Total shareholder's equity (deficiency)..................................................... (6,841)
-------------
Total liabilities and shareholder's equity (deficiency)..................................... $ 574,237
-------------
-------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-25
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
FOR THE (UNAUDITED) NINE MONTHS ENDED JUNE 30, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C>
1995 1996
Net sales............................................................................... $ 468,277 $ 490,053
Cost of sales........................................................................... 299,050 315,728
----------- -----------
Gross profit.......................................................................... 169,227 174,325
Selling, general and administrative expenses............................................ 139,515 141,869
Royalty expense (income), net........................................................... (9,080) (9,592)
----------- -----------
Income from operations................................................................ 38,792 42,048
Interest expense, net................................................................... 29,271 27,217
Currency loss (gain), net............................................................... 724 975
----------- -----------
Earnings before income taxes.......................................................... 8,797 13,856
Income taxes............................................................................ 3,783 6,928
----------- -----------
Earnings before minority interest..................................................... 5,014 6,928
Minority interest in net earnings of consolidated subsidiary............................ 342 320
----------- -----------
Net earnings.......................................................................... $ 4,672 $ 6,608
----------- -----------
----------- -----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-26
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE (UNAUDITED) NINE MONTHS ENDED JUNE 30, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C>
1995 1996
Increase (Decrease) in Cash
Cash flows from operating activities
Net earnings............................................................................... $ 4,672 $ 6,608
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation........................................................................... 10,075 9,446
Intangibles amortization............................................................... 4,829 4,837
Deferred income taxes.................................................................. (1,083) 1,421
Pension................................................................................ 397 (506)
Postretirement benefits................................................................ 0 144
Non-cash compensation expense related to 1994 Management Stock Ownership Plan.......... 790 3,690
Deferred financing costs............................................................... 1,657 1,700
Minority interest in consolidated subsidiary........................................... 342 320
--------- ---------
Subtotal.......................................................................... 21,679 27,660
Receivables............................................................................ (17,814) (31,693)
Inventories............................................................................ (27,435) (15,026)
Current liabilities, excluding bank loans and affiliate payable........................ 9,239 11,813
Other.................................................................................. (5,991) (6,493)
--------- ---------
Net cash used by operating activities............................................. (20,322) (13,739)
Cash flows from investing activities
Capital expenditures....................................................................... (7,704) (7,073)
--------- ---------
Net cash flows used in investing activities....................................... (7,704) (7,073)
--------- ---------
Net cash used before financing activities......................................... (28,026) (20,812)
Cash flows from financing activities
Net borrowings (repayment) under credit agreements......................................... 60,855 16,750
Net borrowings (repayment) of other indebtedness........................................... (249) 2,235
Payment of new credit agreement financing costs............................................ (13,500) 0
Affiliate receivable and payable........................................................... (17,925) (16,000)
--------- ---------
Net cash flows provided by financing activities................................... 29,181 2,985
--------- ---------
Cash--net change........................................................................... 1,155 (17,827)
beginning of period........................................................................ 8,958 26,104
--------- ---------
end of period.............................................................................. $ 10,113 $ 8,277
--------- ---------
--------- ---------
Supplemental cash flow data
Interest paid.............................................................................. $ 26,945 $ 25,222
Income taxes paid.......................................................................... $ 4,836 $ 3,127
Non-cash acquisition of non-U.S. trademarks................................................ $ 14,293 $ 0
Non-cash compensation accrual for 1994 Management Stock Ownership Plan..................... $ 790 $ 3,690
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-27
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENT OF CONSOLIDATED SHAREHOLDER'S EQUITY (DEFICIENCY)
FOR THE (UNAUDITED) NINE MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
RETAINED CURRENCY
COMMON PAID-IN EARNINGS TRANSLATION
STOCK CAPITAL (DEFICIT) ADJUSTMENT TOTAL
September 30, 1995........................................... $ 2 $ 53,898 $ (63,065) $ (3,811) $ (12,976)
Net earnings for the nine months............................. 0 0 6,608 0 6,608
Minority interest in consolidated subsidiary................. 0 0 16 0 16
Currency translation adjustment.............................. 0 0 0 (489) (489)
----------- --------- ---------- ----------- ----------
June 30, 1996................................................ $ 2 $ 53,898 $ (56,441) $ (4,300) $ (6,841)
----------- --------- ---------- ----------- ----------
----------- --------- ---------- ----------- ----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-28
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE (UNAUDITED) NINE MONTHS ENDED JUNE 30, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE A--BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of the Company and have been prepared in accordance with generally
accepted accounting principles. The Company is a wholly-owned subsidiary of
Abarco. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The condensed consolidated financial statements are unaudited and should be
read in conjunction with the audited consolidated financial statements and notes
thereto for the fiscal year ended September 30, 1995.
In the opinion of management, all adjustments necessary for a fair
presentation of such condensed consolidated financial statements have been
included. Such adjustments consist only of normal recurring items. Interim
results are not necessarily indicative of results for a full year. The condensed
consolidated financial statements and notes thereto are presented as permitted
by the Securities and Exchange Commission and do not contain certain information
included in the Company's annual consolidated financial statements and notes
thereto.
NOTE B--UNITED STATES DEBT
On April 17, 1996 the Company entered into a $40,000 secured credit
agreement which matures April 17, 1997. As of June 30, 1996, the Company has
borrowed $16,000 and has advanced this amount to two Abarco affiliated companies
in exchange for promissory notes which carry interest rates equal to the credit
agreement interest rates. The borrowings are secured by assets of the two
affiliates.
NOTE C--CONTINGENCIES
The Company is both a plaintiff and defendant in numerous lawsuits
incidental to its current and former operations, some alleging substantial
claims. In addition, the Company's operations are subject to federal, state, and
local environmental laws and regulations. The Company has entered into
settlement agreements with the U.S. Environmental Protection Agency and other
parties on several sites, and is still negotiating on other sites. The
settlement amounts and estimated liabilities are not significant.
After discussion with legal counsel, management is of the opinion that,
after taking into account the merits of defenses, insurance coverage and
established reserves, the ultimate resolution of these matters will not have a
material adverse effect in relation to the Company's consolidated financial
statements.
NOTE D--EVENTS SUBSEQUENT TO BALANCE SHEET DATE
ACQUISITION OF ETONIC
In July 1996, the Company acquired the net assets of Etonic, which
manufactures and/or markets golf shoes, gloves and other golf accessories, as
well as an established line of running and walking shoes. The Etonic golf shoe
is the second best selling golf shoe in the United States. To complete the
acquisition of Etonic, the Company issued promissory notes of $54,043 to the
seller of Etonic in exchange for
F-29
<PAGE>
E&S HOLDINGS CORPORATION AND SUBSICIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE (UNAUDITED) NINE MONTHS ENDED JUNE 30, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE D--EVENTS SUBSEQUENT TO BALANCE SHEET DATE--(CONTINUED)
certain tangible assets subject to certain liabilities with a net asset value of
approximately $37,000. The notes of $54,043 will become due and payable upon the
consummation of the Recapitalization and Stock Purchase Agreement described
below. For the year ended December 31, 1995, Etonic had net sales of
approximately $60,200. This acquisition will be accounted for using the purchase
method.
RECAPITALIZATION AND STOCK PURCHASE AGREEMENT
On August 15, 1996, Abarco and Strata entered into the Recapitalization
Agreement pursuant to which Strata will acquire control of the Company. In
connection with the Recapitalization Agreement, Strata will acquire newly issued
shares of common stock, par value $1.00 per share, of the Company for $221,000.
The Company will use these proceeds, together with approximately $750,000 of
aggregate proceeds from certain financings to (a) repay $379,103 in existing
indebtedness including the Etonic Notes of $54,043 in the aggregate described
above, (b) redeem a portion of the common stock held by Abarco for $563,447 of
which $505,951 will be paid in cash, (c) redeem for $27,457 all of the
subsidiary shares issued under the 1994 Management Stock Ownership Plan and (d)
pay an estimated $40,000 in transaction fees and expenses. Immediately after the
consummation of the Recapitalization Agreement, Strata will own approximately
88.4% of the common stock and Abarco will retain approximately 11.6% of the
common stock. As part of the consideration paid to Abarco, the Company will
distribute its investments in an affiliate promissory note and in the common
stock and note receivable of a real estate subsidiary of the Company.
F-30
<PAGE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. 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 A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THOSE TO WHICH IT RELATES IN ANY JURISDICTION WHERE OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH
IN THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
$200,000,000
N82455GA.G01,960,240,H
------------------------
TABLE OF CONTENTS
N82455GA.G02,660,240,H
<TABLE>
<S> <C>
PAGE
---------
Available Information........................... 2
</TABLE>
<TABLE>
<S> <C>
Prospectus Summary.............................. 3
</TABLE>
E&S HOLDINGS
<TABLE>
<S> <C>
Risk Factors.................................... 16
The Recapitalization and the Financings......... 24
</TABLE>
CORPORATION
<TABLE>
<S> <C>
Use of Proceeds................................. 25
Capitalization.................................. 26
Pro Forma Condensed Consolidated
</TABLE>
--------------------------------
<TABLE>
<S> <C>
Financial Statement........................... 27
Selected Consolidated Historical
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Financial Data................................ 31
Management's Discussion and Analysis
</TABLE>
--------------------------------
<TABLE>
<S> <C>
of Financial Condition and Results of
Operations...................................... 33
Business........................................ 39
Management...................................... 58
</TABLE>
OFFER TO EXCHANGE $200,000,000 OF ITS
<TABLE>
<S> <C>
Ownership of Common Stock....................... 63
</TABLE>
<TABLE>
<S> <C>
Related Party Transactions...................... 64
</TABLE>
NOTES
<TABLE>
<S> <C>
Description of Credit Facilities................ 66
</TABLE>
DUE 2006, WHICH HAVE BEEN REGISTERED
<TABLE>
<S> <C>
The Exchange Offer.............................. 68
</TABLE>
UNDER THE SECURITIES ACT, FOR $200,000,000
<TABLE>
<S> <C>
Description of the Exchange Notes............... 79
113OF ITS
OUTSTANDING
10 3/8%
Exchange Offer; Registration Rights............. SENIOR
Description of Capital Stock.................... 116
</TABLE>
SUBORDINATED NOTES DUE 2006.
<TABLE>
<S> <C>
Description of the Preferred Stock.............. 117
Certain U.S. Federal Income Tax Consequences.... 127
Plan of Distribution............................ 131
Legal Matters................................... 132
Independent Auditors............................ 132
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative, or
investigative (other than action by or in the right of the corporation a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceedings, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such actions, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
charter, by-laws, disinterested director vote, stockholder vote, agreement or
otherwise. Article IV of the Registrant's By-laws requires indemnification to
the fullest extent permitted by Delaware law. The Registrant has also obtained
officers' and directors' liability insurance which insures against liabilities
that officers and directors of the Registrant, in such capacities, may incur.
Such 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duties as a director, except for liability (i) for any
transaction from which the director derives an improper personal benefit, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) for improper payment of dividends or
redemptions of shares, or (iv) for any breach of a director's duty of loyalty to
the company or its stockholders. Article Seven of the Registrant's Restated
Certificate of Incorporation includes such a provision.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<S> <C>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- --------------------------------------------------------------------------------------------------------
*2.1 Recapitalization and Stock Purchase Agreement, dated August 13, 1996, by and among Strata Holdings,
L.P., E&S Holdings Corporation and Abarco N.V.
*2.2 Amendment No. 1 to the Recapitalization and Stock Purchase Agreement, dated September , 1996, by and
among Strata Holdings L.P., E&S Holdings Corporation and Abarco N.V.
*3.1 Restated Certificate of Incorporation of E&S Holdings Corporation
*3.2 Bylaws of E&S Holdings Corporation
*4.1 Indenture between E&S Holdings Corporation and Marine Midland Bank, as Trustee
*4.2 Form of 10 3/8 Senior Subordinated Notes due 2006
**4.3 Form of 10 3/8 Series B Senior Subordinated Notes due 2006
*4.4 Registration Rights Agreement dated September 30, 1996 among E&S Holdings Corporation, Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, NationsBanc Capital Markets, Inc., BA
Securities, Inc. and BT Securities Corporation.
**5. Opinion of Simpson Thacher & Bartlett
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
*10.1 $650,000,000 Credit Agreement dated as of September 30, 1996, among E&S Holdings Corporation, as the
Borrower, Bank of America National Trust and Savings Association, as Swing Line Lender, as Fronting
Lender and as Administrative Agent, Merrill Lynch Capital Corporation, as Documentation Agent,
Nationsbank, N.A. (South), as Syndication Agent, and lenders.
*10.2 Guaranty dated as of September 30, 1996 made by Spalding & Evenflo Companies, Inc., Evenflo Company,
Inc., Etonic Worldwide Corporation, S&E Finance Co, Inc., Lisco, Inc., Lisco Sports, Inc., Lisco
Feeding, Inc., Lisco Furniture, Inc., and EWW Lisco, Inc. in favor of Bank of America National Trust and
Savings Association.
*10.3 Pledge Agreement dated as of September 30, 1996 made by E&S Holdings Corporation in favor of Bank of
America National Trust and Savings Association.
*10.4 Registration Rights Agreement dated as of September 30, 1996 by and among E&S Holdings Corproation,
Strata Associates, L.P., and KKR Partners II, L.P.
**12. Computation of Ratio of Earnings to Fixed Charges
*21 List of Subsidiaries
23.1 Consent of Simpson Thacher & Bartlett (included as part of its opinion filed as Exhibit 5 hereto)
*23.2 Consent of Deloitte & Touche LLP, independent certified public accountants
24 Powers of Attorney (included on page II-4)
*25 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of Marine
Midland Bank, as Trustee (separately bound)
**27 Financial Data Schedule
**99.1 Form of Letter of Transmittal
**99.2 Form of Notice of Guaranteed Delivery
**99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
(b) Financial Statement Schedules
<TABLE>
<S> <C>
PAGE
-----------
Independent Auditors' Report and Consent.............................................. S-1
Schedule II--Valuation and Qualifying Accounts--Three years ended September 30,
1996.................................................................................. S-2
</TABLE>
Schedules other than the above have been omitted because they are either not
applicable or the required information has been disclosed in the financial
statements or notes thereto.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the DGCL, the Certificate of
Incorporation and By-laws, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
The Registrant hereby undertakes:
(1) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) that every prospectus: (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(5) 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.
(6) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 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.
(7) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Tampa, State of Florida,
on the 21st day of October 1996.
E & S Holdings Corporation
By /s/ Paul L.
Whiting
...................................
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
We, the undersigned directors and officers of E & S Holdings Corporation,
do hereby constitute and appoint Paul L. Whiting and W. Michael Kipphut, or
either of them, our true and lawful attorneys and agents, to do any and all acts
and things in our name and on our behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorneys and agents, or either of them,
may deem necessary or advisable to enable said Corporation to comply with the
Securities Act of 1933 and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but without limitation, power and authority
to sign for us or any of us in our names in the capacities indicated below, any
and all amendments (including post-effective amendments) hereto and we do hereby
ratify and confirm all that said attorneys and agents, or either of them, shall
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on the 21st day of October 1996 by the
following persons in the capacities indicated:
<TABLE>
<S> <C>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
/s/ PAUL L. WHITING President, Chief Executive Officer and
............................................. Director (Principal Executive Officer)
Paul L. Whiting
/s/ W. MICHAEL KIPPHUT Vice President and Treasurer (Principal
............................................. Financial Officer)
W. Michael Kipphut
/s/ STEPHEN J. DRYER Vice President and Controller (Principal
............................................. Accounting Officer)
Stephen J. Dryer
/s/ ROBERT K. ADIKES Vice President, Secretary and General Counsel
.............................................
Robert K. Adikes
/s/ HENRY R. KRAVIS Director
.............................................
Henry R. Kravis
/s/ GEORGE R. ROBERTS Director
.............................................
George R. Roberts
/s/ MICHAEL T. TOKARZ Director
.............................................
Michael T. Tokarz
/s/ MARC S. LIPSCHULTZ Director
.............................................
Marc S. Lipschultz
/s/ GUSTAVO A. CISNEROS Director
.............................................
Gustavo A. Cisneros
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT PAGE
- --------- ------------------------------------------------------------------------------------------------ ---------
*2.1 Recapitalization and Stock Purchase Agreement, dated August 13, 1996, by and among Strata
Holdings, L.P., E&S Holdings Corporation and Abarco N.V.
*2.2 Amendment No. 1 to the Recapitalization and Stock Purchase Agreement, dated September , 1996,
by and among Strata Holdings L.P., E&S Holdings Corporation and Abarco N.V.
*3.1 Restated Certificate of Incorporation of E&S Holdings Corporation
*3.2 Bylaws of E&S Holdings Corporation
*4.1 Indenture between E&S Holdings Corporation and Marine Midland Bank, as Trustee
*4.2 Form of 10 3/8 Senior Subordinated Notes due 2006
**4.3 Form of 10 3/8 Series B Senior Subordinated Notes due 2006
*4.4 Registration Rights Agreement dated September 30, 1996 among E&S Holdings Corporation, Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, NationsBanc Capital Markets,
Inc., BA Securities, Inc. and BT Securities Corporation.
**5. Opinion of Simpson Thacher & Bartlett
*10.1 $650,000,000 Credit Agreement dated as of September 30, 1996, among E&S Holdings Corporation, as
the Borrower, Bank of America National Trust and Savings Association, as Swing Line Lender, as
Fronting Lender and as Administrative Agent, Merrill Lynch Capital Corporation, as Documentation
Agent, Nationsbank, N.A. (South), as Syndication Agent, and lenders.
*10.2 Guaranty dated as of September 30, 1996 made by Spalding & Evenflo Companies, Inc., Evenflo
Company, Inc., Etonic Worldwide Corporation, S&E Finance Co, Inc., Lisco, Inc., Lisco Sports,
Inc., Lisco Feeding, Inc., Lisco Furniture, Inc., and EWW Lisco, Inc. in favor of Bank of
America National Trust and Savings Association.
*10.3 Pledge Agreement dated as of September 30, 1996 made by E&S Holdings Corporation in favor of
Bank of America National Trust and Savings Association.
*10.4 Registration Rights Agreement dated as of September 30, 1996 by and among E&S Holdings
Corproation, Strata Associates, L.P., and KKR Partners II, L.P.
**12. Computation of Ratio of Earnings to Fixed Charges
*21 List of Subsidiaries
23.1 Consent of Simpson Thacher & Bartlett (included as part of its opinion filed as Exhibit 5
hereto)
*23.2 Consent of Deloitte & Touche LLP, independent certified public accountants
24 Powers of Attorney (included on page II-4)
*25 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of
Marine Midland Bank, as Trustee (separately bound)
**27 Financial Data Schedule
**99.1 Form of Letter of Transmittal
**99.2 Form of Notice of Guaranteed Delivery
**99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
<PAGE>
EXHIBIT 2.1
RECAPITALIZATION AND
STOCK PURCHASE AGREEMENT
dated as of August 15, 1996
by and among
STRATA HOLDINGS L.P.
E&S HOLDINGS CORPORATION
and
ABARCO N.V.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
SALE OF ACQUIRED SHARES, RECAPITALIZATION AND CLOSING
1.01 Purchase and Sale........................................ 2
1.02 Recapitalization......................................... 2
1.03 Closing.................................................. 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT
2.01 Corporate Existence of Parent............................ 4
2.02 Authority................................................ 4
2.03 Corporate Existence of the Company....................... 4
2.04 Capital Stock............................................ 5
2.05 Subsidiaries............................................. 5
2.06 No Conflicts............................................. 6
2.07 Governmental Approvals and Filings....................... 6
2.08 Books and Records........................................ 7
2.09 Financial Statements and Condition....................... 7
2.10 Taxes.................................................... 8
2.11 Legal Proceedings........................................ 10
2.12 Compliance With Laws and Orders.......................... 10
2.13 Benefit Plans; ERISA..................................... 10
2.14 Real Property............................................ 13
2.15 Tangible Personal Property............................... 15
2.16 Intellectual Property Rights............................. 15
2.17 Contracts................................................ 16
2.18 Licenses................................................. 17
2.19 Insurance................................................ 18
2.20 Affiliate Transactions................................... 18
2.21 Labor Relations.......................................... 18
2.22 Environmental Matters.................................... 19
2.23 Product Liability Claims................................. 21
2.24 Product Recalls.......................................... 21
2.25 Absence of Undisclosed Liabilities....................... 22
2.26 Brokers.................................................. 22
2.27 Etonic Schedules......................................... 22
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
3.01 Corporate Existence...................................... 22
3.02 Authority................................................ 23
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3.03 No Conflicts............................................. 23
3.04 Governmental Approvals and Filings....................... 23
3.05 Legal Proceedings........................................ 24
3.06 Purchase for Investment.................................. 24
3.07 Brokers.................................................. 24
3.08 Financing................................................ 24
3.09 Exon-Florio.............................................. 24
ARTICLE IV
COVENANTS OF PARENT
4.01 Regulatory and Other Approvals........................... 25
4.02 HSR Filings.............................................. 25
4.03 Investigation by Purchaser............................... 25
4.04 Conduct of Business...................................... 26
4.05 Certain Restrictions..................................... 27
4.06 Affiliate Transactions................................... 29
4.07 Employee Matters......................................... 29
4.08 Financial Statements and Reports......................... 29
4.09 No Shopping.............................................. 30
4.10 Disclosure............................................... 31
4.11 No Competition........................................... 31
4.12 Financing................................................ 31
4.13 Fulfillment of Conditions................................ 32
4.14 Post-Closing Status of the Company....................... 32
ARTICLE V
COVENANTS OF PURCHASER
5.01 Regulatory and Other Approvals........................... 32
5.02 HSR Filings.............................................. 33
5.03 Indemnification of Directors and Officers................ 33
5.04 Disclosure............................................... 34
5.05 Fulfillment of Conditions................................ 34
5.06 Financing................................................ 34
ARTICLE VI
CONDITIONS TO OBLIGATION OF PURCHASER
6.01 Representations and Warranties........................... 35
6.02 Performance.............................................. 35
6.03 Officer's Certificates................................... 35
6.04 Orders and Laws.......................................... 35
6.05 Regulatory Consents and Approvals........................ 35
6.06 Indebtedness............................................. 35
6.07 Pueblo Shares............................................ 36
6.08 Opinion of Counsel....................................... 36
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6.09 Environmental Diligence................................. 36
6.10 Financing............................................... 36
6.11 Pending Litigation...................................... 36
6.12 Share Repurchases....................................... 36
6.13 Trademarks.............................................. 36
6.14 Shareholders Agreement.................................. 37
6.15 Resignation of Directors................................ 37
6.16 Letter of Credit; Escrow................................ 37
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARENT
7.01 Representations and Warranties.......................... 37
7.02 Performance............................................. 37
7.03 Officer's Certificates.................................. 37
7.04 Orders and Laws......................................... 37
7.05 Regulatory Consents and Approvals....................... 37
7.06 Stockholders Agreement.................................. 38
ARTICLE VIII
TAX MATTERS
8.01 Indemnity for Taxes..................................... 38
8.02 Apportionment of Taxes.................................. 39
8.03 Contests................................................ 40
8.04 Time of Payment......................................... 41
8.05 Cooperation and Exchange of Information................. 41
8.06 Conveyance Taxes........................................ 42
8.07 Miscellaneous........................................... 42
ARTICLE IX
EMPLOYEE BENEFITS MATTERS
9.01 Benefit Plan Maintenance................................ 43
9.02 Shareholder Approval.................................... 44
ARTICLE X
SURVIVAL; NO OTHER REPRESENTATIONS
10.01 Survival of Representations, Warranties,
Covenants and Agreements................................ 44
10.02 No Other Representations................................ 44
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<PAGE>
ARTICLE XI
INDEMNIFICATION
11.01 Indemnification......................................... 45
11.02 Method of Asserting Claims.............................. 47
11.03 Tax Treatment of Indemnity Payments..................... 51
11.04 Exclusivity............................................. 52
11.05 Letter of Credit; Escrow................................ 52
11.06 Minimum Net Asset Requirement........................... 53
11.07 Other Arrangements...................................... 53
ARTICLE XII
TERMINATION
12.01 Termination............................................. 54
12.02 Effect of Termination................................... 54
ARTICLE XIII
DEFINITIONS
13.01 Definitions............................................. 55
ARTICLE XIV
MISCELLANEOUS
14.01 Notices................................................. 64
14.02 Entire Agreement........................................ 66
14.03 Expenses................................................ 66
14.04 Public Announcements.................................... 66
14.05 Confidentiality......................................... 66
14.06 Further Assurances; Post-Closing Cooperation............ 67
14.07 Waiver.................................................. 68
14.08 Amendment............................................... 68
14.09 No Third Party Beneficiary.............................. 68
14.10 No Assignment; Binding Effect........................... 68
14.11 Headings................................................ 69
14.12 Submission to Jurisdiction; Waivers..................... 69
14.13 Invalid Provisions...................................... 70
14.14 Governing Law........................................... 70
14.15 Counterparts............................................ 70
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<PAGE>
This RECAPITALIZATION AND STOCK PURCHASE AGREEMENT dated as of
August 15, 1996 is made and entered into by and among STRATA HOLDINGS L.P., a
Delaware limited partnership ("Purchaser"), ABARCO N.V., a Netherlands Antilles
corporation ("Parent"), and E&S HOLDINGS CORPORATION, a Delaware corporation and
a wholly-owned subsidiary of Parent (the "Company"). Capitalized terms not
otherwise defined herein have the meanings set forth in Section 13.01.
WHEREAS, Parent owns 2000 shares of common stock, par value $1.00
per share, of the Company (the "Common Stock"), constituting all the issued and
outstanding shares of common stock of the Company;
WHEREAS, the Company desires to issue and sell to the Purchaser, and
the Purchaser desires to purchase from the Company, newly issued shares of
Common Stock (the "Acquired Shares"), on the terms and subject to the conditions
set forth herein;
WHEREAS, in connection with such sale of Acquired Shares, Parent,
the Company and Purchaser desire to recapitalize the Company by virtue of
extensions of credit to the Company, issuance of debt and equity securities by
the Company and certain related transactions as more fully set forth herein; and
WHEREAS, Parent, the Company and Purchaser desire that the proceeds
from such extensions of credit, security issuances and sale of Acquired Shares
to Purchaser be used to (i) repay certain indebtedness of the Company and its
Subsidiaries, (ii) redeem shares of Common Stock held by Parent (the
"Recapitalization Shares") such that approximately 11.6% of the shares of Common
Stock outstanding immediately after the recapitalization shall be retained by
Parent, (iii) redeem all of the shares of Spalding & Evenflo Companies, Inc.
("Spalding") and its subsidiaries not owned by the Company (other than directors
qualifying shares), including the redemption of shares of Spalding (the
"Management Shares") held by certain members of Spalding management, and (iv)
consummate certain other transactions as more fully set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
<PAGE>
ARTICLE I
SALE OF ACQUIRED SHARES, RECAPITALIZATION AND CLOSING
1.01 Purchase and Sale. The Company agrees to issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, the Acquired
Shares at the Closing on the terms and subject to the conditions set forth in
this Agreement. The aggregate purchase price for the Acquired Shares (the
"Purchase Price") shall be calculated in accordance with the formula set forth
in Section 1.01 of the Disclosure Schedule, payable in immediately available
United States funds at the Closing in the manner provided in Section 1.03.
1.02 Recapitalization. (a) Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing, Parent shall cause the
Company and the Subsidiaries to borrow funds and to issue certain debt and
equity securities (together, the "Financing"), such that, when taken together
with the Purchase Price and other cash available to the Company and the
Subsidiaries, the Company has sufficient cash at the Closing (net of any fees,
expenses or other costs required to be paid by the Company in connection with
the transactions contemplated hereby) to, among other things, (i) repay the
Indebtedness of the Company and the Subsidiaries identified on Section 1.02 of
the Disclosure Schedule to be so repaid, (ii) redeem the Recapitalization Shares
for an aggregate redemption price calculated in accordance with the formula set
forth in Section 1.01 of the Disclosure Schedule (the "Recapitalization Amount")
and in connection therewith transfer to Parent the Bothwell Notes, the E&S
Realco Advance and the shares of E&S Realco, and (iii) repurchase all of the
shares of Spalding not owned by the Company, including the redemption of the
Management Shares pursuant to the terms and conditions of a Management Share
Repurchase Agreement attached as Exhibit A hereto (the "Management Share
Repurchase Agreement").
(b) The Financing may consist of any obligation instruments
acceptable to Purchaser, in its sole discretion, including, but not limited to,
senior debt, subordinated debt, preferred stock or other securities issued by
the Company.
1.03 Closing. The Closing will take place at the offices of Milbank,
Tweed, Hadley & McCloy, 1 Chase Manhattan Plaza, New York, New York 10005, or at
such other place as Parent, Purchaser and the Company mutually agree, at 10:00
A.M. local time, on the Closing Date. At the Closing, the following
will take place:
(i) Purchaser will pay the Company the Purchase Price by wire
transfer of immediately available funds to such account or accounts as the
Company may direct by written notice delivered to Purchaser by the Company
at least two
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<PAGE>
(2) Business Days before the Closing Date. Simultaneously with such
payment, the Company will issue to Purchaser good and valid title in and
to the Acquired Shares, free and clear of all Liens, by delivering to
Purchaser a certificate or certificates representing the Acquired Shares,
in genuine and unaltered form, duly endorsed in blank or accompanied by
duly executed stock powers endorsed in blank, with requisite stock
transfer tax stamps, if any, attached;
(ii) the Company shall consummate the Financing on such terms and
conditions as Purchaser shall determine in its sole discretion;
(iii) immediately following the consummation of the Financing and
the sale of the Acquired Shares, and the receipt by the Company of the
proceeds therefrom, the Company will cause Spalding to redeem the
Management Shares in accordance with the provisions of the Management
Share Repurchase Agreement;
(iv) immediately following the redemption of the Management Shares
by Spalding, the Company will (A) transfer the Bothwell Notes to Parent,
(B) transfer the E&S Realco Advance and all the outstanding shares of E&S
Realco to Parent and (C) pay to Parent the Recapitalization Amount by wire
transfer of immediately available funds to such account or accounts as
Parent may direct by written notice delivered to the Company by Parent at
least two (2) Business Days before the Closing Date. Simultaneously with
such payment, Parent will assign and transfer to the Company good and
valid title in and to the shares of Common Stock held by Parent which are
being redeemed pursuant to the terms of this Agreement. Each such share of
Common Stock delivered by Parent to the Company shall be cancelled by the
Company;
(v) the Company and the Subsidiaries shall repay all amounts
outstanding under the Etonic Notes, the Credit Agreements and any other
Indebtedness of the Company and the Subsidiaries identified on Section
1.02 of the Disclosure Schedule to be so repaid, and Parent shall forgive
and extinguish all amounts owed by the Company or any of the Subsidiaries
to Parent or any other Affiliate (other than the Company or any of the
Subsidiaries);
(vi) the Company shall acquire the trademarks and other Intellectual
Property and the rights thereto from Sahara Corp. Ltd. pursuant to the
terms and conditions of an agreement mutually acceptable to Parent and
Purchaser; and
(vii) Parent, the Company and Purchaser shall enter into a
Shareholders Agreement (the "Shareholders Agreement"), the terms of which
are attached hereto as Exhibit B.
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<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to Purchaser as follows:
2.01 Corporate Existence of Parent. Parent is a corporation duly
incorporated, validly existing and in good standing under the Laws of the
Netherlands Antilles. Parent has full corporate power and authority to execute
and deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby, including without limitation to
own, hold, sell and transfer (pursuant to this Agreement) the Recapitalization
Shares.
2.02 Authority. The execution and delivery by each of Parent and the
Company of this Agreement and the performance by each of Parent and the Company
of its obligations hereunder have been duly and validly authorized by the Board
of Managing Directors of Parent and the board of directors of the Company. This
Agreement has been duly and validly executed and delivered by Parent and the
Company and constitutes a legal, valid and binding obligation of Parent and the
Company enforceable against Parent and the Company in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors rights generally or by general equitable principles relating to
enforceability (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
2.03 Corporate Existence of the Company. The Company is a
corporation duly incorporated, validly existing and in good standing under the
Laws of the State of Delaware, and has full corporate power and authority to
execute this Agreement and to perform its obligations hereunder and to conduct
its business as and to the extent now conducted, and to own, use and lease its
Assets and Properties. The Company is duly qualified, licensed or admitted to do
business and is in good standing in those jurisdictions specified in Section
2.03 of the Disclosure Schedule, which are the only jurisdictions in which the
ownership, use or leasing of its Assets and Properties, or the conduct or nature
of its business, makes such qualification, licensing or admission necessary,
except for those jurisdictions in which the adverse effects of all such failures
by the Company and the Subsidiaries to be qualified, licensed or admitted and in
good standing could not in the aggregate reasonably be expected to have a
material adverse effect on the Business or Condition of the Company. Parent has
prior to the execution of this Agreement made available to Purchaser true and
complete copies of the
-4-
<PAGE>
certificate of incorporation and by-laws of the Company as in effect on the date
hereof.
2.04 Capital Stock. The authorized capital stock of the Company
before the recapitalization consists solely of 2000 shares of Common Stock and
800 shares of Senior Preferred Stock, par value $0.01 per share, of which 541
shares are owned by EAC Acquisition Corporation, an indirect wholly-owned
subsidiary of the Company (the "Preferred Stock"). The Recapitalization Shares
are duly authorized, validly issued and outstanding, fully paid and
nonassessable, have not been issued in violation of any preemptive rights and
together with the shares of Common Stock to be retained by Parent and the
Preferred Stock are the only shares of capital stock of the Company outstanding.
Other than as set forth in Section 2.04 of the Disclosure Schedule, Parent owns
the Recapitalization Shares, beneficially and of record, free and clear of all
Liens. There are no outstanding Options with respect to the Company. The
Acquired Shares, when issued and delivered at the Closing in accordance
herewith, shall be duly authorized, validly issued, fully paid and
non-assessable. The delivery of certificates at the Closing representing the
Acquired Shares and the Recapitalization Shares in the manner provided in
Section 1.03 will transfer to Purchaser and the Company, respectively, good and
valid title to the Acquired Shares and the Recapitalization Shares, free and
clear of all Liens other than Liens created or suffered to exist by Purchaser.
2.05 Subsidiaries. Section 2.05 of the Disclosure Schedule lists
each Subsidiary. Each Subsidiary is a corporation validly existing and in good
standing under the Laws of its jurisdiction of incorporation identified in
Section 2.05 of the Disclosure Schedule, and has full corporate power and
authority to conduct its business as and to the extent now conducted and to own,
use and lease its Assets and Properties. Each Subsidiary is duly qualified,
licensed or admitted to do business and is in good standing in those
jurisdictions specified in Section 2.05 of
the Disclosure Schedule, which are the only jurisdictions in which the
ownership, use or leasing of such Subsidiary's Assets and Properties, or the
conduct or nature of its business, makes such qualification, licensing or
admission necessary, except for those jurisdictions in which the adverse effects
of all such failures by the Company and the Subsidiaries to be qualified,
licensed or admitted and in good standing could not in the aggregate reasonably
be expected to have a material adverse effect on the Business or Condition of
the Company. Section 2.05 of the Disclosure Schedule lists for each Subsidiary
the amount of its authorized capital stock, the amount of its outstanding
capital stock and the record owners of such outstanding capital stock. Except as
disclosed in Section 2.05 of the Disclosure Schedule, all of the outstanding
shares of capital stock of each Subsidiary have been duly authorized and validly
issued, are fully paid and nonassessable, have not been issued in violation of
any preemptive rights and are owned, beneficially and of
-5-
<PAGE>
record, by the Company or a Subsidiary free and clear of all Liens. Except as
disclosed in Section 2.05 of the Disclosure Schedule, there are no outstanding
Options with respect to any Subsidiary. Parent has prior to the execution of
this Agreement made available to Purchaser true and complete copies of the
certificate or articles of incorporation and by-laws (or other comparable
corporate documents) of each of the Subsidiaries as in effect on the date
hereof.
2.06 No Conflicts. The execution and delivery by each of Parent and
the Company of this Agreement do not and the performance by each of Parent and
the Company of its obligations under this Agreement and the consummation of the
transactions contemplated hereby will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the certificate or articles of incorporation
or by-laws (or other comparable corporate documents) of Parent, the Company or
any Subsidiary;
(b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in Section 2.07 of the Disclosure
Schedule, conflict with or result in a violation or breach of any term or
provision of any material Law or Order applicable to Parent, the Company or any
Subsidiary or any of their respective Assets and Properties (other than such
conflicts, violations or breaches as would occur solely as a result of the
identity or the legal or regulatory status of Purchaser or any of its
Affiliates); or
(c) except as disclosed in Section 2.06 of the Disclosure Schedule
or as could not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the Business or Condition of the Company or to
adversely affect the ability of Parent or the Company to consummate the
transactions contemplated hereby or to perform their obligations hereunder, (i)
conflict with or result in a violation or breach of or constitute a default
under, (ii) result in or give to any Person any right of termination,
cancellation, acceleration or modification in or with respect to, or (iii)
result in the creation or imposition of any Lien upon Parent, the Company or any
Subsidiary or any of their respective Assets and Properties under, any Contract
or License to which Parent, the Company or any Subsidiary is a party or by which
any of their respective Assets and Properties is bound.
2.07 Governmental Approvals and Filings. Except as disclosed in
Section 2.07 of the Disclosure Schedule, no consent, approval or action of,
filing with or notice to any Governmental or Regulatory Authority on the part of
Parent, the Company or any Subsidiary is required in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, except (i) where the failure to
-6-
<PAGE>
obtain any such consent, approval or action, to make any such filing or to give
any such notice could not reasonably be expected to adversely affect the ability
of Parent to consummate the transactions contemplated by this Agreement or to
perform its obligations hereunder, or to have a material adverse effect on the
Business or Condition of the Company, and (ii) those as would be required solely
as a result of the identity or the legal or regulatory status of Purchaser or
any of its Affiliates.
2.08 Books and Records. The minute books and other similar records
of the Company and the Subsidiaries as made available to Purchaser prior to the
execution of this Agreement contain a true and complete record, in all material
respects, of all actions taken at all meetings and by all written consents in
lieu of meetings of the stockholders, the boards of directors and committees of
the boards of directors of the Company and the Subsidiaries. The stock transfer
ledgers and other similar records of the Company and the Subsidiaries as made
available to Purchaser prior to the execution of this Agreement accurately
reflect all record transfers prior to the execution of this Agreement in the
capital stock of the Company and the Subsidiaries.
2.09 Financial Statements and Condition. (a) Prior to the execution
of this Agreement, Parent has delivered to Purchaser true and complete copies of
the following financial statements:
(i) The unaudited consolidated balance sheets of the Company and its
consolidated subsidiaries as of September 30, 1994 and September 30, 1995
and the related unaudited statement of earnings for each of the years then
ended;
(ii) the unaudited consolidated balance sheets of the Company and
its consolidated subsidiaries as of June 30, 1996 and the related
unaudited consolidated statement of earnings for the portion of the fiscal
year then ended;
(iii) the audited consolidated balance sheets of Spalding and its
consolidated subsidiaries as of September 30, 1994 and September 30, 1995
and the related audited statement of earnings, shareholders' equity and
cash flows for each of the fiscal years then ended, together with a true
and correct copy of the report on such audited information by Deloitte &
Touche; and
(iv) the unaudited consolidated balance sheets of Spalding and its
consolidated subsidiaries as of June 30, 1995 and June 30, 1996 and the
related unaudited consolidated statement of earnings and cash flows for
the portion of the fiscal year then ended.
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Except as set forth in any notes thereto or as disclosed in Section 2.09(a) of
the Disclosure Schedule, all such financial statements (including the notes
thereto) were prepared in accordance with GAAP and fairly present in all
material respects the consolidated financial position and results of operations
and, in the case of Spalding, shareholders' equity (in the case of audited
statements only) and cash flows, of the Company and Spalding and their
consolidated subsidiaries, as of the respective dates thereof and for the
respective periods covered thereby, subject, in the case of interim statements
(which do not contain any notes), to normal year end adjustments. Except for
those Subsidiaries listed in Section 2.09(a) of the Disclosure Schedule, the
financial condition and results of operations of each Subsidiary are, and for
all periods referred to in this Section 2.09 have been, consolidated with those
of the Company.
(b) Except for the execution and delivery of this Agreement and the
transactions (i) to take place pursuant hereto on or prior to the Closing Date,
(ii) contemplated by Section 4.04 or (iii) disclosed in Section 2.09(b) of the
Disclosure Schedule, since the date of most recent financial statements referred
to in Section 2.09 (a)(ii) the business of the Company and the Subsidiaries has
been operated in all material respects in the ordinary course, there has not
been any material adverse change in the Business or Condition of the Company,
and Parent has not, with respect to the Company or any Subsidiary, taken any
action since June 30, 1996 which, had it taken such action subsequent to the
date of this Agreement, would have required consent or approval of Purchaser
pursuant to Section 4.04.
2.10 Taxes. (a) Except as disclosed in Section 2.10 of the
Disclosure Schedule:
(i) the Company and each Subsidiary has timely filed (taking into
account all available extensions) all material Tax Returns (or such Tax
Returns have been filed on behalf of the Company and each Subsidiary)
required to be filed by applicable law, such Tax Returns are true, correct
and complete in all material respects, all Taxes required to be shown on
such Tax Returns or otherwise due or payable have been, or will be, timely
paid and all payments of estimated Taxes required to be made with respect
to the Company and each Subsidiary have been, or will be, timely made or
the subject of an adequate reserve or accrual reflected in the financial
statements referred to in Section 2.09;
(ii) as of the date hereof neither the Company nor any Subsidiary
has executed any outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any material
Taxes or Tax Returns;
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(iii) as of the date hereof, except for the audit of the 1994 and
1995 Tax Returns of the Company, no adjustment relating to such Tax
Returns has been proposed formally or informally by any Tax authority,
there are no outstanding subpoenas or other requests for information with
respect to any such Tax Returns or Taxes of the Company or any of the
Subsidiaries and there are no pending or threatened actions or proceedings
for the assessment or collection of Taxes against the Company, any of the
Subsidiaries or any other corporation that was included in the filing of a
Tax Return with the Company or any of the Subsidiaries on a consolidated,
combined or unitary basis;
(iv) all material Taxes required to be withheld, collected or
deposited by the Company or any of the Subsidiaries have been, or will be,
timely withheld, collected or deposited and, to the extent required,
timely paid to the relevant Tax authority;
(v) no consent under section 341(f) of the Code has been filed with
respect to the Company or any of the Subsidiaries and, except for E&S
Realco, neither the Company nor any of the Subsidiaries is or has been a
"United States real property holding corporation" within the meaning of
section 897(c)(2) of the Code during the applicable period specified in
section 897(c)(1)(A)(ii) of the Code;
(vi) as of the date hereof, to the Knowledge of Parent, there are no
Liens with respect to any material Taxes upon any of the Assets and
Properties of the Company or the Subsidiaries, other than (i) Taxes, the
payment of which is not yet due or payable, or (ii) Taxes being contested
pursuant to appropriate proceedings;
(vii) to the Knowledge of Parent, as of the date hereof there is no
proposed liability for any material Tax to be imposed upon it or any
Subsidiary for the year ended September 30, 1995 and all prior taxable
years (including for Taxes which are being contested) for which there is
not an adequate reserve reflected in the financial statements referred to
in Section 2.09; and
(viii) Neither the Company nor the Subsidiaries has, or will have, any
liability for the Taxes of any person (other than the Company or the
Subsidiaries) under Treasury regulation 1.1502-6, or any similar provision
of state, local or foreign law, or as a transferee or successor (by
contract or otherwise).
(b) Except for the complete and accurate copies of the tax sharing
agreements made available to Purchaser prior to the execution of this Agreement,
which is to be amended to include EAC Holdings Corporation, EAC Acquisition
Corporation, Etonic
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Worldwide Corporation and EWW Lisco, Inc., and except for tax indemnities
included in equipment leases, no agreements relating to allocating or sharing of
Taxes exist among Parent, the Company or any Subsidiary and neither the Company
nor any of the Subsidiaries owes any amount pursuant to any formal or informal
Tax sharing, allocation or indemnity agreement or arrangement or will have any
liability after the date hereof under or with respect to any formal or informal
Tax sharing, allocation or indemnity agreement executed or agreed prior to the
Closing Date, except among the Company and the Subsidiaries.
2.11 Legal Proceedings. Except as disclosed in Section 2.11 of the
Disclosure Schedule (with paragraph references corresponding to those set forth
below):
(a) there are no material Actions or Proceedings pending or, to the
Knowledge of Parent, threatened against the
Company or any Subsidiary or any of their respective Assets and
Properties; and
(b) there are no material Orders outstanding against the Company or
any Subsidiary.
2.12 Compliance With Laws and Orders. Except as disclosed in Section
2.12 of the Disclosure Schedule, to the Knowledge of Parent, neither the Company
nor any Subsidiary is in violation of or in default under any material Law or
Order applicable to the Company or any Subsidiary or any of their respective
Assets and Properties.
2.13 Benefit Plans; ERISA.
(a) Section 2.13(a) of the Disclosure Schedule contains a true and
complete list and description as of the date hereof of each Benefit Plan, and
identifies each such Benefit Plan that is a Qualified Plan.
(b) Except as set forth in Section 2.13(b)(1) of the Disclosure
Schedule, neither the Company nor any domestic Subsidiary maintains or is
obligated to provide benefits under any life, medical or health plan (other than
as an incidental benefit under a Qualified Plan) which provides benefits to
retirees or other terminated employees other than benefit continuation rights
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"). Except as set forth in Section 2.13(b)(2) of the Disclosure Schedule
(which schedule may be prepared by Parent within 30 days of the date of this
Agreement) no foreign subsidiary maintains or is obligated to provide benefits
under any life, medical or health plan (other than as an incidental benefit
under a Qualified Plan) which provides benefits to retirees or other terminated
employees other than benefit continuation rights under COBRA
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(c) Except as set forth in Section 2.13(c) of the Disclosure
Schedule, each Benefit Plan covers only employees who are employed by the
Company or a Subsidiary (or former employees or beneficiaries with respect to
service with the Company or a Subsidiary), so that the transactions contemplated
by this Agreement will require no spin-off of assets and liabilities or other
division or transfer of rights with respect to any such plan.
(d) Except as set forth in Section 2.13(d) of the Disclosure
Schedule, neither the Company, any Subsidiary, any Affiliate nor any other
corporation or organization controlled by or under common control with any of
the foregoing within the meaning of Section 4001 of ERISA (an "ERISA Affiliate")
has at any time contributed to any "multiemployer plan", as that term is defined
in Section 4001 of ERISA. Except as set forth in Section 2.13(d) of the
Disclosure Schedule, with respect to each such "multiemployer plan" in which the
Company, any Subsidiary or any ERISA Affiliate participates or has participated
within the last five years, (A) neither the Company nor any Subsidiary or ERISA
Affiliate has withdrawn, partially withdrawn, or received any notice of any
claim or demand for withdrawal liability or partial withdrawal liability; (B)
neither the Company nor any Subsidiary or ERISA Affiliate has received any
notice that any such plan is in reorganization, that increased contributions may
be required to avoid a reduction in plan benefits or the imposition of any
excise tax, or that any such plan is insolvent; and (C) neither the Company nor
any Subsidiary or ERISA Affiliate has failed to make any required contributions.
(e) Each Benefit Plan is, and its administration is and has been
since inception, in compliance with ERISA and the Code in all respects, except
for such failures to comply which, individually or in the aggregate, could not
reasonably be expected to result in a material liability.
(f) All contributions and other payments required to be made by
Parent, the Company or any Subsidiary to any Benefit Plan with respect to any
period ending before or at or including the Closing Date have been made or
reserves adequate for such contributions or other payments have been or will be
set aside therefor and have been or will be reflected in the Company's financial
statements in accordance with GAAP.
(g) To the Knowledge of Parent, no transaction contemplated by this
Agreement will result in material liability to the PBGC under Section
302(c)(ii), 4062, 4063, 4064 or 4069 of ERISA, with respect to the Company, any
Subsidiary or any ERISA Affiliate.
(h) To the Knowledge of Parent, there are no pending or threatened
claims by or on behalf of any Benefit Plan, by any Person covered thereby, or
otherwise, which allege violations of
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Laws which, individually or in the aggregate, could reasonably be expected to
have a material adverse effect on the Business or Condition of the Company.
(i) Except as set forth on Section 2.13(i) of the Disclosure
Schedule, no event has occurred and no condition exists that (i) could subject
the Company or any ERISA Affiliate to any material tax, fine or penalty imposed
by ERISA, the Code or other applicable laws, rules and regulations including,
but not limited to the taxes imposed by Code sections 4971, 4972, 4975, 4977,
4979, 4980B, 4976(a) or fines imposed by ERISA sections 409 and 502(c) or (ii)
could be deemed a reportable event within the meaning of ERISA section 4043
which could result in a material liability to the Company or any member of its
Controlled Group (within the meaning of Section 414 of the Code) and no
condition exists which could subject the Company or any member of its Controlled
Group to a material fine under ERISA section 4071.
(j) Except as set forth on Section 2.13(j) of the Disclosure
Schedule, no Benefit Plan exists which could result in the payment to any
Company or Subsidiary employee of any money or other property or rights or
accelerate or provide any other rights or benefits to any Company or Subsidiary
employee as a result of the transaction contemplated by this Agreement, whether
or not such payment would constitute a parachute payment within the meaning of
Code section 280G.
(k) Except as set forth on Section 2.13(k) of the Disclosure
Schedule, with respect to each Benefit Plan which is not a multiemployer plan
within the meaning of section 4001(a)(3) of ERISA but is subject to Title IV of
ERISA, as of October 1, 1995, the most recent valuation date, the assets of each
such Benefit Plan are at least equal in value to the present value of the
accrued benefits (vested and unvested) of the participants in such Benefit Plan
on a termination and projected basis, based on the actuarial methods and
assumptions indicated in the most recent actuarial valuation reports dated June
1996.
(l) No "employer securities", "employer real property" (in each
case, as defined in ERISA) or other property of the Company or a Subsidiary is
included in the assets of any Benefit Plan.
(m) Complete and correct copies of the following documents as in
effect on the date hereof have been made available to Purchaser prior to the
execution of this Agreement:
(i) each Benefit Plan and any related trust agreements and insurance
contracts;
(ii) current summary plan descriptions of each Benefit Plan subject
to ERISA;
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(iii) the most recent Form 5500 and schedules thereto for each
Benefit Plan subject to ERISA reporting requirements;
(iv) the most recent determination of the IRS with respect to the
qualified status of each Qualified Plan;
(v) the most recent accountings with respect to any Benefit Plan
funded through a trust; and
(vi) the most recent actuarial report of the qualified actuary of
any Subject Defined Benefit Plan or any other Benefit Plan with respect to
which actuarial valuations are conducted.
2.14 Real Property. (a) Section 2.14(a) of the Disclosure Schedule
contains a true and correct list as of the date hereof by address and form of
ownership of (i) each parcel of real property owned by the Company or any
Subsidiary which is material to the Business or Condition of the Company
(including a legal description thereof), (ii) each parcel of real property
leased by the Company or any Subsidiary which is material to the Business or
Condition of the Company, and (iii) all Liens (other than Permitted Liens)
relating to or affecting any parcel of real property referred to in clause (i).
(b) Except as disclosed in Section 2.14(b) of the Disclosure
Schedule, the Company or a Subsidiary has good title to each parcel of real
property owned by it and referred to in clause (i) of paragraph (a) above free
and clear of all Liens except for Permitted Liens. The Company or a Subsidiary
is in possession of each such parcel of real property owned by it, together with
all buildings, structures, facilities, fixtures and other improvements thereon.
Except as specified in Section 2.14(b) of the Disclosure Schedule, with respect
to the real property referred to in clause (i) of paragraph (a) above, there are
no outstanding contracts involving in excess of $500,000 for any improvements
which have not been fully paid and no outstanding contracts for the sale of such
real property or any portion thereof or options or rights of first refusal to
purchase such real property or any portion thereof.
(c) The Company or a Subsidiary has a valid and subsisting leasehold
estate in and the right to quiet enjoyment of the real properties leased by it
as lessee under leases referred to in clause (ii) of paragraph (a) above for the
full term of the lease thereof free and clear of all Liens except for Permitted
Liens. Each such lease is a legal, valid and binding agreement, enforceable in
accordance with its terms, of the Company or a Subsidiary and, to the Knowledge
of Parent, of each other Person that is a party thereto and, except as set forth
in Section 2.14(c) of the Disclosure Schedule, to the Knowledge of Parent, there
is no material default, or events which (whether
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with or without notice, lapse of time or the happening or occurrence of any
other event) would constitute a material default, thereunder.
(d) Parent has made available to Purchaser prior to the execution of
this Agreement true and complete copies of (i) all deeds, leases, mortgages and
deeds of trust and all amendments thereof, with respect to the real property
referred to in clause (i) of paragraph (a) above and (ii) all leases (including
any amendments and renewal letters) with respect to the real property referred
to in clause (ii) of paragraph (a) above.
(e) Except as disclosed in Section 2.14(e) of the Disclosure
Schedule, the improvements on the real property identified in Section 2.14(a) of
the Disclosure Schedule are in all material respects in good operating condition
and in a state of good maintenance and repair, ordinary wear and tear excepted,
are adequate and suitable for the purposes for which they are presently being
used and, to the Knowledge of Parent, there are no condemnation or appropriation
proceedings pending or threatened against any of such real property or the
improvements thereon.
(f) Section 2.14(f) of the Disclosure Schedule sets forth a true and
complete list of all real property agreements (including any amendments thereto)
pursuant to which the Company and the Subsidiaries lease, sublease or otherwise
permit any third party to occupy any of the real property referred to in clauses
(i) and (ii) of paragraph (a) above (collectively, the "Third Party Leases").
Each of the Third Party Leases is in full force and effect and in each case free
from defaults and events which (whether with or without notice, lapse of time or
the happening or occurrence of any other event) would constitute a default, (by
landlord or tenant thereunder) except in either instance for defaults which
individually or in the aggregate would not have a material adverse effect on the
Business or Condition of the Company.
(g) Neither the Company nor any Subsidiary uses any fixtures,
furniture, improvements, machinery or equipment in the operations of the Company
or any Subsidiary which it does not own or lease. Except for molds and other
equipment used by vendors to the Company, all items of fixtures, furniture,
improvements, machinery and equipment used by the Company or the Subsidiaries
are in the possession or under the control of the Company or the Subsidiaries
and are located at one of the places of business of the Company or the
Subsidiaries. All items of such fixtures, furniture, improvements, machinery and
equipment have been constructed in workmanlike order and are in good operating
condition free from defects or damage which would render them unfit for their
continued use in the manner in which they are presently used, except for defects
or damage which individually
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or in the aggregate would not have a material effect on the operations of the
Company and its Subsidiaries, as presently conducted.
2.15 Tangible Personal Property. The Company or a Subsidiary is in
possession of and has good title to, or has valid leasehold interests in or
valid rights under Contract to use, all tangible personal property used in and
material to the Business or Condition of the Company. All such tangible personal
property is free and clear of all Liens, other than Permitted Liens, Liens
disclosed in Section 2.15 of the Disclosure Schedule and Liens that neither
individually nor in the aggregate could reasonably be expected to have a
material adverse effect on the Business or Condition of the Company, and is in
all material respects in good working order and condition, ordinary wear and
tear excepted.
2.16 Intellectual Property Rights. Section 2.16 of the Disclosure
Schedule discloses as of the date hereof, (a) all Intellectual Property used in
and material to the Business or Condition of the Company or any Subsidiary and
(b) all Contracts granting a license with respect to such Intellectual Property
to third parties. The Company or a Subsidiary either has all right, title and
interest in or a valid and binding right under Contract to use the Intellectual
Property disclosed in Section 2.16 of the Disclosure Schedule. All such material
Contracts pursuant to which the Company has a right to use such Intellectual
Property are identified in Section 2.16 of the Disclosure Schedule. No employee
of the Company or any Subsidiary, or any independent contractor, subcontractor
or any other agent has, to the Knowledge of Parent, any claims which interfere
with the Company's or any Subsidiary's right, title or interest in such
Intellectual Property. Except as disclosed in Section 2.16 of the Disclosure
Schedule, as of the date hereof (i) the validity of the registrations with
Governmental or Regulatory Authorities in respect of any material Intellectual
Property owned by the Company or a Subsidiary and disclosed in Section 2.16 of
the Disclosure Schedule is not being questioned in any Action or Proceeding to
which the Company or any Subsidiary is a party, nor, to the Knowledge of Parent,
is any such Action or Proceeding threatened, which, individually or in the
aggregate with other such Actions or Proceedings reasonably could be expected to
have a material adverse effect on the use of such Intellectual Property, (ii)
there are no material restrictions on the direct or indirect transfer of any
Contract, or any interest therein,
held by the Company or any Subsidiary in respect of such material Intellectual
Property, (iii) in the case of any such Intellectual Property held pursuant to
Contract or licensed to third parties, the related Contract is in full force and
effect and constitutes a legal, valid and binding agreement, enforceable in
accordance with its terms, of the Company or a Subsidiary and, to the Knowledge
of Parent, of each other party thereto, and neither the Company nor any
Subsidiary or, to the Knowledge of Parent, any
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other party thereto is in material violation or breach of or default under such
Contract and (iv) to the Knowledge of Parent, such Intellectual Property is not
being infringed by any other Person in any material respect. Except as disclosed
in Section 2.16 of the Disclosure Schedule, as of the date hereof neither
Parent, the Company nor any Subsidiary has received written notice that the
Company or any Subsidiary is infringing any material Intellectual Property of
any other Person in any material respect that has not been resolved and, to the
Knowledge of Parent, neither the Company nor any Subsidiary is infringing any
material Intellectual Property of any other Person.
2.17 Contracts. (a) Section 2.17(a) of the Disclosure Schedule (with
paragraph references corresponding to those set forth below) contains a true and
complete list as of the date hereof of each of the following Contracts (true and
complete copies or, if none, reasonably complete and accurate written
descriptions of which, together with all amendments and supplements thereto,
have been made available to Purchaser prior to the execution of this Agreement),
to which the Company or any Subsidiary is a party or by which any of their
respective Assets and Properties is bound:
(i) all Contracts (excluding Benefit Plans) providing for a
commitment of employment or consultation services for a specified or
unspecified term exceeding 60 days or otherwise relating to employment or
the termination of employment, the name, position and rate of compensation
of each Person party to such a Contract and the expiration date of each
such Contract;
(ii) all Contracts (other than this Agreement and credit and other
agreements to be terminated at or prior to the Closing) with any Person
containing any provision or covenant prohibiting or materially limiting
the ability of the Company or any Subsidiary to engage in any business
activity or compete with any Person;
(iii) all material partnership, joint venture, shareholders' or
other similar Contracts with any Person;
(iv) all Contracts relating to Indebtedness of the Company or any
Subsidiary in excess of $3,000,000;
(v) all Contracts with domestic distributors, dealers,
manufacturer's representatives, sales agencies or franchises and
endorsement contracts, which in any case involve the payment, pursuant to
the terms of any such Contract, by or to the Company or any Subsidiary of
more than $300,000 annually;
(vi) all Contracts relating to the future disposition or acquisition
of any Assets and Properties individually or
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in the aggregate material to the Business or Condition of the Company;
(vii) all collective bargaining or similar labor Contracts;
(viii) all Contracts (other than this Agreement, any Contract
disclosed pursuant to clause (iv) above and credit and other agreements to
be terminated at or prior to the Closing) that (A) limit or contain
restrictions on the ability of the Company or any Subsidiary to declare or
pay dividends on, to make any other distribution in respect of or to issue
or purchase, redeem or otherwise acquire its capital stock, to incur
Indebtedness, to incur or suffer to exist any Lien, to purchase or sell
any Assets and Properties, to change the lines of business in which it
participates or engages or to engage in any merger or other business
combination or (B) require the Company or any Subsidiary to maintain
specified financial ratios or levels of net worth or other indicia of
financial condition;
(ix) any material Contract which is terminable by the other party
thereto upon a change of control or recapitalization of the Company or one
of the Subsidiaries or Affiliates;
(x) any Contract between Parent and any of its Affiliates;
(xi) all other Contracts (other than Benefit Plans, leases listed in
Section 2.14(a) of the Disclosure Schedule, Contracts relating to
Intellectual Property listed in Section 2.16 of the Disclosure Schedule
and insurance policies listed in Section 2.19 of the Disclosure Schedule)
that (A) involve the payment or potential payment, pursuant to the terms
of any such Contract, by or to the Company or any Subsidiary of more than
$250,000 annually or (B) cannot be terminated within sixty (60) days after
giving notice of termination without resulting in any material cost or
penalty to the Company or any Subsidiary.
(b) Each material Contract is in full force and effect and
constitutes a legal, valid, and binding agreement, enforceable in accordance
with its terms, of the Company or a Subsidiary and, to the Knowledge of Parent,
of each other party thereto. Except as disclosed in Section 2.17(b) of the
Disclosure Schedule, neither the Company nor any Subsidiary and, to the
Knowledge of Parent, any other party thereto is in violation or breach, in any
material respect, or in default under any such Contract.
2.18 Licenses. Section 2.18 of the Disclosure Schedule contains a
true and complete list as of the date hereof
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of all Licenses (not otherwise disclosed in Section 2.16 of the Disclosure
Schedule) used in and material to the Business or Condition of the Company (and
all pending applications for any such Licenses), setting forth the grantor, the
grantee, the function and the expiration and renewal date of each. Prior to the
execution of this Agreement, Parent has made available to Purchaser true and
complete copies of all such Licenses. Except as disclosed in Section 2.18 of the
Disclosure Schedule, the Company and each Subsidiary owns or validly holds all
such Licenses, each such License is valid, binding and in full force and effect
and, to the Knowledge of Parent, neither the Company nor any Subsidiary is in
default under any such License in any material respect.
2.19 Insurance. Section 2.19 of the Disclosure Schedule contains a
true and complete list as of the date hereof of all material current insurance
policies that insure the business, operations or employees of the Company or any
Subsidiary or affect or relate to the ownership, use or operation of any of the
Assets and Properties of the Company or any Subsidiary. The Company's insurance
coverage including the insurance coverage provided by any of the policies
described in Section 2.19 of the Disclosure Schedule will not terminate or lapse
by reason of the transactions contemplated by this Agreement. Each of the
Company's insurance policies is valid and binding and in full force and effect,
no premiums due thereunder have not been paid (within any applicable grace
period) and neither the Company nor any Subsidiary has received any notice of
cancellation or termination in respect of any such policy or is in default
thereunder in any material respect.
2.20 Affiliate Transactions. Except as disclosed in Section 2.20(a)
of the Disclosure Schedule, (i) there is no Indebtedness between the Company or
any Subsidiary, on the one hand, and Parent, any officer, director or Affiliate
(other than the Company or any Subsidiary) of Parent, on the other, (ii) neither
Parent nor any such officer, director or Affiliate provides or causes to be
provided any assets, services or facilities to the Company or any Subsidiary,
(iii) neither the Company nor any Subsidiary provides or causes to be provided
any assets, services or facilities to Parent or any such officer, director or
Affiliate and (iv) neither the Company nor any Subsidiary beneficially owns,
directly or indirectly, any Investment Assets issued by Parent or any such
officer, director or Affiliate.
2.21 Labor Relations. (a) Except as disclosed in Section 2.21(a) of
the Disclosure Schedule, as of the date hereof (i) no employee of the Company or
any Subsidiary is a member of a collective bargaining unit; (ii) to the
Knowledge of Parent, there are no threatened or contemplated attempts to
organize for collective bargaining purposes any of the employees of the Company
or any Subsidiary and (iii) neither the Company nor any
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Subsidiary is a party to any collective bargaining agreement or other contract
or agreement with any labor organization or other representative of any of the
Company's employees, and no such contract or agreement is presently being
negotiated. Except as disclosed in Section 2.21(a) of the Disclosure Schedule,
since January 1, 1994 through the date hereof there has been no work stoppage,
strike or other concerted action taken or, to the Knowledge of Parent,
threatened, by employees of the Company or any Subsidiary.
(b) Except as disclosed in Section 2.21(b) of the Disclosure
Schedule, as of the date hereof neither the Company nor any Subsidiary has had a
layoff of any of its employees which constitutes a "plant closing" or "mass
layoff" under the Worker Adjustment and Retraining Notification Act of 1988, as
amended.
(c) Except as disclosed in Section 2.21(c) of the Disclosure
Schedule, neither the Company nor any Subsidiary will have any liability under
any benefit or severance policy, practice, agreement, plan or program, or under
any applicable law or otherwise, as a result of the transactions contemplated by
this Agreement.
2.22 Environmental Matters. (a) Except as disclosed in Section
2.22(a) of the Disclosure Schedule, each of the Company and the Subsidiaries has
obtained all material Licenses which are required under applicable Environmental
Laws in connection with the conduct of the business or operations of the Company
or such Subsidiary ("Environmental Permits"). No modification, revocation,
reissuance, alteration, transfer, or amendment of any of the Environmental
Permits, or any review by, or approval of, any third party of any of the
Environmental Permits is required in connection with the execution or delivery
of this Agreement or the consummation of the transactions contemplated hereby or
the continuation of the business of Company and the Subsidiaries following such
consummation. Each of the Environmental Permits is in full force and effect and
each of the Company and the Subsidiaries is and has been in material compliance
with the terms and conditions of all such Environmental Permits and with any
applicable Environmental Law and, to the Knowledge of Parent, there is no
condition that could prevent or materially interfere with such compliance in the
future.
(b) Except as disclosed in Section 2.22(b) of the Disclosure
Schedule, as of the date hereof, no notification of a material Release of a
Hazardous Material has been made by or on behalf of the Company or any
Subsidiary and no site or facility now or previously owned, operated or leased
by the Company or any Subsidiary is listed or proposed for listing on the NPL,
CERCLIS or any similar state or local list of sites requiring material
investigation or clean-up.
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(c) Except as disclosed in Section 2.22(c) of the Disclosure
Schedule, as of the date hereof, neither the Company nor any Subsidiary has
received any Environmental Claim, and neither the Company nor any Subsidiary is
aware, after reasonable inquiry, of any threatened Environmental Claim.
(d) Except as disclosed in Section 2.22(d) of the Disclosure
Schedule, neither the Company nor any Subsidiary has entered into, has agreed
to, or is subject to any Order or other similar requirement of any Governmental
or Regulatory Authority under any Environmental Law, including without
limitation those relating to compliance with Environmental Laws or to
investigation, cleanup, remediation or removal of Hazardous Materials.
(e) Except as disclosed in Section 2.22(e) of the Disclosure
Schedule, there are no Hazardous Materials currently or formerly present at or
about any site or facility currently or formerly owned, operated or leased by
the Company or any Subsidiary that could reasonably be expected to give rise to
material liability under any Environmental Law.
(f) Except as disclosed in Section 2.22(f) of the Disclosure
Schedule, Hazardous Materials have not been generated, transported, treated,
stored, disposed of, arranged to be disposed of, released or threatened to be
released at, on, from or under any site or facility currently or formerly owned,
operated, leased or otherwise used by the Company or any Subsidiary, in
violation of, or in a manner or to a location that could reasonably be expected
to give rise to material liability under, any Environmental Law.
(g) Except as disclosed in Section 2.22(g) of the Disclosure
Schedule, neither the Company nor any Subsidiary has assumed, contractually or
by operation of law, any liabilities or obligations under any Environmental
Laws.
(h) To the Knowledge of Parent, none of the matters relating to
Section 2.22 of this Agreement that are listed in the Disclosure Schedule would
have, individually or in the aggregate, a material adverse effect on the
Business or Condition of the Company.
(i) As used herein:
(i) "Environmental Claim" means any written notice, claim, demand,
action, suit, complaint, proceeding or other communication by any person
alleging material liability or material potential liability (including
without limitation material liability or material potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resource damages, property damage, personal injury, fines or penalties)
arising out of, relating to,
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based on or resulting from (i) the presence, discharge, emission, release
or threatened release of any Hazardous Material at any location, (ii)
circumstances forming the basis of any violation or alleged violation of
any Environmental Law or Environmental Permit, or (iii) otherwise relating
to obligations or liabilities under any Environmental Law.
(ii) "Environmental Law" means any Law or Order as in effect on the
date hereof of any Governmental or Regulatory Authority relating to the
regulation or protection of the environment or to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes into the environment;
and
(iii) "Hazardous Material" means (A) any petroleum or petroleum
products, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation and transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls
(PCBs) and (B) any chemicals or other materials or substances which as of
the date hereof are defined as or included in the definition of "hazardous
substances," "hazardous wastes," "toxic substances," or words of similar
import, under any Environmental Law.
2.23 Product Liability Claims. Section 2.23 of the Disclosure
Schedule sets forth a summary as of the date hereof of each Product Liability
Claim (as defined below) in excess of $250,000 paid by or, to the Knowledge of
Parent, on behalf of the Company or any Subsidiary during the past three fiscal
years, and each outstanding Product Liability Claim in excess of $250,000.
Except as set forth in Section 2.23 of the Disclosure Schedule, to the Knowledge
of Parent, there are no design or manufacturing defects in any of the products
previously sold or currently being manufactured by the Company or any Subsidiary
which could reasonably be expected to result in future Product Liability Claims
that, individually or in the aggregate, would have a material adverse effect on
the Business or Condition of the Company. For purposes of this Section 2.23, the
term "Product Liability Claim" shall mean any claim arising out of any injury to
an individual or property as a result of the ownership, possession, or use of
any product manufactured, sold, or delivered by the Company or any Subsidiary.
2.24 Product Recalls. Section 2.24 of the Disclosure Schedule sets
forth a summary as of the date hereof of each product recall of products
manufactured or sold by the Company or any Subsidiary during the past five
fiscal years, describing in each case the nature of the problem giving rise to
such recall, whether such recall was voluntary or by order of a Governmental or
Regulatory Authority, the number of products recalled, and the
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aggregate costs incurred for each such recall. Except as set forth in Section
2.24 of the Disclosure Schedule, to the Knowledge of Parent, there are no
defects which could reasonably be expected to result in a future recall of
products manufactured or sold by the Company or any Subsidiary prior to the
Closing Date.
2.25 Absence of Undisclosed Liabilities. Neither the Company nor any
Subsidiary has any liabilities or obligations, whether currently due, accrued,
direct or indirect, matured or unmatured, absolute, contingent or otherwise, of
a nature required under GAAP to be reflected or reserved against in the
financial statements or otherwise reflected or reserved against in the notes or
schedules thereto, other than: (i) liabilities fully and adequately reflected or
reserved against in the June 30, 1996 Balance Sheet or otherwise specifically
disclosed in the Disclosure Schedule, (ii) liabilities incurred in the ordinary
course of business and consistent with past experience since June 30, 1996; and
(iii) liabilities incurred in connection with the acquisition of certain assets
of Etonic Inc.
2.26 Brokers. Except for Morgan Stanley & Co. Incorporated and
Donaldson, Lufkin & Jenrette Securities Corporation, whose fees, commissions and
expenses are the sole responsibility of Parent, all negotiations relative to
this Agreement and the transactions contemplated hereby have been carried out by
Parent directly with Purchaser without the intervention of any Person on behalf
of Parent in such manner as to give rise to any valid claim by any Person
against Purchaser, the Company or any Subsidiary for a finder's fee, brokerage
commission or similar payment.
2.27 Etonic Schedules. The disclosure schedules to the Asset
Purchase Agreement, dated July 25, 1996, between Etonic, Inc., EAC Acquisition
Corporation, EWW Corporation and EAC Holdings Corporation (the "Etonic Purchase
Agreement Disclosure Schedules") previously delivered to Purchaser are hereby
incorporated by reference herein as additional disclosure in respect of the
representations and warranties set forth in this Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Parent as follows:
3.01 Corporate Existence. Purchaser is a limited partnership duly
incorporated, validly existing and in good standing under the Laws of the State
of Delaware. Purchaser has full power and authority to execute and deliver this
Agreement,
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to perform its obligations hereunder and to consummate the transactions
contemplated hereby.
3.02 Authority. The execution and delivery by Purchaser of this
Agreement, and the performance by Purchaser of its obligations hereunder, have
been duly and validly authorized by the general partner of Purchaser, no other
action on the part of Purchaser being necessary. This Agreement has been duly
and validly executed and delivered by Purchaser and constitutes a legal, valid
and binding obligation of Purchaser enforceable against Purchaser in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors rights generally or by general equitable principles relating
to enforceability (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
3.03 No Conflicts. The execution and delivery by Purchaser of this
Agreement do not, and the performance by Purchaser of its obligations under this
Agreement and the consummation of the transactions contemplated hereby will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the certificate of limited partnership or
by-laws (or other comparable documents) of Purchaser;
(b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in Schedule 3.04 hereto, conflict
with or result in a violation or breach of any term or provision of any Law or
Order applicable to Purchaser or any of its Affiliates or any of their
respective Assets and Properties (other than such conflicts, violations or
breaches which could not in the aggregate reasonably be expected to adversely
affect the validity or enforceability of this Agreement); or
(c) except as disclosed in Schedule 3.03 hereto (i) conflict with or
result in a violation or breach of or constitute a default under or (ii) require
Purchaser or any of its Affiliates to obtain any consent, approval or action of,
make any filing with or give any notice to, any Person as a result or under the
terms of any Contract or License to which Purchaser or any of its Affiliates is
a party or by which any of their respective Assets and Properties is bound,
except for such conflicts, violations, breaches or defaults, which in the
aggregate could not reasonably be expected to have a material adverse effect on
the ability of Purchaser to consummate any of the transactions contemplated by
this Agreement.
3.04 Governmental Approvals and Filings. Except as disclosed in
Schedule 3.04 hereto, no consent, approval or action
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of, filing with or notice to any Governmental or Regulatory Authority on the
part of Purchaser or any of its Affiliates is required in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
3.05 Legal Proceedings. There are no Actions or Proceedings pending
or, to the knowledge of Purchaser, threatened against, relating to or affecting
Purchaser or any of its Affiliates or any of their respective Assets and
Properties which could reasonably be expected to result in the issuance of an
Order restraining, enjoining or otherwise prohibiting or making illegal the
consummation of any of the transactions contemplated by this Agreement.
3.06 Purchase for Investment. The Acquired Shares will be acquired
by Purchaser (or, if applicable, its assignee pursuant to Section 14.10) for its
own account for the purpose of investment, it being understood that the right to
dispose of such Acquired Shares shall be entirely within the discretion of
Purchaser (or such assignee, as the case may be). Purchaser (or such assignee,
as the case may be) will refrain from transferring or otherwise disposing of any
of the Acquired Shares, or any interest therein, in such manner as to cause the
Company to be in violation of the registration requirements of the Securities
Act or applicable state securities or blue sky laws.
3.07 Brokers. Except for Merrill Lynch & Co., whose fees,
commissions and expenses shall be paid by the Company after the Closing, all
negotiations relative to this Agreement and the transactions contemplated hereby
have been carried out by Purchaser directly with Parent without the intervention
of any Person on behalf of Purchaser in such manner as to give rise to any valid
claim by any Person against Parent for a finder's fee, brokerage commission or
similar payment.
3.08 Financing. Purchaser has obtained letters from financing
sources with respect to the Financing, true and complete copies of which have
been delivered to the Company.
3.09 Exon-Florio. Purchaser is not a "foreign person" for purposes
of the Exon-Florio Amendment.
ARTICLE IV
COVENANTS OF PARENT
Parent covenants and agrees with Purchaser that, at all times from
and after the date hereof until the Closing, Parent will comply with all
covenants and provisions of this Article IV, except to the extent Purchaser may
otherwise consent in writing.
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4.01 Regulatory and Other Approvals. Parent will, and will cause the
Company and the Subsidiaries to, (a) take all commercially reasonable steps
necessary or desirable to obtain all consents, approvals or actions of, make all
filings with and give all notices to Governmental or Regulatory Authorities or
any other Person required of Parent, the Company or any Subsidiary to consummate
the transactions contemplated hereby, including without limitation those
described in Sections 2.06 and 2.07 of the Disclosure Schedule, (b) provide such
other information and communications to such Governmental or Regulatory
Authorities or other Persons as such Governmental or Regulatory Authorities or
other Persons may reasonably request in connection therewith and (c) provide
reasonable cooperation to Purchaser in connection with the performance of its
obligations under Sections 5.01 and 5.02. Parent will provide prompt
notification to Purchaser when any such consent, approval, action, filing or
notice referred to in clause (a) above is obtained, taken, made or given, as
applicable, and will advise Purchaser of any communications (and, unless
precluded by Law, provide copies of any such communications that are in writing)
with any Governmental or Regulatory Authority or other Person regarding any of
the transactions contemplated by this Agreement.
4.02 HSR Filings. In addition to and not in limitation of Parent's
covenants contained in Section 4.01, Parent will promptly take all actions
necessary to make the filings required of Parent or its Affiliates under the HSR
Act, (b) comply at the earliest practicable date with any request for additional
information received by Parent or its Affiliates from the Federal Trade
Commission or the Antitrust Division of the Department of Justice pursuant to
the HSR Act and (c) cooperate with Purchaser in connection with Purchaser's
filing under the HSR Act and in connection with resolving any investigation or
other inquiry concerning the transactions contemplated by this Agreement
commenced by either the Federal Trade Commission or the Antitrust Division of
the Department of Justice or state attorneys general.
4.03 Investigation by Purchaser. Parent will, and will cause the
Company and the Subsidiaries to, (a) provide Purchaser and its officers,
employees, counsel, accountants, financial advisors, consultants (including
environmental consultants) and other representatives (together,
"Representatives") with full access, upon reasonable prior notice and during
normal business hours, to all officers, employees, agents and accountants of the
Company and the Subsidiaries and their Assets and Properties and Books and
Records, but only to the extent that such access does not unreasonably interfere
with the business and operations of the Company or the Subsidiaries and (b)
furnish Purchaser and such other Persons with all such information and data
(including without limitation copies of Contracts, Benefit Plans and other Books
and Records) concerning the business and operations of the Company and the
Subsidiaries
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as Purchaser or any of such other Persons reasonably may request in connection
with such investigation, except to the extent that furnishing any such
information or data would violate any Law, Order, Contract or License applicable
to Parent, the Company or any Subsidiary or by which any of their respective
Assets and Properties is bound.
4.04 Conduct of Business. (a) Except for the transactions
contemplated by this Agreement or as otherwise consented to in writing by
Purchaser, which consent shall not be unreasonably withheld, Parent will cause
the Company and the Subsidiaries to conduct business only in the ordinary course
and consistent with past practice. Without limiting the generality of the
foregoing, Parent will cause the Company and the Subsidiaries to use
commercially reasonable efforts, to the extent the officers of the Company and
the Subsidiaries believe such action to be in the best interests of the Company
and the Subsidiaries, to (i) preserve intact the present business organization
and reputation of the Company and the Subsidiaries in all material respects and
(ii) maintain the Assets and Properties of the Company and the Subsidiaries in
good working order and condition, ordinary wear and tear excepted.
(b) The Working Capital of the Company and the Subsidiaries on the
Closing Date ("Closing Date Working Capital") shall not be less than $93 million
or more than $97 million. For purposes of this Section 4.04(b), Working Capital
shall mean, as of any date of determination on a consolidated basis consistent
with the preparation of the audited consolidated balance sheet of Spalding as of
September 30, 1995, the sum of (i) trade accounts receivable and (ii)
inventories, less (iii) the current liabilities of Spalding after excluding (A)
indebtedness of Spalding (other than bankers acceptances arising in connection
with the purchase of inventory) and (B) income taxes. As soon as practicable
following the Closing Date, but in any event within 60 days thereafter,
Purchaser shall prepare a calculation of Closing Date Working Capital (the
"Closing Date Working Capital Calculation") and shall deliver the Closing Date
Working Capital Calculation to Parent. Parent shall, within 30 days after the
delivery by Purchaser of the Closing Date Working Capital Calculation, complete
their review of the calculation and shall in a written notice to Purchaser,
either accept the calculation or describe in reasonable detail any proposed
adjustments to the Closing Date Working Capital Calculation and the reasons
therefor. If no notice is received by Purchaser within such 30-day period,
Parent will be deemed to have accepted the Closing Date Working Capital
Calculation. Purchaser and Parent shall negotiate in good faith to resolve any
disputes over any proposed adjustment to the Closing Date Working Capital
Calculation raised by Parent; provided, that if they are unable to resolve any
disputes over any proposed adjustments within 15 days following Purchaser's
receipt of Parent's proposed adjustments, Purchaser and Parent shall engage
Price Waterhouse,
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or select jointly a mutually acceptable nationally recognized independent public
accounting firm to resolve such disputes, which resolution shall be final and
binding. The fees and expenses of such accounting firm shall be shared equally
by Purchaser and Parent. Within 5 business days of the acceptance of the Closing
Date Working Capital Calculation by Parent or the resolution of any disputes
arising out of any proposed adjustments, (i) Parent shall pay to Purchaser
immediately available funds equal to the amount by which the Closing Date
Working Capital, as set forth on the Closing Date Working Capital Calculation,
is less than $93 million or (ii) Purchaser shall pay to Parent immediately
available funds equal to the amount by which the Closing Date Working Capital,
as set forth on the Closing Date Working Capital Calculation is more than $97
million.
(c) Except as set forth in Section 4.04(c) of the Disclosure Schedule,
or otherwise consented to in writing by Purchaser, which consent shall not be
unreasonably withheld, Parent will cause the Company and the Subsidiaries to
conduct their respective businesses substantially in accordance with the 1996
financial outlook provided to Purchaser or any update thereof provided to
Purchaser, which, to the extent it changes in any material respect from the
financial outlook then in effect, shall be consented to by Purchaser, which
consent shall not be unreasonably withheld, and the 1997 Operating Plan.
4.05 Certain Restrictions. Except in connection with transactions
contemplated by Section 4.04 or except as disclosed in Section 4.04(c) of the
Disclosure Schedule, Parent will cause the Company and the Subsidiaries to
refrain from:
(a) amending their certificates or articles of incorporation or
by-laws (or other comparable corporate charter documents) or taking any action
with respect to any such amendment or any recapitalization, reorganization,
liquidation or dissolution of any such corporation;
(b) authorizing, issuing, selling or otherwise disposing of any
shares of capital stock or other equity, interests or options of the Company or
any Subsidiary, or modifying or amending any right of any holder of outstanding
shares of capital stock of the Company or any Subsidiary;
(c) declaring, setting aside or paying any dividend or other
distribution in respect of the capital stock of the Company or any Subsidiary,
or directly or indirectly redeeming, purchasing or otherwise acquiring any
capital stock of the Company or any Subsidiary not wholly owned, directly or
indirectly, by the Company (other than the acquisition of shares held by the
management);
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(d) other than in the ordinary course of business, acquiring or
disposing of, or incurring any Lien (other than a Permitted Lien) on, any
material Assets and Properties;
(e) other than in the ordinary course of business, voluntarily
assuming, incurring or guaranteeing Indebtedness except as permitted under
paragraph (l) below;
(f) except to the extent required by applicable Law, making any
material change in accounting, financial reporting, Tax practice or policy;
(g) making any change in its fiscal year;
(h) entering into or amending any tax sharing agreements or
arrangements to which the Company and any Subsidiary is a party, except entering
into tax sharing agreements with EAC Holdings Corporation, EAC Acquisition
Corporation, Etonic Worldwide Corporation and EWW Lisco, Inc.;
(i) cancelling or compromising any debts owed to it other than in
the ordinary course of business or waiving or releasing any rights of material
value;
(j) amending, modifying or terminating any policies of title,
liability, fire, worker's compensation, property, products liability and any
other insurance covering the Assets and Properties or the operations of the
Company or any Subsidiary;
(k) amending, modifying or terminating or entering into any material
contract, commitment, lease or agreement to which any of the Company or any of
the Subsidiaries or its Assets and Properties is bound, other than in the
ordinary course of business consistent with past practice;
(l) entering into any Contract with Parent or any of Parent's
officers, directors or Affiliates (other than the Subsidiaries), except for
borrowings under the Interim Credit Agreement and loans under the Bothwell Notes
and the Pack-A-Snack Note which borrowings shall be paid at the Closing;
(m) settling or otherwise compromising any Tax audit or proceeding;
(n) purchasing the securities (except short-term debt securities for
investment purposes) of any other Person;
(o) closing any plants or facilities;
(p) entering into any material partnership, joint venture or other
material similar transaction; and
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(q) entering into any Contract or otherwise agreeing to do or engage
in any of the foregoing.
4.06 Affiliate Transactions. Except as set forth in Section 4.06 of
the Disclosure Schedule, prior to or concurrently with the Closing, all
Indebtedness and other amounts owing under Contracts between Parent, any
officer, director or Affiliate (other than the Company or any Subsidiary) of
Parent, on the one hand, and the Company or any Subsidiary, on the other, will
be paid in full and Parent will terminate and will cause any such officer,
director or Affiliate to terminate each Contract with the Company or any
Subsidiary.
4.07 Employee Matters. Except as may be required by applicable Laws,
Parent will refrain, and will cause the Company and the Subsidiaries to refrain,
from directly or indirectly:
(a) making any material representation or promise, oral or written,
to any officer or employee of the Company or any of the Subsidiaries concerning
any Benefit Plan, except for statements as to the rights or accrued benefits of
any officer or employee under the terms of any Benefit Plan;
(b) making any increase in the salary, wages or other compensation
of any officer or employee of the Company or any of the Subsidiaries or make any
bonus payments, except (i) for normal increases or bonus payments in the
ordinary course of business consistent with past practice or (ii) pursuant to
existing Contracts; and
(c) other than in the ordinary course of business, in connection
with the acquisition of certain assets of Etonic Inc., pursuant to transactions
contemplated by Section 4.04 or to the extent required by applicable Laws,
adopting, entering into or becoming bound by any Benefit Plan,
employment-related Contract or collective bargaining agreement, or amending,
modifying or terminating (partially or completely) any such Benefit Plan,
employment-related Contract or collective bargaining agreement.
Parent will cause the Company and each Subsidiary to administer each
Benefit Plan, or cause the same to be administered, in all material respects in
accordance with applicable law. Parent will promptly notify Purchaser of the
receipt of any notice of investigation or administrative proceeding by the IRS,
the United States Department of Labor, Pension Benefit Guaranty Corporation or
other governmental agency involving any Benefit Plan.
4.08 Financial Statements and Reports.
(a) As promptly as practicable and in any event no later than
forty-five (45) days after the end of each fiscal month ending after the date
hereof and before the Closing Date
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(other than the last fiscal month) or ninety (90) days after the end of each
fiscal year ending after the date hereof and before the Closing Date, as the
case may be, Parent will deliver to Purchaser true and complete copies of (in
the case of any such fiscal year) the audited and (in the case of any such
fiscal month) the unaudited consolidated and consolidating balance sheets, and
the related audited or unaudited consolidated and consolidating statements of
earnings, shareholders' equity (in the case of audited statements only) and cash
flows, of each of the Company, Spalding and its consolidated subsidiaries, in
each case, as of and for the fiscal year then ended or as of and for each such
fiscal month and the portion of the fiscal year then ended, as the case may be,
together with the notes, if any, relating thereto, which financial statements
shall be prepared on a basis consistent with the financial statements referred
to in Section 2.09.
(b) As promptly as practicable, Parent will deliver to Purchaser
true and complete copies of such other regularly-prepared financial statements,
reports and analyses as may be prepared by Parent, the Company or any Subsidiary
relating to the business or operations of the Company or any Subsidiary and
delivered to the lenders under the Credit Agreements.
4.09 No Shopping. Parent shall not and shall not permit any of its
agents or representatives (including, without limitation, investment bankers,
attorneys and accountants) and shall not permit any of the officers, employees,
agents, affiliates and representatives of the Company or any Subsidiary to,
directly or indirectly, (i) solicit, initiate or encourage the submission of any
inquiries, indications of interest, proposals of offers from any corporation,
partnership, person, entity or group, other than Purchaser (collectively, "Third
Parties"), concerning the sale of any equity security of, or any other interest
in, the Company or any Subsidiary, the sale of any assets of the Company or any
Subsidiary (other than sales in the ordinary course of business or any matters
specifically disclosed in the Disclosure Schedule hereto) or any merger,
recapitalization or other business combination transaction involving the Company
or any of its Subsidiaries (an "Acquisition Proposal"), (ii) participate in any
discussions or negotiations regarding, or enter into any agreements or
understandings relating to, any of the foregoing with, or provide any
information concerning the Company, its Subsidiaries or any of the foregoing to,
any Third Parties including any Third Parties that the Parent had conducted
negotiations with prior to the date of this Agreement, or (iii) otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any Third Party to do or seek any of the foregoing.
Prior to the Closing, at Purchaser's request, Parent shall use its best efforts
to cause the Company to cause the destruction or return of all non-public,
confidential or proprietary information concerning the Company and the
Subsidiaries provided to potential
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purchasers of the Company or the assets thereof. Parent will immediately notify
Purchaser after the receipt by it or any of its agents of any inquiry,
indication of interest, proposal or offer with respect to an Acquisition
Proposal by any Third Party and will immediately deliver to Purchaser any
written documentation relating thereto.
4.10 Disclosure. Parent shall promptly notify Purchaser of, and
furnish Purchaser any information Purchaser may reasonably request with respect
to the occurrence, to the Knowledge of Parent, of any event or condition or the
existence of any fact that would cause any of the conditions to Purchaser's
obligations to consummate the transactions contemplated by this Agreement not to
be fulfilled.
4.11 No Competition. During the period commencing on the Closing
Date and ending on the third anniversary of the Closing Date, Parent will not,
and will cause any Affiliate not to, directly or indirectly conduct or engage in
any business that competes, directly or indirectly, with the business of the
Company or any Subsidiary as conducted as of the Closing Date (the "Restricted
Business"). Notwithstanding the foregoing, neither Parent nor any of its
existing or future Affiliates shall be in violation of this Section 4.11 if it
owns less than 5% of the equity securities of any business that is engaged in
the Restricted Business.
4.12 Financing. Parent shall provide, and will cause the Company and
the Subsidiaries and its and their respective officers and employees to provide,
all necessary cooperation in connection with the arrangement of any financing to
be consummated contemporaneous with or at or after the Closing in respect of the
transactions contemplated by this Agreement, including without limitation, the
preparation of audited financial statements in a form meeting the requirements
of Regulation S-X of the Securities Act, the execution and delivery of any
commitment letters, underwriting or placement agreements, pledge and security
documents, other definitive financing documents, or other requested agreements,
certificates or documents, including any indemnity agreements or any
certificates of officers of the Company with respect to solvency matters, as may
be requested by Purchaser. Parent agrees to use its best efforts to (i) cause
Deloitte & Touche LLP to assist in the preparation of any financial statements
required with respect to the Financing and (ii) obtain from Deloitte & Touche
LLP its consent to the inclusion of any statements or reports prepared by it
which relate to the transactions contemplated hereby in documents that may be
filed with the Securities and Exchange Commission (the "SEC") pursuant to the
Securities Act by any of the parties hereto or their respective affiliates. The
parties acknowledge that the payment of any fees by the Company in connection
with any commitment letters shall be subject to the occurrence of the Closing.
In addition, in conjunction with the
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obtaining of any such financing, the Company agrees, at the request of
Purchaser, to call for prepayment or redemption, or to prepay, redeem and/or
renegotiate, as the case may be, any then existing Indebtedness of the Company
to be repaid at the Closing; provided that no such prepayment or redemption
shall themselves actually be made until contemporaneously with the Closing.
Parent shall cooperate with any reasonable requests of Purchaser or
the SEC related to the recording of the transactions contemplated hereby as a
recapitalization for financial reporting purposes, including, without
limitation, to assist Purchaser and its affiliates with any presentation to the
SEC with regard to such recording and to include appropriate disclosure with
regard to such recording in all filings with the SEC in connection with the
transactions contemplated hereby. In furtherance of the foregoing, Parent shall
cause the Company to provide to Purchaser for the prior review of Purchaser's
advisors any description of the transactions contemplated by this Agreement
which is meant to be disseminated.
4.13 Fulfillment of Conditions. Parent will take all commercially
reasonable steps necessary or desirable and proceed diligently and in good faith
to satisfy each condition to the obligations of Purchaser contained in this
Agreement and will not, and will not permit the Company or any Subsidiary to,
take or fail to take any action that could reasonably be expected to result in
the nonfulfillment of any such condition.
4.14 Post-Closing Status of the Company. Upon consummation of the
transactions contemplated by this Agreement, the Company shall not own any
assets other than the shares of Spalding and EAC Holdings Corporation, EAC
Acquisition Corporation, Etonic Worldwide Corporation and EWW Lisco, Inc. and
shall not have any liabilities other than the liabilities related to the
transactions contemplated by this Agreement.
ARTICLE V
COVENANTS OF PURCHASER
Purchaser covenants and agrees with Parent that, at all times from
and after the date hereof until the Closing and, in the case of Section 5.03,
thereafter, Purchaser will comply with all covenants and provisions of this
Article V, except to the extent Parent may otherwise consent in writing.
5.01 Regulatory and Other Approvals. Purchaser will (a) take all
commercially reasonable steps necessary or desirable to obtain all consents,
approvals or actions of, make all filings with and give all notices to
Governmental or Regulatory Authorities or any other Person required of Purchaser
to consummate the transactions contemplated hereby, including
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without limitation those described in Schedules 3.03 and 3.04 hereto, (b)
provide such other information and communications to such Governmental or
Regulatory Authorities or other Persons as such Governmental or Regulatory
Authorities or other Persons may reasonably request in connection therewith and
(c) provide reasonable cooperation to Parent, the Company and the Subsidiaries
in connection with the performance of their obligations under Sections 4.01 and
4.02. Purchaser will provide prompt notification to Parent when any such
consent, approval, action, filing or notice referred to in clause (a) above is
obtained, taken, made or given, as applicable, and will advise Parent of any
communications (and, unless precluded by Law, provide copies of any such
communications that are in writing) with any Governmental or Regulatory
Authority or other Person regarding any of the transactions contemplated by this
Agreement.
5.02 HSR Filings. In addition to and without limiting Purchaser's
covenants contained in Section 5.01, Purchaser will (i) promptly take all
actions necessary to make the filings required of Purchaser or its Affiliates
under the HSR Act, (ii) comply at the earliest practicable date with any request
for additional information received by Purchaser or its Affiliates from the
Federal Trade Commission or the Antitrust Division of the Department of Justice
pursuant to the HSR Act and (iii) cooperate with Parent in connection with
Parent's filing under the HSR Act and in connection with resolving any
investigation or other inquiry concerning the transactions contemplated by this
Agreement commenced by either the Federal Trade Commission or the Antitrust
Division of the Department of Justice or state attorneys general.
5.03 Indemnification of Directors and Officers. (a) Until the tenth
anniversary of the Closing Date, Purchaser will not, nor will it permit any of
its subsidiaries (including the Company and the Subsidiaries) to, take any
action to amend any provision of the certificate of incorporation or by-laws (or
other comparable corporate documents) of the Company and the Subsidiaries
relating to the elimination of the personal liability of directors or to reduce
or limit the rights of indemnity afforded to the present and former directors,
officers, employees and agents of the Company and the Subsidiaries, or the
ability of the Company and the Subsidiaries to indemnify them, nor to hinder,
delay or make more difficult the exercise of such rights of indemnity or the
ability to indemnify; provided, however, that, in the event any claim or claims
are asserted or made within such ten-year period, all rights to indemnification
in respect of any such claim or claims shall continue until the final
disposition of such claim or claims. Any determination required to be made
against such Person with respect to whether the conduct of any such director,
officer or employee complies with the standards set forth in the certificate of
incorporation or by-laws (or other comparable corporate documents) of the
Company and the Subsidiaries or under any indemnification
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agreements or otherwise shall be made by independent counsel reasonably selected
by counsel to the Company and counsel to such director, officer or employee.
(b) The Company shall maintain in effect, for not less than six
years from the Closing Date, the directors' and officers' liability insurance
and the fiduciary liability insurance in respect of the present and former
directors and officers of the Company and the Subsidiaries at current levels,
provided, that such coverage remains available on commercially reasonable terms
and, provided, further, that if such coverage is not available on commercially
reasonable terms, the Company shall purchase such amount of coverage as is
available on commercially reasonable terms.
(c) In the event that the Company or any of the Subsidiaries effects
a merger, consolidation, sale of all or substantially all the assets,
liquidation or dissolution of any such corporation, then in each such case,
proper provision shall be made so that the Company, the Subsidiaries or their
respective successors and assigns, as the case may be, shall assume the
obligations set forth in this Section 5.03.
5.04 Disclosure. Purchaser shall promptly notify Parent of, and
furnish Parent any information Parent may reasonably request with respect to the
occurrence, to the knowledge of Purchaser, of any event or condition or the
existence of any fact that would cause any of the conditions to Parent's
obligations to consummate the purchase and sale of the Shares not to be
fulfilled.
5.05 Fulfillment of Conditions. Purchaser will take all commercially
reasonable steps necessary or desirable and proceed diligently and in good faith
to satisfy each condition to the obligations of Parent contained in this
Agreement and will not take or fail to take any action that could reasonably be
expected to result in the nonfulfillment of any such condition.
5.06 Financing. (a) The Purchaser hereby agrees to use its
commercially reasonable efforts, subject to normal conditions, to arrange the
Financing including, subject to normal conditions, using its commercially
reasonable efforts (i) to assist the Company in the negotiation of definitive
agreements with respect thereto and (ii) to satisfy all conditions applicable to
Purchaser in such definitive agreements. Purchaser will keep the Company
informed of the status of its efforts to arrange the Financing, including making
reports with respect to significant developments. Purchaser will be under no
obligation under any circumstances to be capitalized with equity of more than
$200 million.
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ARTICLE VI
CONDITIONS TO OBLIGATION OF PURCHASER
The obligation of Purchaser hereunder to consummate the transactions
contemplated by this Agreement is subject to the fulfillment, at or before the
Closing, of each of the following conditions (all or any of which may be waived
in whole or in part by Purchaser in its sole discretion):
6.01 Representations and Warranties. The representations and
warranties made by Parent in this Agreement shall be true and correct, in all
material respects, on and as of the Closing Date as though made on and as of the
Closing Date or, in the case of representations and warranties made as of a
specified date earlier than the Closing Date, on and as of such earlier date.
6.02 Performance. Parent shall have performed and complied with, in
all material respects, the agreements, covenants and obligations required by
this Agreement to be so performed or complied with by Parent at or before the
Closing.
6.03 Officer's Certificates. Parent shall have delivered to
Purchaser a certificate, dated the Closing Date and executed in the name of and
on behalf of Parent by a Managing Director of Parent, and a certificate, dated
the Closing Date and executed by the Secretary or any Assistant Secretary of
Parent, certifying that the conditions set forth in Sections 6.01 and 6.02 have
been satisfied.
6.04 Orders and Laws. There shall not be in effect on the Closing
Date any Order or Law restraining, enjoining or otherwise prohibiting or making
illegal the consummation of any of the transactions contemplated by this
Agreement.
6.05 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit Purchaser and Parent to perform their obligations under this
Agreement and to consummate the transactions contemplated hereby shall have been
duly obtained, made or given and shall be in full force and effect, and all
terminations or expirations of waiting periods imposed by any Governmental or
Regulatory Authority necessary for the consummation of the transactions
contemplated by this Agreement, including under the HSR Act, shall have
occurred.
6.06 Indebtedness. The obligations of the Company and the
Subsidiaries under the Credit Agreements, the Etonic Notes, and the other
Indebtedness to be paid at Closing as set forth on Section 1.02 of the
Disclosure Schedule shall have been paid in full and written releases of the
Guaranties and Liens on the
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Assets and Properties of the Company and the Subsidiaries under the Credit
Agreements, the Etonic Notes, the Guaranties and the documents relating to the
other Indebtedness shall have been obtained.
6.07 Pueblo Shares. The shares of Pueblo held by the
Company shall have been disposed of and no longer be an asset or
liability of the Company or any of the Subsidiaries.
6.08 Opinion of Counsel. Purchaser shall have received the opinion
of Milbank, Tweed, Hadley & McCloy, New York counsel to Parent and the Company,
dated the Closing Date, in form and substance reasonably satisfactory to
Purchaser and concerning matters reasonably requested by Purchaser.
6.09 Environmental Diligence. Purchaser shall have received an
environmental assessment report in form and substance reasonably satisfactory to
Purchaser with respect to the representations and warranties of Parent herein as
to the environmental hazards, conditions, liabilities or potential liabilities
to which the Company, the Subsidiaries, and the properties currently or formerly
owned, leased or operated by the Company or its Subsidiaries may be subject.
6.10 Financing. The Company shall have received the proceeds of the
Financing on terms reasonably satisfactory to Purchaser in an amount sufficient
to (i) consummate the transactions contemplated hereby, (ii) pay any fees and
expenses in connection with such transactions and (iii) provide for the working
capital needs of the Company and the Subsidiaries.
6.11 Pending Litigation. There shall not be pending or threatened by
any Governmental or Regulatory Authority or any other person any suit, action or
proceeding challenging or seeking to restrain or prohibit the consummation of
the transactions contemplated by this Agreement or seeking to obtain from
Parent, Purchaser or any of their affiliates any damages that are material to
any such party, or which could reasonably have a material adverse effect on the
Business or Condition of the Company.
6.12 Share Repurchases. The Management Shares, and any other shares
of Spalding not owned by the Company, shall have been repurchased by the Company
pursuant to the Management Share Repurchase Agreement.
6.13 Trademarks. The execution of appropriate instruments of
assignment in favor of the Company or its designee of all trademarks, other
intellectual property and trademark rights owned by Sahara and relating to the
Company or the subsidiaries shall have been completed.
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6.14 Shareholders Agreement. The Shareholders Agreement shall have
been executed by Parent, the Company and Purchaser.
6.15 Resignation of Directors. All directors of the Company and any
Subsidiary whose resignations shall have been requested by Purchaser not less
than five Business Days prior to the Closing Date shall have submitted their
resignations or been removed from office effective as of the Closing Date.
6.16 Letter of Credit; Escrow. The Letter of Credit shall have been
issued and/or escrow funds deposited in accordance with the provisions of
Section 11.05.
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARENT
The obligation of Parent hereunder to consummate the transactions
contemplated by this Agreement to be consummated by it is subject to the
fulfillment, at or before the Closing, of each of the following conditions (all
or any of which may be waived in whole or in part by Parent in its sole
discretion):
7.01 Representations and Warranties. The representations and
warranties made by Purchaser in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made on and as of the
Closing Date or, in the case of representations and warranties made as of a
specified date earlier than the Closing Date, on and as of such earlier date.
7.02 Performance. Purchaser shall have performed and complied with,
in all material respects, the agreements, covenants and obligations required by
this Agreement to be so performed or complied with by Purchaser at or before the
Closing.
7.03 Officer's Certificates. Purchaser shall have delivered to
Parent a certificate, dated the Closing Date and executed in the name of and on
behalf of Purchaser by the General Partner of Purchaser, certifying that the
conditions set forth in Sections 7.01 and 7.02 have been satisfied.
7.04 Orders and Laws. There shall not be in effect on the Closing
Date any Order or Law restraining, enjoining or otherwise prohibiting or making
illegal the consummation of any of the transactions contemplated by this
Agreement.
7.05 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit Parent and Purchaser to perform their obligations under this
Agreement
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and to consummate the transactions contemplated hereby shall have been
duly obtained, made or given and shall be in full force and effect, and all
terminations or expirations of waiting periods imposed by any Governmental or
Regulatory Authority necessary for the consummation of the transactions
contemplated by this Agreement, including under the HSR Act, shall have
occurred.
7.06 Stockholders Agreement. The Stockholders Agreement shall have
been executed by Purchaser.
ARTICLE VIII
TAX MATTERS
8.01. Indemnity for Taxes. (a) From and after the Closing Date,
Parent agrees to indemnify and hold harmless Purchaser, the Company and the
Subsidiaries against the following Taxes and, against any loss, damage,
liability or expense, including, but not limited to, reasonable fees for
attorneys and other outside consultants, incurred in contesting or otherwise in
connection with any such Taxes: (i) Taxes imposed on the Company or a Subsidiary
with respect to taxable years or periods ending on or before September 30, 1996;
(ii) Taxes imposed on any member of any affiliated group (other than the Company
or a Subsidiary) with which the Company or any Subsidiary files or has filed a
Tax Return on a consolidated, combined or unitary basis for a taxable year or
period ending on or before the Closing Date; (iii) Taxes with respect to
transactions or activities outside the ordinary course of business occurring
between September 30, 1996 and the Closing Date, including without limitation,
withholding taxes, Taxes arising under Section 311 of the Code and real estate
recording and transfer taxes arising out of the redemption of shares and
distribution of property pursuant to Section 1.03 hereof after taking into
account any carryforwards to the extent allowable and Taxes relating to any
gains associated with the EAC preferred stock after taking into account any
carryforwards to the extent allowable; (iv) Taxes or additional Taxes imposed on
Purchaser, the Company or any Subsidiary as a result of a breach of the
representations and warranties set forth in Section 2.10 of this Agreement or of
the covenants contained in this Article VIII; or (v) Taxes or other payments
required to be made after the date hereof by the Company or any Subsidiary to
any party (other than the Company or any Subsidiary) under any Tax sharing,
indemnity or allocation agreement in existence on or prior to the Closing Date
(whether or not written) other than Tax indemnities contained in equipment
leases; provided, however, that Parent shall have no obligation to indemnify
against, or pay or cause to be paid, any Taxes imposed on the Company or the
Subsidiaries for the taxable periods ending on or before September 30, 1995
hereunder until such time as, and to the extent that, the amount of such Taxes
exceeds the amount that has been reserved for by the Company and the
Subsidiaries as a long term liability on
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their financial statements as of June 30, 1996 (which is approximately $2.4
million), less payments made to taxing authorities subsequent to such date with
respect to tax audits and examinations for periods ending on or before September
30, 1995 (the "Tax Reserve") and provided further, that Parent shall be entitled
to any refunds with respect to the taxable year ending on September 30, 1996.
(b) Except as provided in Section 8.01(a)(iii) from and after the
Closing Date, Purchaser, the Company and the Subsidiaries shall indemnify and
hold harmless Parent from and against any Taxes imposed on the Company or any
Subsidiary in respect of any taxable year or period that begins after September
30, 1996, the Taxes of the Company or any Subsidiary which are not allocable to
Parent pursuant to Section 8.02 below and any Taxes of the Purchaser for any tax
period. Purchaser, the Company and the Subsidiaries shall also indemnify and
hold harmless Parent, except as otherwise provided in Section 8.03 hereof,
against any loss, damage, liability or expense, including, without limitation,
reasonable fees for attorneys and other outside consultants, incurred in
contesting or otherwise in connection with any such Taxes.
8.02. Apportionment of Taxes. (a) In order to apportion
appropriately any Taxes relating to any taxable year or period that begins prior
to and ends after September 30, 1996, the parties hereto shall, to the extent
permitted under applicable law, elect with the relevant Taxing authority to
treat for all purposes, September 30, 1996 as the last day of the taxable year
or period of the Company and the Subsidiaries, and such period shall be treated
as a short taxable year for purposes of this Article VIII.
(b) In any case where applicable law does not permit the Company or
any Subsidiary to treat September 30, 1996 as the last day of the taxable year
or period of the Company or the Subsidiary, as the case may be, with respect to
Taxes that are payable with respect to such period, the portion of any such Tax
that is allocable to the portion of such period ending on September 30, 1996
shall be:
(i) in the case of Taxes that are either (x) based upon or related
to income or receipts, or (y) imposed in connection with any sale or other
transfer or assignment of property (real or personal, tangible or
intangible) (other than conveyances pursuant to this Agreement, as
provided under Section 8.06), deemed equal to the amount which would be
payable if the taxable year or period ended on September 30, 1996 (except
that, solely for purposes of determining the marginal tax rate applicable
to income or receipts during such period in a jurisdiction in which such
tax rate depends upon the level of income or receipts, annualized
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income or receipts may be taken into account, if appropriate, for an
equitable sharing of such Taxes); and
(ii) in the case of Taxes not described in subparagraph (i) above
that are imposed on a periodic basis and measured by the level of any
item, deemed to be the amount of such Taxes for the entire period (or, in
the case of such Taxes determined on an arrears basis, the amount of such
Taxes for the immediately preceding period) multiplied by a fraction the
numerator of which is the number of calendar days in the relevant period
ending on September 30, 1996 and the denominator of which is the number of
calendar days in the entire relevant period.
8.03. Contests. (a) After the Closing Date, Purchaser shall, and
prior to the Closing Date, Parent shall, promptly notify the other party in
writing of any written notice of a proposed assessment or claim in an audit or
administrative or judicial proceeding involving the other party or any of the
Company and the Subsidiaries which, if determined adversely to the taxpayer,
would be grounds for indemnification under this Article VIII; provided, however,
that a failure to give such notice will not affect Purchaser's or Parent's
right, as the case may be, to indemnification hereunder, except to the extent,
if any, that, but for such failure, the other party could have avoided or
contested the Tax liability in question.
(b) In the case of an audit or administrative or judicial proceeding
that relates to any period ended on or before September 30, 1996 or to a tax
described in clause (iii) of Section 8.01(a), provided that within 30 days after
Parent receives the written notice from Purchaser required under Section 8.03(a)
above, and prior to taking any action with respect to such audit or
administrative or judicial proceeding, Parent acknowledges in writing its
liability under Section 8.01(a) of this Agreement to hold Purchaser, the Company
and the Subsidiaries harmless against the full amount of any adjustment which
may be made as a result of such audit or proceeding that relates to such period
(to the extent such amount exceeds the Tax Reserve after giving effect to all
prior and concurrent payments made pursuant to Section 8.01(a) of this Agreement
to the Purchaser, the Company and any Subsidiary), except to the extent provided
otherwise in Section 8.03(c) below, Parent shall have the right at its own
expense to control the conduct of such audit or proceeding. Purchaser also may
participate in any such audit or proceeding at its own expense and, if Parent
does not assume the defense of any such audit or proceeding, Purchaser may,
without any effect to its, the Company's or any Subsidiary's right to
indemnification under this Article VIII, defend the same in such manner as it
may deem appropriate, including, but not limited to, settling such audit or
proceeding after giving five days' prior written notice to Parent setting forth
the terms and conditions of such settlement.
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(c) With respect to a proposed adjustment for which both Parent (as
evidenced by its acknowledgement under this Section 8.03) and Purchaser, or the
Company or any Subsidiary could be liable, or which involves an adjustment to a
period ended on or before September 30, 1996 or a change of accounting method or
other issue that recurs for any post September 30, 1996 period (whether or not
the subject of an audit or proceeding at such time), (i) each party may
participate in the audit or proceeding, and (ii) the audit or proceeding shall
be controlled by that party which would bear the burden of the greater portion
of the sum of the adjustment and any corresponding adjustments that may
reasonably be anticipated for future Tax periods. The principle set forth in the
preceding sentence shall govern also for purposes of deciding any issue that
must be decided jointly (in particular, choice of judicial forum) in situations
in which separate issues are otherwise controlled hereunder by Purchaser and
Parent.
(d) Purchaser and Parent agree to cooperate and to act in good
faith, and Purchaser agrees to cause the Company and the Subsidiaries to
cooperate and to act in good faith, in conducting, and in the defense against or
compromise of any claim in, any audit or proceeding.
8.04. Time of Payment. Payment of any amounts due under this Article
VIII in respect of Taxes shall be made (i) by Parent at least three Business
Days before the due date of the applicable estimated or final Tax Return filed
by the Company on which is required to be reported income for which Parent is
responsible under Sections 8.01(a) and 8.02 of this Agreement, and (ii) by
Parent or Purchaser, as applicable, within three Business Days following an
agreement between Parent and Purchaser that an indemnity amount is payable under
this Article VIII, an assessment of a Tax by a taxing authority, or a
"determination" as defined in Section 1313(a) of the Code. If liability under
this Article VIII is in respect of costs or expenses other than Taxes, payment
by Parent or Purchaser, as the case may be, of any amounts due under this
Article VIII shall be made within five Business Days after the date that Parent
has been notified by Purchaser that Parent, or Purchaser has been notified by
Parent that Purchaser, as the case may be, has a liability for a determinable
amount under this Article VIII and is provided with calculations or other
materials supporting such liability. Any payment by Parent pursuant to this
Article VIII shall be made to the Company.
8.05. Cooperation and Exchange of Information. Parent and Purchaser
shall provide each other with such cooperation and information as either of them
reasonably may request of the other in filing any Tax Return, amended Tax Return
or claim for refund, determining a liability for Taxes or a right to a refund of
Taxes, participating in or conducting any audit or other proceeding in respect
of Taxes or making representations to or
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furnishing information to parties subsequently desiring to purchase the Company
or any Subsidiary from Purchaser. Such cooperation and information shall include
providing copies of relevant Tax Returns or portions thereof, together with
accompanying schedules, related work papers and documents relating to rulings or
other determinations by any taxing authorities. Parent and Purchaser shall make
their respective employees available on a basis mutually convenient to both
parties to provide explanations of any documents or information provided
hereunder. Parent and Purchaser shall retain all Tax Returns, schedules and work
papers, records and other documents in their respective possession relating to
Tax matters of the Company and the Subsidiaries for each taxable period first
ending after September 30, 1996 and for all prior taxable years or periods until
the later of (i) the expiration of the statute of limitations of the taxable
periods to which such Tax Returns and other documents relate, without regard to
extensions except to the extent notified by the other party in writing of such
extensions for the respective Tax years or periods, or (ii) six (6) years
following the due date (without extension) for such Tax Returns. Any information
obtained under this Section 8.05 shall be kept confidential except as may be
otherwise necessary in connection with the filing of Tax Returns or claims for
refund or in conducting an audit or other proceeding.
8.06. Conveyance Taxes. Parent shall be liable for and shall hold
Purchaser, the Company and the Subsidiaries harmless against any real property
transfer or gains, sales, use, transfer, value added, stock transfer, and stamp
taxes, any transfer, recording, registration, and other fees, and any similar
Taxes which become payable in connection with the transactions contemplated
hereby (other than such Taxes in excess of those that would have been payable
had the transactions contemplated by this Agreement not been structured as a
stock purchase coupled with a distribution of the property listed in clauses (A)
and (B) of Section 1.03(iv) and not as a recapitalization), and shall file such
applications and documents as shall permit any such Tax to be assessed and paid
on or prior to the Closing Date in accordance with any available pre-sale filing
procedure. Purchaser shall execute and deliver all instruments and certificates
necessary to enable Parent to comply with the foregoing.
8.07. Miscellaneous. (a) The Tax treatment of all payments made by
either party to or for the benefit of the other party (including any payments to
the Company or a Subsidiary) under this Article VIII, or under the other
indemnity provisions of this Agreement, shall be determined in accordance with
Section 11.03 of this Agreement.
(b) Notwithstanding any provision herein to the contrary, the
obligations of Parent to indemnify and hold harmless Purchaser, the Company and
the Subsidiaries, and the
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obligation of Purchaser and the Company to indemnify and hold harmless Parent
pursuant to this Article VIII shall terminate at the close of business on the
120th day following the expiration of the application statute of limitations
with respect to the Tax liabilities in question (giving effect to any waiver,
mitigation or extension thereof).
(c) From and after the date hereof, Parent shall not, without the
prior written consent of Purchaser, (which may not unreasonably withhold such
consent) make or revoke, or cause or permit to be made or revoked, any Tax
election, or adopt or change any method of accounting, that would adversely
affect the Company or a Subsidiary.
(d) For purposes of this Article VIII, "Purchaser" and "Parent,"
respectively, shall include each member of the affiliated group of corporations
of which it is or becomes a member (other than the Company or the Subsidiaries,
except to the extent expressly referenced).
ARTICLE IX
EMPLOYEE BENEFITS MATTERS
9.01 Benefit Plan Maintenance. Through the second anniversary of the
Closing, Purchaser shall, with respect to all employees of the Company and the
Subsidiaries who are not covered by a collective bargaining agreement (the
"Non-Union Employees"), provide for their coverage under employee pension and
welfare benefit plans, programs and arrangements providing benefits not
substantially less favorable in the aggregate to the Non-Union Employees than
the pension and welfare Benefit Plans covering such Non-Union Employees as in
effect immediately prior to the Closing, including without limitation group
health plans which do not exclude or limit the coverage of such Non-Union
Employees on account of waiting periods or pre-existing conditions, and which
have in all material respects identical or superior coverage in terms of
employee participation. Purchaser shall also be responsible for perpetuating the
group health plan continuation coverages pursuant to Section 4980B of the Code
and Sections 601 through 609 of ERISA for all Non-Union Employees and their
eligible dependents. Purchaser shall indemnify and hold Parent and its
Affiliates harmless for any liability Parent or any Affiliate of Parent incurs
at any time after the Closing under the provisions of Section 4980B of the Code
or Sections 601 through 609 of ERISA with respect to any individual who was an
employee of the Company or any Subsidiary prior to the Closing, or a dependent
or spouse of any such employee, and who had or has a "qualifying event" (within
the meaning of Section 4980B(f)(3) of the Code) before, on or after the Closing.
For purposes of any length of service requirements, waiting periods, vesting
periods or differential benefits based on length of service under
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any employee pension or welfare benefit plan for which a NonUnion Employee may
be eligible after the Closing, Purchaser shall ensure that (i) service by such
Non-Union Employee with the Company or any Subsidiary shall be treated in the
same manner as service with Purchaser, and (ii) expenses incurred prior to the
Closing by the Non-Union Employees and their covered dependents shall be taken
into account to satisfy applicable deductible, co-insurance and maximum
out-of-pocket provisions of any plans.
9.02 Shareholder Approval. Prior to the Closing Date, Parent shall
take all necessary steps, including obtaining shareholder approval in compliance
with the regulations under Section 280G of the Code with respect to the
Company's severance arrangements, in order to prevent any loss of deduction to
the Company as a result of the application of Sections 280G and 4999 of the Code
with respect to any payments to be made to Company employees by the Company as a
result of the transaction contemplated by this Agreement or otherwise.
ARTICLE X
SURVIVAL; NO OTHER REPRESENTATIONS
10.01 Survival of Representations, Warranties, Covenants and
Agreements. Except for the representations and warranties contained in (i)
Sections 2.01, 2.02, 2.03, 2.04, 2.05, 2.06, 2.26, 3.01, 3.02, 3.03, 3.06, 3.07
and 3.09 which such representations and warranties shall survive the Closing
indefinitely and (ii) the representations and warranties of Parent in Section
2.10, which such representations and warranties shall survive until the
expiration of all applicable statutes of limitation (including all periods of
extension, whether automatic or permissive), the representations and warranties
of Parent and Purchaser contained in this Agreement shall survive for a period
of eighteen (18) months following the Closing Date. The covenants and agreements
of Parent and Purchaser contained in this Agreement shall survive the Closing in
accordance with their terms. Notwithstanding anything to the contrary contained
in the first sentence of this Section 10.01, any representation or warranty that
would otherwise terminate in accordance with the first sentence of this Section
10.01 will continue to survive if a Claim Notice or Indemnity Notice (as
applicable) shall have been timely given in good faith based on facts reasonably
expected to establish a valid claim under Article XI on or prior to such
termination date, until the related claim for indemnification has been satisfied
or otherwise resolved as provided in Article XI.
10.02 No Other Representations. Notwithstanding anything to the
contrary contained in this Agreement, it is the explicit intent and
understanding of each party hereto that Parent is making no representation or
warranty whatsoever,
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express or implied, except those representations and warranties contained in
Article II and in any certificate delivered pursuant to Section 6.03. In
particular, Parent makes no representation or warranty to Purchaser with respect
to (i) the information set forth in the Confidential Information Memorandum or
(ii) any financial projection or forecast relating to the business, financial
conditions, results of operations or prospects of the Company, Spalding, Evenflo
or any other Subsidiary. With respect to any projection or forecast delivered by
or on behalf of Parent to Purchaser, Purchaser acknowledges that (i) there are
uncertainties inherent in attempting to make such projections and forecasts,
(ii) it is familiar with such uncertainties, (iii) it is taking full
responsibility for making its own evaluation of the adequacy and accuracy of all
such projections and forecasts furnished to it and (iv) it shall have no claim
against Parent with respect thereto, absent fraud or bad faith or intentional or
willful misconduct.
ARTICLE XI
INDEMNIFICATION
11.01 Indemnification.
(a) Except with respect to any indemnification for Taxes (which
shall be governed solely by Article VIII of this Agreement) and subject to
paragraph (c) of this Section and the other Sections of this Article XI, Parent
shall indemnify the Purchaser Indemnified Parties in respect of, and hold each
of them harmless from and against, any and all Losses suffered, incurred or
sustained by any of them or to which any of them becomes subject, resulting
from, arising out of or relating to (i) any breach or inaccuracy of a
representation or warranty of Parent contained in this Agreement, (ii) any
nonfulfillment of or failure to perform any covenant or agreement on the part of
Parent contained in this Agreement or (iii) any liability or obligation arising
from the ownership of the Pueblo Shares.
(b) Except with respect to any indemnification for Taxes (which
shall be governed solely by Article VIII of this Agreement) and subject to
paragraph (c) of this Section and the other Sections of this Article XI,
Purchaser, the Company and the Subsidiaries shall indemnify the Parent
Indemnified Parties in respect of, and hold each of them harmless from and
against, any and all Losses suffered, incurred or sustained by any of them or to
which any of them becomes subject, resulting from, arising out of or relating to
(i) any breach of representation or warranty of Purchaser contained in this
Agreement or (ii) any nonfulfillment of or failure to perform any covenant or
agreement on the part of Purchaser contained in this Agreement.
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(c) Notwithstanding anything to the contrary contained in this
Agreement, no amounts shall be payable as a result of any claim in respect of a
Loss arising under paragraph (a)(i) or (b)(i) of this Section 11.01:
(i) (A) in the case of a claim by a Purchaser Indemnified
Party, unless such claim involves Losses referred to in paragraph
(a)(i) of this Section 11.01 in excess of $100,000; provided, that a
series of related claims shall be deemed a "claim" for purposes of
this Section 11.01.
(B) in the case of a claim by a Purchaser Indemnified
Party, unless, until and then only to the extent that the Purchaser
Indemnified Parties have suffered, incurred, sustained or become
subject to Losses referred to in paragraph (a) (i) of this Section
11.01 in excess of $5,000,000 in the aggregate (including all such
Losses and amounts whether or not any individual Loss or amount
reaches the $100,000 threshold set forth in clause (A) above);
(C) in the case of a claim by a Purchaser
Indemnified Party, to the extent that the Purchaser
Indemnified Parties have received (or would, but for the limitation
set forth in this clause (C), receive) payments for any Losses
referred to in paragraph (a) (i) of this Section 11.01 in excess of
$80 million in the aggregate; and
(D) unless the Indemnified Party has given the
Indemnifying Party a Claim Notice or Indemnity Notice, as
applicable, with respect to such claim, setting forth in reasonable
detail the specific facts and circumstances pertaining thereto, (1)
as soon as practicable following the time at which the Indemnified
Party discovered or reasonably should have discovered such claim
(except to the extent the Indemnifying Party is not materially
prejudiced by any delay in the delivery of such notice) and (2) in
any event prior to the applicable Cut-off Date;
(ii) the limitations set forth in clause (i) above with
respect to claims made by Purchaser Indemnified Parties shall apply
to claims made pursuant to Section 11.01(b)(i) by Parent Indemnified
Parties.
provided that the limitations contained in clauses (i)(A), (B) and (C) shall not
apply to Losses arising from a breach of the representation and warranty
contained in Sections 2.26 and 3.07.
(d) Each party and their Affiliates shall be obligated in connection
with any claim for indemnification under this
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Article XI to use all reasonable best efforts to obtain any insurance proceeds
available to such indemnitee with regard to the applicable claims. The amount
which the Indemnifying Party is or may be required to pay to any Indemnified
Party pursuant to this Article XI shall be reduced (retroactively, if necessary)
by any insurance proceeds or other amounts actually recovered by or on behalf of
such Indemnified Party in reduction of the related Losses. If an Indemnified
Party shall have received the payment required by this Agreement from an
Indemnifying Party in respect of Losses and shall subsequently receive insurance
proceeds or other amounts in respect of such Losses, then such Indemnified Party
shall promptly repay to the Indemnifying Party a sum equal to the amount of such
insurance proceeds or other amounts actually received.
(e) Each Indemnified Party shall be obligated in connection with any
claim for indemnification under this Article XI to use all commercially
reasonable efforts to mitigate Losses upon and after becoming aware of any event
which could reasonably be expected to give rise to such Losses.
11.02 Method of Asserting Claims. All claims for
indemnification by any Indemnified Party under Section 11.01 will
be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which an
Indemnified Party might seek indemnity under Section 11.01 is asserted against
or sought to be collected from such Indemnified Party by a Person other than
Parent or Purchaser or any Affiliate of Parent or Purchaser (a "Third Party
Claim"), the Indemnified Party shall deliver a Claim Notice as soon as
practicable to the Indemnifying Party. The Indemnifying Party will notify the
Indemnified Party as soon as practicable within the Dispute Period whether the
Indemnifying Party disputes its liability to the Indemnified Party under Section
11.01 and whether the Indemnifying Party desires, at its sole cost and expense,
to defend the Indemnified Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party within
the Dispute Period that the Indemnifying Party does not dispute its
liability to the Indemnified Party with respect to such Third Party Claim
and that it desires to defend the Indemnified Party with respect to the
Third Party Claim pursuant to this Section 11.02(a), then the Indemnifying
Party will have the right to defend, at the sole cost and expense of the
Indemnifying Party, such Third Party Claim by all appropriate proceedings,
which proceedings will be vigorously and diligently prosecuted by the
Indemnifying Party to a final conclusion by counsel reasonably
satisfactory to the Indemnified Party or such Third Party Claim will be
settled at the discretion of the Indemnifying Party; provided, however,
without the prior
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written consent of the Indemnified Party, the Indemnifying Party shall not
enter into any settlement of any Third Party Claim unless such settlement
includes an unconditional release of the Indemnified Party for any
liability arising out of such Claim and does not otherwise restrict the
future activities of the Company or any Subsidiary. If a firm offer is
made to settle a Third Party Claim which includes an unconditional release
of the Indemnified Party for such Claim and does not otherwise restrict
the future activities of the Company or any Subsidiary and the
Indemnifying Party desires to accept and agree to such offer, the
Indemnifying Party shall give written notice to the Indemnified Party to
that effect. If the Indemnified Party fails to consent to such firm offer
within 10 calendar days after its receipt of such notice, the Indemnified
Party may continue to contest or defend such Third Party Claim and, in
such event, the maximum liability of the Indemnifying Party as to such
Third Party Claim shall not exceed the amount of such settlement offer
plus costs and expenses paid or incurred by the Indemnified Party through
the end of such ten-day period. The Indemnifying Party will have full
control of the defense and proceedings referred to in this clause (i),
including (except as provided above) any settlement thereof. If reasonably
requested by the Indemnifying Party, the Indemnified Party will, at the
sole cost and expense of the Indemnifying Party, cooperate with the
Indemnifying Party and its counsel in contesting any Third Party Claim
that the Indemnifying Party elects to contest, or, if appropriate and
related to the Third Party Claim in question, in making any counterclaim
against the Person asserting the Third Party Claim, or any cross-complaint
against any Person (other than the Indemnified Party or any of its
Affiliates). The Indemnified Party may retain separate counsel to
represent it in, but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party pursuant to this clause
(i), and the Indemnified Party will bear its own costs and expenses with
respect to such separate counsel except as provided in the preceding
sentence and except that the Indemnifying Party will pay the costs and
expenses of such separate counsel if (x) in the Indemnified Party's good
faith judgment, it is advisable, based on advice of counsel, for the
Indemnified Party to be represented by separate counsel because a conflict
or potential conflict exists between the Indemnifying Party and the
Indemnified Party which makes representation of both parties inappropriate
under applicable standards of professional conduct or (y) the named
parties to such Third Party Claim include both the Indemnifying Party and
the Indemnified Party and the Indemnified Party determines in good faith,
based on advice of counsel, that defenses are available to it that are
unavailable to the Indemnifying Party. Notwithstanding the foregoing, the
Indemnified Party may retain or assume control of the defense or
settlement of
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any Third Party Claim the defense of which the Indemnifying Party has
elected to control if the Indemnified Party irrevocably waives its right
to indemnity under Section 11.01 with respect to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim pursuant to Section 11.02(a), then the Indemnified
Party will have the right to defend, at the sole cost and expense of the
Indemnifying Party (subject to any applicable limitations set forth in
Section 11.01(c)), the Third Party Claim by all appropriate proceedings,
which proceedings will be vigorously and diligently prosecuted by the
Indemnified Party to a final conclusion or will be settled at the
discretion of the Indemnified Party with the consent of the Indemnifying
Party, which consent shall not be unreasonably withheld. The Indemnified
Party will have full control of the defense and proceedings referred to in
this clause (ii), including (except as provided above) any settlement
thereof. If reasonably requested by the Indemnified Party, the
Indemnifying Party will, at the sole cost and expense of the Indemnifying
Party (subject to any applicable limitations set forth in Section
11.01(c)), cooperate with the Indemnified Party and its counsel in
contesting any Third Party Claim which the Indemnified Party is
contesting, or, if appropriate and related to the Third Party Claim in
question, in making any counterclaim against the Person asserting the
Third Party Claim, or any cross-complaint against any Person (other than
the Indemnifying Party or any of its Affiliates). Notwithstanding the
foregoing provisions of this clause (ii), if the Indemnifying Party has
notified the Indemnified Party within the Dispute Period that the
Indemnifying Party disputes its liability hereunder to the Indemnified
Party with respect to such Third Party Claim and if such dispute is
resolved in favor of the Indemnifying Party in the manner provided in
clause (iii) below, the Indemnifying Party will not be required to bear
the costs and expenses of the Indemnified Party's defense pursuant to this
clause (ii) or of the Indemnifying Party's participation therein at the
Indemnified Party's request, and the Indemnified Party will reimburse the
Indemnifying Party in full for all reasonable costs and expenses incurred
by the Indemnifying Party in connection with such litigation. The
Indemnifying Party may retain separate counsel to represent it in, but not
control, any defense or settlement controlled by the Indemnified Party
pursuant to this clause (ii), and the Indemnifying Party will bear its own
costs and expenses with respect to such participation.
(iii) If the Indemnifying Party notifies the Indemnified Party that
it does not dispute its liability to the Indemnified Party with respect to
the Third Party Claim
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under Section 11.01 or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes its liability to
the Indemnified Party with respect to such Third Party Claim, the Loss
arising from such Third Party Claim will be conclusively deemed a
liability of the Indemnifying Party under Section 11.01 and the
Indemnifying Party shall pay the amount of such Loss to the Indemnified
Party on demand following its final determination (subject to any
applicable limitations set forth in Section 11.01(c)). If the Indemnifying
Party has timely disputed its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party will proceed in good faith to
negotiate a resolution of such dispute, and if not resolved through
negotiations within the Resolution Period, such dispute shall be resolved
by litigation in a court of competent jurisdiction.
(b) In the event any Indemnified Party should have a claim under
Section 11.01 against any Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver an Indemnity Notice as soon as
practicable to the Indemnifying Party. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim described in such Indemnity
Notice or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes the claim described in such Indemnity
Notice, the Loss arising from the claim specified in such Indemnity Notice will
be conclusively deemed a liability of the Indemnifying Party under Section 11.01
and the Indemnifying Party shall pay the amount of such Loss to the Indemnified
Party on demand following its final determination (subject to any applicable
limitations set forth in Section 11.01(c)). If the Indemnifying Party has timely
disputed its liability with respect to such claim, the Indemnifying Party and
the Indemnified Party will proceed in good faith to negotiate a resolution of
such dispute, and if not resolved through negotiations within the Resolution
Period, such dispute shall be resolved by litigation in a court of competent
jurisdiction.
(c) In the event of any Loss resulting from misrepresentation,
breach of warranty or nonfulfillment or failure of performance of any covenant
or agreement contained in this Agreement as to which an Indemnified Party would
be entitled to claim indemnity under Section 11.01 but for the provisions of
clause (B) of paragraph (c)(i) thereof, such Indemnified Party may nevertheless
deliver a written notice to the Indemnifying Party containing the information
that would be required in a Claim Notice or an Indemnity Notice, as applicable,
with respect to such Loss. In the case of a Claim Notice that involves a claim
in excess of 100% of the amount of the remaining basket referenced in Section
11.01(c)(i)(B), the provisions of clause (i) of paragraph (a) of this Section
11.02 will be applicable. If the Indemnifying Party notifies the Indemnified
Party that it does not dispute the claim described therein or fails to notify
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the Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes the claim described in such Claim Notice or Indemnity Notice, as the
case may be, the Loss specified in the notice will be conclusively deemed to
have been incurred by the Indemnified Party for purposes of making the
determination set forth in clause (B) of paragraph (c) (i) of Section 11.01. If
the Indemnifying Party has timely disputed the claim described in such Claim
Notice or Indemnity Notice, as the case may be, the Indemnifying Party and the
Indemnified Party will proceed in good faith to negotiate a resolution of such
dispute, and if not resolved through negotiations within the Resolution Period,
such dispute shall be resolved by litigation in a court of competent
jurisdiction.
(d) In the event of any claim for indemnity under Section 11.01(a),
Purchaser agrees to give Parent and its Representatives reasonable access to the
Books and Records and employees of the Company and the Subsidiaries in
connection with the matters for which indemnification is sought to the extent
Parent reasonably deems necessary in connection with its rights and obligations
under this Article XI.
11.03 Tax Treatment of Indemnity Payments. (a) Purchaser and Parent
agree to treat and report for all Tax reporting purposes the payment and receipt
of any indemnity pursuant to Article VIII or this Article XI as an adjustment to
the Purchase Price for the Acquired Shares. The final liability of an
Indemnifying Party computed otherwise in accordance with Article VIII or this
Article XI shall be limited to the after-tax consequence to the Indemnified
Party of any Loss suffered or incurred by the Indemnified Party. The full amount
of a Loss shall be paid in accordance with Article VIII or this Article XI.
Thereafter, the Indemnified Party shall remit to the Indemnifying Party the tax
savings (the "Tax Benefit Amount") attributable to the tax deduction, if any,
arising by reason of the Indemnified Party's payment of such Loss (the "Loss
Deduction"), determined without regard to indemnification under Article VIII or
this Article XI. For purposes of this Section 11.03, the Tax Benefit Amount
shall be equal to, for each year that the Loss Deduction (or portion thereof) is
used to actually reduce the tax liability of the Indemnified Party for such
year. The Tax Benefit Amount shall be so remitted only when and to the extent
that the Loss Deduction is used to actually reduce the tax liability of the
Indemnified Party. The Indemnified Party shall use the Loss Deduction at the
earliest opportunity (but not before the time when its income tax return for the
year in which the Loss is sustained (the "Loss Year") shall be due (the "Loss
Year Return"), after extension or otherwise; provided, however, that the Loss
Deduction shall not be considered to reduce the tax liability of an Indemnified
Party if, and to the extent that, the Indemnified Party has a net operating loss
carryforward or carryback (other than, or to the extent that, the net operating
loss carryforward or carryback is attributable to a Loss
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Deduction) available to offset or reduce the taxable income of the Indemnified
Party on the applicable Loss Year Return. To the extent the Loss Deduction
cannot be so utilized on the Loss Year Return and therefore gives rise to a net
operating loss carryforward, the use of any net operating loss carryforward in
any subsequent year shall be deemed to be, for purposes of this Section 11.03,
use of the Loss Deduction only when, and to the extent that, the Indemnified
Party actually uses such net operating loss carryforward to actually reduce its
tax liability on a Loss Year Return.
(b) The Indemnifying Party shall reimburse and remit to the
Indemnified Party any Tax Benefit Amount previously paid by the Indemnified
Party to the Indemnifying Party hereunder if, and to the extent that, the Loss
Deduction giving rise to such Tax Benefit Amount is disallowed or reduced by any
taxing authority pursuant to an audit or other applicable proceeding.
(c) If the payment and receipt of any indemnity pursuant to Article
VIII or this Article XI is not treated as an adjustment to the Purchase Price by
any relevant taxing authority, the amount of such indemnity payment shall be
increased to take into account and reimburse the Indemnified Party for the
amount of any Taxes imposed on the Indemnified Party as a result of the
Indemnified Party's receipt or accrual of such indemnity payment and the Tax
Benefit Amount shall be increased to reflect any tax savings attributable to the
deduction of the amount paid over.
11.04 Exclusivity. After the Closing, to the extent permitted by
Law, the indemnities set forth in Article VIII or this Article XI shall be the
exclusive remedies of Purchaser and Parent and their respective officers,
directors, employees, agents and Affiliates for any misrepresentation, breach of
warranty or nonfulfillment or failure to be performed of any covenant or
agreement contained in this Agreement, and the parties shall not be entitled to
a rescission of this Agreement or to any further indemnification rights or
claims of any nature whatsoever in respect thereof, all of which the parties
hereto hereby waive.
11.05 Letter of Credit; Escrow. (a) At the Closing, Parent shall
arrange for the delivery to Purchaser of an irrevocable letter of credit issued
by a United States domestic bank in a form reasonably satisfactory to Purchaser
(the "Letter of Credit"), naming the Purchaser Indemnified Parties as
beneficiaries, to secure Parent's indemnification obligations under this
Agreement in amounts and for the duration set forth in Schedule 11.05 (the
duration of such required security, the "Security Period").
(b) In lieu of the Letter of Credit, at the Closing or at any time,
and from time to time, during the period that the
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Letter of Credit is outstanding, Parent may deposit cash in an escrow account
(the "Escrow Account") in a United States domestic bank for the benefit of the
Purchaser Indemnified Parties, pursuant to the terms of an escrow agreement in a
form reasonably satisfactory to Purchaser, and the amount of the Letter of
Credit shall be reduced by the amount of such funds deposited in the Escrow
Account and may thereafter increase the amount of the Letter of Credit and
reduce the Escrow Account on a dollar-for-dollar basis.
11.06 Minimum Net Asset Requirement.
(a) Parent shall maintain a minimum fair market value of net assets
equal to $30 million (the "Minimum Net Assets Level") for the duration of the
Security Period. Purchaser and Parent acknowledge and agree that the shares of
Common Stock retained by the Parent shall be deemed to have a fair market value
of the greater of $29 million or the market price of such shares in the event
there should be a public trading market for the Common Stock. In the event that
any of the shares of Common Stock shall be transferred by Parent, the cash value
of such shares calculated at the value set forth in Schedule 1.01, or at the
market price of such shares on the date of such transfer in the event there
should be a public trading market for the Common Stock, shall be deposited with
the Parent to replace the value of the transferred Shares.
(b) At March 31, June 30, September 30 and December 31 of each year,
Parent shall deliver a statement of the fair market value of the net assets of
Parent ("Net Asset Statement") and Purchaser shall have the right to confirm the
accuracy of the Net Asset Statement. In the event that the fair market value of
Net Assets set forth in a Net Asset Statement shall be less than the Minimum Net
Asset Level (the "Deficiency"), then Parent shall have 20 days to increase the
Letter of Credit or the amount of funds held in the Escrow Account in the amount
of such Deficiency. At the Closing and during the Security Period, the shares of
Common Stock or other property to be agreed upon held by Parent and $1 million
shall be deposited in an agency account pursuant to an agency agreement in a
form reasonably acceptable to Purchaser.
11.07 Other Arrangements. If requested by Parent, Purchaser agrees
to negotiate in good faith with respect to any arrangements proposed by Parent
in lieu of those provided for in Sections 11.05 and 11.06 that provide a fair
and reasonable substitute for the security intended to be provided by Sections
11.05 and 11.06 to Purchaser.
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ARTICLE XII
TERMINATION
12.01 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by mutual written agreement of
Parent and Purchaser;
(b) at any time before the Closing, by Parent or Purchaser, in the
event that any Order or Law becomes effective restraining, enjoining or
otherwise prohibiting or making illegal the consummation of any of the
transactions contemplated by this Agreement, upon notification of the
non-terminating party by the terminating party;
(c) at any time after December 1, 1996 by Parent or Purchaser upon
notification of the non-terminating party by the terminating party if the
Closing shall not have occurred on or before such date and such failure to
consummate is not caused by a breach of this Agreement by the terminating party;
or
(d) by any party, at any time, if litigation is brought or
threatened to be brought by any Governmental or Regulatory Authority for the
purpose of restraining, enjoining or otherwise prohibiting or making illegal the
consummation of any of the transactions contemplated by this Agreement.
12.02 Effect of Termination. If this Agreement is validly terminated
pursuant to Section 12.01, this Agreement will forthwith become null and void,
and there will be no liability or obligation on the part of Parent or Purchaser
(or any of their respective officers, directors, employees, agents or other
representatives or Affiliates), except as provided in the next succeeding
sentence and except that the provisions with respect to expenses in Section
14.03 and confidentiality in Section 14.05 will continue to apply following any
such termination. Notwithstanding any other provision in this Agreement to the
contrary, upon termination of this Agreement pursuant to Section 12.01(b), (c)
or (d) Parent will remain liable to Purchaser for any willful breach of Section
4.13 of this Agreement by Parent existing at the time of such termination, and
Purchaser will remain liable to Parent for any willful breach of Section 5.05 of
this Agreement by Purchaser existing at the time of such termination, and Parent
or Purchaser may seek such remedies, including damages and fees of attorneys,
against the other with respect to any such breach as are provided in this
Agreement or as are otherwise available at Law or in equity.
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ARTICLE XIII
DEFINITIONS
13.01 Definitions. (a) Defined Terms. As used in this Agreement, the
following defined terms have the meanings indicated below:
"Acquired Shares" has the meaning ascribed to it in the forepart of
this Agreement.
"Acquisition Proposal" has the meaning ascribed to it in Section
4.09.
"Actions or Proceedings" means any action, suit, proceeding,
arbitration or Governmental or Regulatory Authority investigation.
"Affiliate" means any Person that directly, or indirectly through
one of more intermediaries, controls or is controlled by or is under common
control with the Person specified. For purposes of this definition, control of a
Person means the power, direct or indirect, to direct or cause the direction of
the management and policies of such Person whether by Contract or otherwise and,
in any event and without limitation of the previous sentence, any Person owning
ten percent (10%) or more of the voting securities of another Person shall be
deemed to control that Person.
"Agreement" means this Stock Purchase Agreement and the Exhibits,
the Disclosure Schedule and the Schedules hereto and the certificates delivered
in accordance with Sections 6.03 and 7.03, as the same shall be amended from
time to time.
"Assets and Properties" of any Person means all assets and
properties of every kind, nature, character and description (whether real,
personal or mixed, whether tangible or intangible, and wherever situated),
including the goodwill related thereto, operated, owned or leased by such
Person.
"Benefit Plan" means any Plan established by the Company or any
ERISA Affiliate, or any predecessor or Affiliate of any of the foregoing,
existing at the Closing Date or at any time within the five (5) year period
prior thereto, to which the Company or any ERISA Affiliate contributes or has
contributed, or under which any employee, former employee or director of the
Company or any ERISA Affiliate or any beneficiary thereof is covered, is
eligible for coverage or has benefit rights.
"Books and Records" means all files, documents, instruments, papers,
books and records relating to the Business or Condition of the Company,
including without limitation financial statements, Tax Returns and related work
papers and
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letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds,
title policies, minute books, stock certificates and books, stock transfer
ledgers, Contracts, Licenses, customer lists, computer files and programs,
retrieval programs, operating data and plans and environmental studies and
plans.
"Bothwell" means Bothwell Corporation, a British Virgin Islands
corporation.
"Bothwell Notes" means the note payable by Bothwell to Spalding in
the outstanding principal amount of $9,953,188.63 as of the date hereof, the
note payable by Bothwell to Spalding (substituted for the preferred stock of
Pueblo) in the outstanding principal amount of $49,394,470 on the date hereof
and the Pack-A-Snack Note.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York are authorized or obligated to
close.
"Business or Condition of the Company" means the business, prospects
financial condition or results of operations of the Company and the Subsidiaries
taken as a whole.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and the rules and
regulations promulgated thereunder.
"CERCLIS" means the Comprehensive Environmental Response and
Liability Information System, as provided by 40 C.F.R. ss.300.5.
"Claim Notice" means written notification pursuant to Section
11.02(a) of a Third Party Claim as to which indemnity under Section 11.01 is
sought by an Indemnified Party, enclosing a copy of all papers served, if any,
and specifying the nature of and basis for such Third Party Claim and for the
Indemnified Party's claim against the Indemnifying Party under Section 11.01,
together with the amount or, if not then reasonably determinable, the estimated
amount, determined in good faith, of the Loss arising from such Third Party
Claim.
"Closing" means the consummation of the transactions
contemplated by Section 1.03.
"Closing Date" means (a) September 30, 1996 or (b) such later date
as Purchaser and Parent mutually agree in writing; provided, that such date
shall not be later than 5 Business Days after the satisfaction or waiver of the
conditions set forth in Article VI and VII.
"Closing Date Working Capital" has the meaning ascribed to it in
Section 4.04(b).
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"Closing Date Working Capital Calculation" has the meaning ascribed
to it in Section 4.04(b).
"COBRA" has the meaning ascribed to it in Section 2.13(b).
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Commitment Letter" has the meaning ascribed to it in Section 3.08.
"Common Stock" means the common stock, par value $1.00 per share, of
the Company.
"Company" has the meaning ascribed to it in the forepart of this
Agreement.
"Confidential Information Memorandum" means the Spalding & Evenflo
Companies, Inc. Confidential Information Memorandum.
"Contract" means any agreement, lease, license, evidence of
Indebtedness, mortgage, indenture, security agreement or other contract.
"Cut-off Date" means, with respect to any representation, warranty,
covenant or agreement contained in this Agreement, the date on which such
representation, warranty, covenant or agreement ceases to survive as provided in
Section 10.01.
"Credit Agreements" means the U.S. $40,000,000 Interim Loan
Agreement dated as of April 17, 1996 among Spalding, as Borrower, the Lenders
named therein, Citibank, N.A., as Administrative Agent, and Nationsbank, N.A.
(South), as Documentation Agent, as the same may be amended or supplemented from
time to time (the "Interim Credit Agreement"), and the U.S. $450,000,000 Credit
Agreement dated as of October 13, 1994 among Spalding, as Borrower, the Lenders
named therein, Citibank, N.A., as Administrative Agent and Nationsbank of
Florida, N.A., as Documentation Agent, as the same may be amended or
supplemented from time to time (the "1994 Credit Agreement").
"Disclosure Schedule" means the record delivered to Purchaser by
Parent herewith and dated as of the date hereof, containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein by Parent pursuant to this Agreement, as supplemented by the
Etonic Acquisition Disclosure Schedules.
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"Dispute Period" means the period ending thirty (30) days following
receipt by an Indemnifying Party of either a Claim Notice or an Indemnity
Notice.
"EAC Preferred" has the meaning ascribed to it in Section 2.04.
"Environmental Claim" has the meaning ascribed to it in Section
2.22(i)(i).
"Environmental Law" has the meaning ascribed to it in Section
2.22(c)(i).
"Environmental Permits" has the meaning ascribed to it in Section
2.22(a).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" has the meaning set forth in Section 2.13(d).
"E&S Realco" means E&S Realco, Inc., a Delaware corporation.
"E&S Realco Advance" means the advances made by Spalding to E&S
Realco in the aggregate outstanding principal amount of $8,010,142 on the date
hereof.
"Escrow Account" has the meaning ascribed to it in Section 11.05.
"Etonic Notes" means the promissory notes issued on July 25, 1996 by
EAC Acquisition Corporation to DLJ Investment Funding, Inc. in the principal
amount of $4,798,000, to Etonic, Inc. in the principal amount of $29,043,000 and
to DLJ Investment Partners, L.P. in the principal amount of $20,202,000.
"Evenflo" means Evenflo Company, Inc., a Delaware Corporation.
"Etonic Purchase Agreement Disclosure Schedules" has the meaning
ascribed to it in the forepart of Article II.
"Exon Florio Amendment" means Section 721 of the Defense Production
Act of 1950, as amended, and any successor thereto and the regulations issued
pursuant thereto.
"Financing" has the meaning ascribed to it in Section 1.02.
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"GAAP" means generally accepted accounting principles in effect in
the United States, consistently applied throughout the specified periods.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States or any foreign government or any state, county, city or other
political subdivision thereof.
"Guaranties" means, collectively, the Guaranty dated October 13,
1994 by the Company, and the guaranties by the "Material Domestic Subsidiaries"
(as defined in the 1994 Credit Agreement) dated October 13, 1994, in each case,
in favor of Citibank, N.A. as Administrative Agent, Nations Bank of Florida N.A.
as Documentation Agent and certain Lenders and Fronting Banks described therein
in respect of the 1994 Credit Agreement, as the same may be amended or
supplemented from time to time.
"Hazardous Material" has the meaning ascribed to it in Section
2.22(i)(iii).
"HSR Act" means Section 7A of the Clayton Act (Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and the rules
and regulations promulgated thereunder.
"Indebtedness" of any Person means all obligations of such Person
(i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases and (v) in the nature of guarantees of the obligations
described in clauses (i) through (iv) above of any other Person.
"Indemnified Party" means any Person claiming indemnification under
any provision of Article XI, including without limitation a Person asserting a
claim pursuant to paragraph (c) of Section 11.02.
"Indemnifying Party" means any Person against whom a claim for
indemnification is being asserted under any provision of Article XI, including
without limitation a Person against whom a claim is asserted pursuant to
paragraph (c) of Section 11.02.
"Indemnity Notice" means written notification pursuant to Section
11.02(b) of a claim for indemnity under Article XI by an Indemnified Party,
specifying the nature of and basis for such claim, together with the amount or,
if not then reasonably determinable, the estimated amount, determined in good
faith, of the Loss arising from such claim.
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"Intellectual Property" means all intellectual property of the
Company and each of its Subsidiaries, including without limitation, all rights,
privileges and priorities under U.S., Foreign or State Law, relating to patents,
trademarks, corporate names, logos, trade dress, trade names, service marks,
service names, brand names, together with the goodwill associated therewith,
inventions, technology and know-how, copyrights, trade secrets and confidential
information, including all pending applications and registrations therefor, and
all common-law rights and other rights related thereto.
"Investment Assets" means all debentures, notes and other evidences
of Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets owned of record or beneficially by the Company or
any Subsidiary and issued by any Person other than the Company or any Subsidiary
(other than trade receivables generated in the ordinary course of business of
the Company and the Subsidiaries) and short term cash investments.
"IRS" means the United States Internal Revenue Service.
"Knowledge of Parent" means the actual knowledge of a Responsible
Director or Officer of Parent, the Company or the Subsidiaries.
"Laws" means all laws, statutes, rules, regulations, ordinances and
other pronouncements having the effect of law of the United States or any state,
county, city or other political subdivision or of any Governmental or Regulatory
Authority.
"Letter of Credit" has the meaning ascribed to it in Section 11.05.
"Licenses" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Governmental or Regulatory Authority.
"Liens" means any mortgage, pledge, assessment, security interest,
lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or
any conditional sale Contract, title retention Contract or other Contract to
give any of the foregoing.
"Loss" means any and all damages, fines, penalties, deficiencies,
losses and expenses (including without limitation interest, court costs,
reasonable fees of attorneys, accountants and other experts or other reasonable
expenses of litigation or other proceedings or of any claim, default or
assessment).
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"Loss Deduction" has the meaning ascribed to it in Section 11.03.
"Loss Year" has the meaning ascribed to it in Section 11.03.
"Loss Year Return" has the meaning ascribed to it in Section 11.03.
"Management Share Repurchase Agreement" has the meaning ascribed to
it in Section 1.02(a).
"Management Shares" has the meaning ascribed to it in the forepart
of this Agreement.
"Minimum Net Asset Level" has the meaning ascribed to it in Section
11.06.
"NPL" means the National Priorities List under CERCLA.
"Net Asset Statement" has the meaning ascribed to it in Section
11.06.
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any shares of
capital stock of such Person or any security of any kind convertible into or
exchangeable or exercisable for any shares of capital stock of such Person or
(ii) receive or exercise any benefits or rights similar to any rights enjoyed by
or accruing to the holder of shares of capital stock of such Person, including
any rights to participate in the equity or income of such Person or to
participate in or direct the election of any directors or officers of such
Person or the manner in which any shares of capital stock of such Person are
voted.
"Order" means any writ, judgment, decree, injunction or similar
order of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"Pack-A-Snack" means Pack-A-Snack N.V., a Netherlands Antilles
corporation.
"Pack-A-Snack Note" means the note payable by Pack-A-Snack to
Spalding in the outstanding principal amount of $11,046,811.37 on the date
hereof.
"Parent" has the meaning ascribed to it in the forepart of this
Agreement.
"Parent Indemnified Parties" means Parent and its officers,
directors, employees, agents and Affiliates.
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"PBGC" means the Pension Benefit Guaranty Corporation and its
successors in interest.
"Pension Benefit Plan" means each Benefit Plan which is a pension
benefit plan within the meaning of Section 3(2) of ERISA.
"Permitted Lien" means (i) any Lien for Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of Law
with respect to a liability that is not yet due or delinquent and (iii) any
minor imperfection of title or similar Lien which individually or in the
aggregate with other such Liens could not reasonably be expected to materially
adversely affect any material Asset or Properties.
"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, other business organization, trust, union,
association or Governmental or Regulatory Authority.
"Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, workmen's compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, whether written or oral, including, but not limited to,
any "employee benefit plan" within the meaning of Section 3(3) of ERISA.
"Preferred Stock" has the meaning ascribed to it in Section 2.04.
"Process Agent" has the meaning ascribed to it in Section 14.12.
"Product Liability Claims" has the meaning ascribed to it in Section
2.23.
"Pueblo" means PXC&M Holdings, Inc., a Delaware Corporation.
"Purchase Price" has the meaning ascribed to it in Section 1.02.
"Purchaser" has the meaning ascribed to it in the forepart of this
Agreement.
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"Purchaser Indemnified Parties" means Purchaser the Company and the
Subsidiaries and their partners, officers, directors, employees, agents and
Affiliates.
"Qualified Plan" means each Benefit Plan which is intended to
qualify under Section 401 of the Code.
"Recapitalization Amount" has the meaning ascribed to it in Section
1.02(a).
"Recapitalization Shares" has the meaning ascribed to it in the
forepart of this Agreement.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal or leaching into the indoor
or outdoor environment.
"Representatives" has the meaning ascribed to it in Section 4.03.
"Resolution Period" means the period ending sixty (60) days
following receipt by an Indemnified Party of a written notice from an
Indemnifying Party stating that it disputes all or any portion of a claim set
forth in a Claim Notice or an Indemnity Notice.
"Responsible Director or Officer" means any director or officer of
the Parent or the Company or any of the officers of the Subsidiaries.
"SEC" has the meaning ascribed to it in Section 4.12.
"Securities Act" means the Securities Act of 1933, as amended, and
rules and regulations thereunder.
"Security Period" has the meaning ascribed to it in Section 11.05.
"Spalding" has the meaning ascribed to it in the forepart of this
Agreement.
"Shareholders Agreement" has the meaning ascribed to it in Section
1.03.
"Subject Defined Benefit Plan" means each Benefit Plan which is
subject to Part 3 of Title I of ERISA, Section 412 of the Code or Title IV of
ERISA.
"Subsidiary" means any Person in which the Company, directly or
indirectly through Subsidiaries or otherwise, beneficially owns more than fifty
percent (50%) of either the equity interests in, or the voting control of, such
Person.
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"Tax Benefit Amount" has the meaning ascribed to it in Section
11.03.
"Tax Return" means a report, return or other information (including
any amendments) required to be supplied to a governmental entity with respect to
Taxes including, where permitted or required, combined or consolidated returns
for any group of entities that includes the Company or any Subsidiary.
"Taxes" means any federal, state, county, local or foreign taxes,
charges, fees, levies, other assessments, or withholding taxes or charges
imposed by any governmental entity, and includes any interest and penalties
(civil or criminal) on or additions to any such taxes and any expenses incurred
in connection with the determination, settlement or litigation of any Tax
liability.
"Third Party Claim" has the meaning ascribed to it in Section
11.02(a).
"Third Party Liens" has the meaning ascribed to it in Section 2.14.
(b) Construction of Certain Terms and Phrases. Unless the context of
this Agreement otherwise requires, (i) words of any gender include each other
gender; (ii) words using the singular or plural number also include the plural
or singular number, respectively; (iii) the terms "hereof," "herein," "hereby"
and derivative or similar words refer to this entire Agreement; (iv) the terms
"Article" or "Section" refer to the specified Article or Section of this
Agreement; and (v) the phrase "ordinary course of business" refers to the
business of the Company or a Subsidiary. Whenever this Agreement refers to a
number of days, such number shall refer to calendar days unless Business Days
are specified. All accounting terms used herein and not expressly defined herein
shall have the meanings given to them under GAAP. Any representation or warranty
contained herein as to the enforceability of a Contract shall be subject to the
effect of any bankruptcy, insolvency, reorganization, moratorium or other
similar law affecting the enforcement of creditors' rights generally and to
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at Law).
ARTICLE XIV
MISCELLANEOUS
14.01 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile
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transmission or mailed (first class postage prepaid) to the parties at the
following addresses or facsimile numbers:
If to Purchaser, to:
Strata Holdings L.P.
c/o Kohlberg Kravis Roberts & Co.
9 West 57th Street
New York, New York 10019
Facsimile No.: (212) 750-0003
Attn: Michael Tokarz
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Facsimile No.: (212) 455-2502
Attn: Charles I. Cogut
If to Parent, to:
Abarco N.V.
c/o ABN Trustcompany
(Curacao N.V.)
P.O. Box 224
15 Pietermaai
Curacao, Netherlands Antilles
with a copy to:
Spalding & Evenflo Companies, Inc.
601 South Harbour Island Blvd.
Suite 200
Tampa, Florida 33602
Facsimile No.: (813) 204-5219
Attn: Paul L. Whiting
President
and
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, NY 10005
Facsimile No.: 212-530-5219
Attn: Robert S. O'Hara, Jr.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
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Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other party hereto.
14.02 Entire Agreement. This Agreement and, subject to the last
sentence of Section 14.05, the Confidentiality Agreement between Parent and
Purchaser (the "Confidentiality Agreement"), supersede all prior discussions and
agreements between the parties with respect to the subject matter hereof and
thereof and contain the sole and entire agreement between the parties hereto
with respect to the subject matter hereof and thereof.
14.03 Expenses. Except as otherwise expressly provided in this
Agreement (including without limitation as provided in Section 2.26 and 12.02),
whether or not the transactions contemplated hereby are consummated, Purchaser
and Parent will pay their own costs and expenses (except that Spalding will pay
the costs and expenses of its officers, employees and accountants) incurred in
connection with the transactions contemplated by this Agreement.
14.04 Public Announcements. At all times at or before the Closing,
Parent and Purchaser will not issue or make any reports, statements or releases
to the public or generally to the employees, customers, suppliers or other
Persons to whom the Company and the Subsidiaries sell goods or provide services
or with whom the Company and the Subsidiaries otherwise have significant
business relationships with respect to this Agreement or the transactions
contemplated hereby without the consent of the other, which consent shall not be
unreasonably withheld. If either party is unable to obtain the approval of its
public report, statement or release from the other party and such report,
statement or release is, in the opinion of legal counsel to such party, required
by Law in order to discharge such party's disclosure obligations, then such
party may make or issue the legally required report, statement or release and
promptly furnish the other party with a copy thereof. Parent and Purchaser will
also obtain the other party's prior approval of any press release to be issued
immediately following the Closing announcing the consummation of the
transactions contemplated by this Agreement.
14.05 Confidentiality. Purchaser acknowledges (i) that it has
entered the Confidentiality Agreement, (ii) Purchaser's due diligence
investigation will be conducted in accordance with the Confidentiality
Agreement, (iii) any "Evaluation Material" (as defined in the Confidentiality
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Agreement) received in connection with such due diligence investigation will be
accorded confidential treatment as and to the extent provided in the
Confidentiality Agreement and (iv) Purchaser will provide such Evaluation
Material only to those employees and Representatives of Purchaser as is
reasonably necessary to analyze the purchase and sale transaction contemplated
hereby. Except with respect to matters relating to non-Subsidiary Affiliates of
the Company, from and after the Closing, the Confidentiality Agreement shall
terminate and no longer have any force and effect.
14.06 Further Assurances; Post-Closing Cooperation. (a) Subject to
the terms and conditions of this Agreement, at any time or from time to time
after the Closing, each of the parties hereto shall execute and deliver such
other documents and instruments, provide such materials and information and take
such other actions as may reasonably be necessary, proper or advisable, to the
extent permitted by Law, to fulfill its obligations under this Agreement.
(b) Following the Closing, each party will afford the other party,
its counsel and its accountants, during normal business hours, reasonable access
to the books, records and other data relating to the Company or the Subsidiaries
in its possession with respect to periods prior to the Closing and the right to
make copies and extracts therefrom, to the extent that such access may be
reasonably required by the requesting party in connection with (i) the
preparation of Tax Returns, (ii) the determination or enforcement of rights and
obligations under this Agreement, (iii) compliance with the requirements of any
Governmental or Regulatory Authority, (iv) the determination or enforcement of
the rights and obligations of any Indemnified Party or (v) in connection with
any actual or threatened Action or Proceeding. Further, each party agrees for a
period extending six (6) years after the Closing Date(unless another period is
specified herein) not to destroy or otherwise dispose of any such books, records
and other data unless such party shall first offer in writing to surrender such
books, records and other data to the other party and such other party shall not
agree in writing to take possession thereof during the ten (10) day period after
such offer is made; provided, however, that either party may maintain such
books, records and other data in microfiche, magnetic or other readily
reproducible form in lieu of retaining the originals thereof.
(c) If, in order properly to prepare its Tax Returns, other
documents or reports required to be filed with Governmental
or Regulatory Authorities or its financial statements or to fulfill its
obligations hereunder, it is necessary that a party be furnished with additional
information, documents or records relating to the Company or the Subsidiaries
not referred to in paragraph (b) above, and such information, documents or
records are in the possession or control of the other party, such other
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party agrees to use its best efforts to furnish or make available such
information, documents or records (or copies thereof) at the recipient's
request, cost and expense.
(d) Notwithstanding anything to the contrary contained in this
Section 14.06, if the parties are in an adversarial relationship in litigation
or arbitration, the furnishing of information, documents or records in
accordance with any provision of this Section shall be subject to applicable
rules relating to discovery.
14.07 Waiver. Any term or condition of this Agreement may be waived
at any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion.
14.08 Amendment. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of Purchaser
and Parent.
14.09 No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person other
than any Person who is the beneficiary of the covenants and agreements of
Purchaser or the Company set forth in Section 5.03, Article IX and any Person
entitled to indemnity under Article XI.
14.10 No Assignment; Binding Effect. Neither this Agreement nor any
right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other party hereto and any attempt to
do so will be void, except that Purchaser may assign any or all of its rights,
interests and obligations hereunder to any affiliate, provided that any such
affiliate agrees in writing to be bound by all of the terms, conditions and
provisions contained herein and Purchaser may collaterally assign its rights
hereunder to one or more Persons providing financing to Purchaser in connection
with the transactions contemplated hereby, but no such assignment referred to in
clause (b) shall relieve Purchaser of its obligations hereunder. Subject to the
preceding sentence, this Agreement is binding upon, inures to the benefit of and
is enforceable by the parties hereto and their respective successors and
assigns.
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14.11 Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
14.12 Submission to Jurisdiction; Waivers. Each of Purchaser and
Parent irrevocably agrees that any Action or Proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect thereof
brought by the other party hereto or its successors or assigns, may be brought
and determined in the Supreme Court of the State of New York in New York County
or in the United States District Court for the Southern District of New York,
and each of Purchaser and Parent hereby irrevocably submits with regard to any
such Action or Proceeding for itself and in respect to its Assets and
Properties, generally and unconditionally, to the nonexclusive jurisdiction of
the aforesaid courts provided, however, that such consent to jurisdiction is
solely for the purpose referred to in this Section and shall not be deemed to be
a general submission to the jurisdiction of said courts or in the State of New
York other than for such purpose. Each of Purchaser and Parent hereby
irrevocably waives, and agrees not to assert, by way of motion, as a defense,
counterclaim or otherwise in any Action or Proceeding with respect to this
Agreement, any claim that it is not personally subject to the jurisdiction of
the above-named courts for any reason other than the failure to serve process in
accordance with this Section 14.12, that it or its Assets and Properties are
exempt or immune from jurisdiction of any such court or from any legal process
commenced in such courts, and to the fullest extent permitted by applicable Law,
that the Action or Proceeding in any such court is brought in an inconvenient
forum, that the venue of such Action or Proceeding is improper, or that this
Agreement, or the subject matter hereof, may not be enforced in or by such
courts. Each of Purchaser and Parent hereby irrevocably designates CT
Corporation System (in such capacity, the "Process Agent"), with an office at
1633 Broadway, New York, New York 10019, as their respective designee, appointee
and agent to receive, for and on their behalf service of process in such
jurisdiction in any Action or Proceeding with respect to this Agreement, but for
no other purpose, and such service shall be deemed complete upon delivery
thereof to the Process Agent. Each of Purchaser and Parent further irrevocably
consents to the service of process out of any of the aforementioned courts in
any such Action or Proceeding by the mailing of copies thereof by registered
mail, postage prepaid, to such party at its address set forth in this Agreement,
such service of process to be effective upon acknowledgement of receipt of such
registered mail. Nothing herein shall affect the right of either party to serve
process in any other manner permitted by Law or to commence any Action or
Proceeding or otherwise proceed against the other party in any other
jurisdiction in which the other party may be subject to suit.
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14.13 Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under any present or future Law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof and (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom.
14.14 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of New York applicable to a
Contract executed and performed in such State, without giving effect to the
conflicts of laws principles thereof.
14.15 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officer of each party hereto as of the date
first above written.
STRATA HOLDINGS L.P.
By:________________________________
Name:
Title:
ABARCO N.V.
By:________________________________
Name:
Title:
E&S HOLDINGS CORPORATION
By:________________________________
Name:
Title:
<PAGE>
EXHIBIT 2.2
AMENDMENT TO RECAPITALIZATION AND STOCK PURCHASE AGREEMENT
AMENDMENT NO. 1 dated as of September 30, 1996, to RECAPITALIZATION
AND STOCK PURCHASE AGREEMENT, dated as of August 15, 1996 (the "Agreement"),
among STRATA ASSOCIATES, L.P. (formerly Strata Holdings L.P.), a Delaware
limited partnership ("Purchaser"), ABARCO N.V., a Netherlands Antilles
corporation ("Parent"), and E&S HOLDINGS CORPORATION, a Delaware corporation and
a wholly-owned subsidiary of Parent (the "Company"). Capitalized terms not
otherwise defined herein have the meanings set forth in the Agreement.
W I T N E S S E T H :
WHEREAS, Purchaser, Parent and the Company have agreed that the
Agreement be amended as set forth below.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants of the parties hereto, it is hereby agreed as follows:
Section 1. Amendment and Restatement of Section 4.04(b) of the
Agreement. Section 4.04(b) of the Agreement is hereby amended and restated to
read in its entirety as follows:
(b) The Working Capital of the Company and the Subsidiaries on the
Closing Date ("Closing Date Working Capital") shall not be less than $98 million
or more than $102 million. For purposes of this Section 4.04(b), Working Capital
shall mean, as of any date of determination on a consolidated basis consistent
with the preparation of the audited consolidated balance sheet of Spalding as of
September 30, 1995, the sum of (i) trade accounts receivable and (ii)
inventories, less (iii) the current liabilities of Spalding after excluding (A)
indebtedness of Spalding (other than bankers acceptances arising in connection
with the purchase of inventory), (B) income taxes and (C) LTIP liabilities
classified as current liabilities by the Company. As soon as practicable
following the Closing Date, but in any event within 60 days thereafter,
Purchaser shall prepare a calculation of Closing Date Working Capital (the
"Closing Date Working Capital Calculation") and shall deliver the Closing Date
Working Capital Calculation to Parent. Parent shall, within 30 days after the
delivery by Purchaser of the Closing Date Working Capital Calculation, complete
their review of the calculation and shall in a written notice to Purchaser,
either accept the calculation or describe in reasonable detail any proposed
adjustments to the Closing Date Working Capital Calculation and the reasons
therefor. If no notice is received by Purchaser within such 30-day period,
Parent will be deemed to have accepted the Closing Date Working Capital
Calculation. Purchaser and Parent shall negotiate in good faith to resolve any
disputes over any proposed adjustment to the Closing Date Working Capital
<PAGE>
2
Calculation raised by Parent; provided, that if they are unable to resolve any
disputes over any proposed adjustments within 15 days following Purchaser's
receipt of Parent's proposed adjustments, Purchaser and Parent shall engage
Price Waterhouse, or select jointly a mutually acceptable nationally recognized
independent public accounting firm to resolve such disputes, which resolution
shall be final and binding. The fees and expenses of such accounting firm shall
be shared equally by Purchaser and Parent. Within 5 business days of the
acceptance of the Closing Date Working Capital Calculation by Parent or the
resolution of any disputes arising out of any proposed adjustments, (i) Parent
shall pay to Purchaser immediately available funds equal to the amount by which
the Closing Date Working Capital, as set forth on the Closing Date Working
Capital Calculation, is less than $98 million or (ii) Purchaser shall pay to
Parent immediately available funds equal to the amount by which the Closing Date
Working Capital, as set forth on the Closing Date Working Capital Calculation,
is more than $102 million.
Section 2. Limitation of Amendment. Except as expressly provided
herein, the Agreement shall continue to be, and shall remain, in full force and
effect. Except as expressly provided herein, this First Amendment shall not be
deemed to be a waiver or, or consent to, or a modification or amendment of, any
other term or condition of the Agreement.
Section 3. Severability. If any provision of this Amendment shall be
declared by any court of competent jurisdiction to be illegal, void or
unenforceable, all other provisions of this Amendment shall not be affected and
shall remain in full force and effect.
Section 4. Counterparts. This Amendment may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall be deemed to be one and the same instrument.
Section 5. Applicable Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first above written.
ABARCO N.V.
BY__________________________________________
E & S HOLDINGS CORPORATION
BY__________________________________________
STRATA ASSOCIATES, L.P.
BY__________________________________________
<PAGE>
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
E & S HOLDINGS CORPORATION
E & S Holdings Corporation, a corporation organized and existing
under the laws of the State of Delaware (hereinafter called the "Company"),
hereby certifies as follows:
1. The name of the Company is E & S Holdings Corporation. The
Company was initially incorporated under the name of E & S Holdings Corporation.
The date of filing of its original Certificate of Incorporation with the
Secretary of State of Delaware was July 31, 1984.
2. The Board of Directors of the Company has duly adopted this
amendment and restatement of the Certificate of Incorporation in accordance with
the provisions of Sections 141(f), 242 and 245 of the Delaware General
Corporation Law.
3. The stockholders of the Company have duly adopted this amendment
and restatement of the Certificate of Incorporation in accordance with the
provisions of Sections 228, 242 and 245 of the Delaware General Corporation Law.
4. The text of the Certificate of Incorporation is hereby amended
and restated to read as herein set forth in full:
FIRST: The name of the Company is E & S Holdings Corporation.
SECOND: The registered office and registered agent of the Company is
The Corporation Trust Company, 1209 Orange Street, Wilmington, County of New
Castle, Delaware 19801.
THIRD: The purpose of the Company is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: A. The total number of shares of capital stock that the
Company is authorized to issue is 150,000,000 shares, of which 100,000,000
shares are Common Stock, par value $.01 per share (hereinafter referred to as
"Common Stock"), and 50,000,000 shares are preferred stock, par value $.01 per
share, including 49,999,200 shares hereinafter referred to as "Company Preferred
Stock" and 800 shares of Senior Preferred Stock, par value $.01 per share
hereinafter referred to as the "Preferred Stock".
B. The Company Preferred Stock may be issued from time to time in
one or more series with such distinctive designations as may be stated in the
resolution or resolutions providing for the issue of such stock from time to
time adopted by the Board of
<PAGE>
2
Directors or a duly authorized committee thereof. The resolution or resolutions
providing for the issue of shares of a particular series shall fix, subject to
applicable laws and the provisions of this Article Fourth, for each such series
the number of shares constituting such series and the designations and powers,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including, without limiting
the generality of the foregoing, such provisions as may be desired concerning
voting, redemption, dividends, dissolution or the distribution of assets,
conversion or exchange, and such other subjects or matters as may be fixed by
resolution or resolutions of the Board of Directors or a duly authorized
committee thereof under the Delaware General Corporation Law.
C. The number of authorized shares of any class or classes of stock
may be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock of the Company irrespective of the provisions of Section 242(b)(2) of the
Delaware General Corporation Law or any corresponding provision that may
hereafter be enacted.
D. On the date of filing of this Restated Certificate of
Incorporation in the Office of the Secretary of State of Delaware, each share of
Common Stock of the Company then outstanding shall be reclassified as one share
of Common Stock, par value $.01 per share.
E. The powers, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or restrictions
thereof, of the Senior Preferred Stock are as follows:
1. Rank.
The Preferred Stock shall, with respect to dividend rights and
rights on liquidation, winding-up and dissolution, rank senior to all classes of
common stock of the Company and each other class of Capital Stock or series of
preferred stock. (All equity securities of the Company to which the Preferred
Stock ranks senior are collectively referred to herein as the "Junior
Securities").
2. Dividends.
(a) The Holders of the outstanding shares of Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available for the payment of dividends,
dividends at an annual rate equal to: (i) from the Original Issue Date
through the first anniversary of such date, 9.0% per annum and, (ii)
thereafter, 20% per annum, in each case based on the liquidation
preference
<PAGE>
3
per share of the Preferred Stock. Whether or not declared, dividends on
each share of Preferred Stock shall accrue and be payable quarterly in
arrears on each Dividend Payment Date commencing on the first such date to
occur after the issuance of such share, in preference to dividends on the
Junior Securities. Each such dividend shall be payable to Holders of
record as they appear on the stock books of the Company on such record
dates, not less than ten (10) nor more than sixty (60) days preceding the
Dividend Payment Date, as shall be fixed by the Board of Directors.
Dividends shall cease to accrue in respect of the Preferred Stock on the
Redemption Date. Any dividend payments may be made, in the sole discretion
of the Company, either in (i) cash, (ii) additional shares, or portions
thereof, of Preferred Stock or (iii) any combination of cash and
additional shares, or portions thereof, of Preferred Stock. All shares of
Preferred Stock issued as a dividend with respect to the Preferred Stock
shall have an aggregate liquidation preference equal to the amount of such
dividends. All shares of Preferred Stock issued as a dividend with respect
to the Preferred Stock shall thereupon be duly authorized, validly issued,
fully paid and nonassessable.
(b) All dividends paid with respect to shares of the Preferred Stock
pursuant to Section 2(a) shall be paid pro rata to the Holders entitled
thereto.
(c) In the case of shares of Preferred Stock issued on the Original
Issue Date, dividends shall accrue and be cumulative from such date. In
the case of shares of Preferred Stock issued as a dividend on shares of
Preferred Stock, dividends shall accrue and be cumulative from the
Dividend Payment Date in respect of which such shares were issued as a
dividend.
(d) Each fractional share of Preferred Stock outstanding shall be
entitled to a ratably proportionate amount of all dividends accruing with
respect to each outstanding share of Preferred Stock pursuant to Section
2(a), and all such dividends with respect to such outstanding fractional
shares shall be cumulative and shall accrue (whether or not declared), and
shall be payable in the same manner and at such times as provided for in
Section 2(a) with respect to dividends on each outstanding share of
Preferred Stock. Each fractional share of Preferred Stock outstanding
shall also be entitled to a ratably proportionate amount of any other
distributions made with respect to each outstanding share of Preferred
Stock, and all such distributions shall be payable in the same manner and
at the same time as distributions on each outstanding share of Preferred
Stock.
(e) Nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board of Directors to
declare, or the Company
<PAGE>
4
to pay or set apart for payment, any dividends on shares of the Preferred
Stock at any time.
(f) (i) Holders of shares of the Preferred Stock shall be entitled
to receive the dividends provided for in Section 2(a) hereof in preference
to and in priority over any dividends upon any of the Junior Securities.
(ii) So long as any shares of the Preferred Stock are outstanding,
the Company shall not: (A) declare, pay or set apart for payment any
dividend on any of the Junior Securities; (B) make any payment on account
of, or set apart for payment money for a sinking or other similar fund
for, the purchase, redemption or other retirement of, any of the Junior
Securities or any warrants, rights, calls or options exercisable for or
convertible into any of the Junior Securities; (C) make any distribution
in respect of Junior Securities, either directly or indirectly, and
whether in cash, obligations or shares of the Company or other property
(other than distributions or dividends in Junior Securities to the holders
of Junior Securities); (D) permit any corporation or other entity directly
or indirectly controlling, controlled by, or under common control with the
Company to purchase or redeem any of the Junior Securities or any
warrants, rights, calls or options exercisable for or convertible into any
of the Junior Securities; or (E) make any Restricted Investment.
(g) Subject to the foregoing provisions of this Section 2, the Board
of Directors may declare and the Company may pay or set apart for payment
dividends and other distributions on any of the Junior Securities, and may
purchase or otherwise redeem any of the Junior Securities or any warrants,
rights or options exercisable for or convertible into any of the Junior
Securities, and the Holders of the shares of the Preferred Stock shall not
be entitled to share therein.
(h) Dividends payable on the Preferred Stock for any period less
than a year shall be computed on the basis of a 360-day year of twelve
30-day months and the actual number of days elapsed in the period for
which payable.
3. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the affairs of the Company, the Holders of
shares of Preferred Stock then outstanding shall be entitled to be paid
out of the assets of the Company available for distribution to its
stockholders, whether such assets are capital, surplus or earnings, an
amount in cash equal to $100,000 for each share outstanding, plus an
amount in cash equal to accrued but unpaid dividends thereon to the date
fixed for liquidation,
<PAGE>
5
dissolution or winding-up (including an amount equal to a prorated
dividend from the last Dividend Payment Date to the date fixed for
liquidation, dissolution or winding-up) before any payment shall be made
or any assets distributed to the holders of any of the Junior Securities.
After payment of such amount to the Holders of Preferred Stock, the
Holders of Preferred Stock shall be entitled to no further participation
in any distribution of assets by the Company. Accrued and unpaid dividends
(whether or not declared) will be added to the liquidation preference on a
quarterly basis. If the assets of the Company are not sufficient to pay in
full the liquidation payments payable to the Holders of outstanding shares
of the Preferred Stock, then the Holders of all such shares shall share
ratably in such distribution of assets in accordance with the amounts
which would be payable on such distribution if the amounts to which the
Holders of outstanding shares of Preferred Stock are entitled were paid in
full.
(b) For the purposes of this Section 3, neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or
any other consideration) of all or substantially all of the property or
assets of the Company nor the consolidation or merger of the Company with
or into one or more corporations shall be deemed to be a liquidation,
dissolution or winding-up of the affairs of the Company.
4. Redemption.
(a) Optional Redemption. The Company may redeem, at the option of
the Board of Directors, at any time, from any source of funds legally
available therefor, in whole or in part, in the manner provided in Section
4(d) hereof, any or all of the shares of Preferred Stock, at a redemption
price equal to 100% of the aggregate liquidation preference of such shares
plus an amount equal to the accrued and unpaid dividends, if any, with
respect to all such shares through the date of redemption (the "Optional
Redemption Price").
(b) Redemption at Option of Holders. The Company shall redeem, at
the option of any Holder of Preferred Stock, from any source of funds
legally available therefor, in the manner provided in Section 4(d) hereof,
all, but not less than all, of the shares of Preferred Stock held by such
Holder, at a redemption price equal to 100% of the aggregate liquidation
preference of all such shares plus an amount equal to the accrued and
unpaid dividends, if any, with respect to all such shares through the date
of redemption (the "Put Redemption Price").
(c) Pro Rata Redemption; Payment in Cash. In the event of a
redemption pursuant to Section 4(a) or 4(b) hereof of only a portion of
the then outstanding shares of Preferred Stock redeemable thereunder, the
Company shall effect such redemption
<PAGE>
6
pro rata according to the number of shares held by each Holder of such
Preferred Stock. All payments of the Optional Redemption Price and the Put
Redemption Price shall be made in cash.
(d) Procedure for Redemption. (i) Any Holder of Preferred Stock
electing to exercise its option under Section 4(b) hereof shall give
written notice thereof to the Company. At least ten (10) days and not more
than twenty (20) days prior to the date fixed for any redemption of the
Preferred Stock (which date of redemption shall be not more than fifteen
(15) days after the date of written notice to the Company from any Holder
of Preferred Stock exercising its option under Section 4(b) hereof),
written notice (the "Redemption Notice") shall be given by first class
mail, postage prepaid, to each Holder of record on the record date fixed
for such redemption of the Preferred Stock at such Holder's address as the
same appears on the stock register of the Company, provided, however, that
neither failure to give such notice nor any deficiency therein shall
affect the validity of the procedure for the redemption of any shares of
Preferred Stock to be redeemed except as to the Holder or Holders to whom
the Company has failed to give said notice or except as to the Holder or
Holders whose notice was defective. The Redemption Notice shall state:
(A) that the redemption is pursuant to Section 4(a) or 4(b)
hereof;
(B) the Optional Redemption Price or Put Redemption Price,
as the case may be;
(C) whether all or less than all of the outstanding shares
of the Preferred Stock redeemable thereunder are to be
redeemed and the total number of shares of such
Preferred Stock being redeemed;
(D) the number of shares of Preferred Stock held by the
Holder that the Company intends to redeem;
(E) the date fixed for redemption;
(F) that the Holder is to surrender to the Company, at the
place or places where certificates for shares of
Preferred Stock are to be surrendered for redemption, in
the manner and at the price designated, the certificate
or certificates representing the shares of Preferred
Stock to be redeemed; and
<PAGE>
7
(G) that dividends on the shares of the Preferred Stock to
be redeemed shall cease to accrue on such Redemption
Date unless the Company defaults in the payment of the
Optional Redemption Price or Put Redemption Price, as
the case may be.
(ii) On or before the date fixed for redemption, each Holder of Preferred
Stock shall surrender the certificate or certificates representing
such shares of Preferred Stock to the Company, in the manner and at
the place designated in the Redemption Notice, and, on the
Redemption Date, the Company shall pay to such Holder the full
Optional Redemption Price or Put Redemption Price, as the case may
be. Such shares shall be payable in cash to the Person whose name
appears on such certificate or certificates as the owner thereof,
and each surrendered certificate shall be cancelled and retired. In
the event that less than all of the shares represented by any such
certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(iii) Unless the Company defaults in the payment in full of the Optional
Redemption Price or the Put Redemption Price, as the case may be,
dividends on the Preferred Stock called for redemption shall cease
to accumulate on the Redemption Date, and the Holders of such
redeemed shares shall cease to have any further rights with respect
thereto on the Redemption Date, other than the right to receive the
Optional Redemption Price or Put Redemption Price, as the case may
be, without interest.
5. Voting Rights.
(a) The Holders of Preferred Stock, except as otherwise required
under Delaware law and as set forth in paragraphs (b),(c) and (d) below,
shall not be entitled or permitted to vote on any matter required or
permitted to be voted upon by the stockholders of the Company.
(b) Holders of a majority of the issued and outstanding shares of
Preferred Stock, voting separately and as a class, shall have the right to
elect two of the members of the Board of Directors, provided, however,
that on or prior to June 30, 1997, no such member shall be a Person, or a
director, officer, employee or Affiliate of a Person, engaged in a
substantially similar business to that engaged in by the Company.
(c) Holders of Preferred Stock shall have the right to approve any
sale, lease, transfer, conveyance or other disposition (including by way
of merger,
<PAGE>
8
consolidation or other business combination), in one or a series of
related transactions, of all or substantially all of the assets of the
Company, any liquidation of the Company and any amendment of the Company's
Certificate of Incorporation adverse to Holders of the Preferred Stock.
(d) If vacancies shall exist in the offices of directors elected or
to be elected by the Holders of Preferred Stock, a proper officer of the
Company may, and upon the written request of the Holders of record of at
least twenty percent (20%) of the shares of Preferred Stock then
outstanding addressed to the Secretary of the Company shall, call a
special meeting of the Holders of Preferred Stock for the purpose of
electing directors. Any such meeting shall be held at the earliest
practicable date at the place for the holding of the annual meetings of
stockholders. If such meeting shall not be called by a proper officer of
the Company within twenty (20) days after personal service of said written
request upon the Secretary of the Company, or within twenty (20) days
after mailing the same within the United States by certified mail,
addressed to the Secretary of the Company at its principal executive
offices, then the Holders of record of at least twenty percent (20%) of
the outstanding shares of Preferred Stock may designate in writing one of
their number to call such meeting at the expense of the Company, and such
meeting may be called by the Person so designated upon the notice required
for the annual meeting of stockholders of the Company and shall be held at
the place for holding the annual meetings of stockholders. Any Holder of
Preferred Stock so designated shall have access to the lists of
stockholders to be called pursuant to the provisions hereof.
(e) At any meeting held for the purpose of electing directors at
which the Holders of Preferred Stock shall have the right, voting together
as a separate class, to elect directors as aforesaid, the presence in
person or by proxy of the Holders of at least a majority of the
outstanding Preferred Stock shall be required to constitute a quorum of
such Preferred Stock.
(f) Any vacancy occurring in the office of a director elected by the
Holders of Preferred Stock may be filled by the remaining directors
elected by the Holders of Preferred Stock unless and until such vacancy
shall be filled by the Holders of Preferred Stock.
(g) In any case in which the Holders of Preferred Stock shall be
entitled to vote pursuant to this Section 5 or pursuant to Delaware law,
each Holder of Preferred Stock shall be entitled to one vote for each
share of Preferred Stock held.
6. Change of Control.
<PAGE>
9
(a) Upon the occurrence of a Change of Control, each Holder of
Preferred Stock shall have the right to require the Company to repurchase, from
any source of funds legally available therefor, all or any part of such Holder's
shares of Preferred Stock (a "Change of Control Offer") at an offer price in
cash equal to 100% of the aggregate liquidation preference thereof plus accrued
and unpaid dividends, if any, thereon to the date of purchase (the "Change of
Control Payment").
(b) The Change of Control Offer shall include all instructions and
materials necessary to enable Holders to tender their shares of Preferred Stock
pursuant thereto.
(c) The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and all other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the shares of Preferred Stock as a result of a Change of Control.
(d) Within 10 days following any Change of Control, the Company
shall mail a notice to each Holder (the "Notice of Change of Control") stating:
(i) that the Change of Control Offer is being made pursuant to this
Section 6, that all shares of Preferred Stock properly tendered will be
accepted for payment and that shares will be purchased and paid for, on a
pro rata basis, to the extent that funds are legally available therefor;
(ii) the purchase price and the purchase date, which shall be no
earlier than thirty (30) days nor later than sixty (60) days from the date
such notice is mailed (the "Change of Control Payment Date");
(iii) that any share of Preferred Stock not tendered will continue
to accrue dividends;
(iv) that, unless the Company fails to pay the Change of Control
Payment, all shares of Preferred Stock accepted for payment pursuant to
the Change of Control Offer shall cease to accrue dividends after the
Change of Control Payment Date;
(v) that Holders electing to have shares of Preferred Stock
purchased pursuant to a Change of Control Offer will be required to
surrender such shares of Preferred Stock, together with the form entitled
"Option of Holder to Elect Purchase" which shall be included with the
Notice of Change of Control completed, to the paying agent for such offer
(the "Paying Agent") at the address specified in the notice prior to the
close
<PAGE>
10
of business on the third Business Day preceding the Change of Control
Payment Date;
(vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the number of shares of Preferred Stock delivered for purchase,
and a statement that such Holder is withdrawing his election to have such
shares (or any portion thereof) purchased; and
(vii) the circumstances and relevant facts regarding such Change of
Control (including, but not limited to, information with respect to pro
forma historical financial information after giving effect to such Change
of Control and information regarding the Person or Persons acquiring
control).
(e) On the Change of Control Payment Date, the Company shall, to the
extent funds are legally available therefor and, if there are insufficient funds
legally available to purchase all tendered shares, on a pro rata basis in
accordance with the number of shares tendered by each Holder (i) accept for
payment all shares of Preferred Stock properly tendered pursuant to the Change
of Control Offer, and (ii) deposit with the Paying Agent an amount equal to the
Change of Control Payment in respect of all shares of Preferred Stock so
accepted. The Paying Agent shall promptly mail to each Holder of Preferred Stock
so accepted the Change of Control Payment for such Preferred Stock and the
Company shall promptly issue and mail (or cause to be transferred by book-entry)
to each Holder a new certificate representing the shares of Preferred Stock
equal in liquidation preference amount to any unpurchased portion of the shares
of Preferred Stock surrendered, if any. The Company shall publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
(f) Prior to complying with the provisions of this Section 6, but in
any event within 90 days following a Change of Control, the Company shall either
repay all outstanding Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Debt to permit the repurchase of Preferred
Stock required by this Section 6.
(g) The Company shall not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner and times set forth in, and otherwise in compliance with the
requirements set forth in, this Section 6 applicable to a Change of Control
Offer made by the Company and purchases all shares of Preferred Stock properly
tendered and not withdrawn under such Change of Control Offer.
<PAGE>
11
7. Transactions with Affiliates.
The Company shall not, and shall not permit any of its 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 Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Subsidiary with an unrelated Person and (ii) the Company delivers to the Holders
of the Preferred Stock (a) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors of the Company set forth in
an Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction has been approved by a
majority of the members of the Board of Directors of the Company that are
disinterested as to such Affiliate Transaction, if any, (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $2.0 million, a unanimous resolution of the
Board of Directors of the Company set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by each of the members of the
Board of Directors of the Company and (c) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $10.0 million, an opinion as to the fairness to the
Company of such Affiliate Transaction from a financial point of view issued by
an investment banking firm of national standing; provided, however, that (i)
transactions pursuant to contracts, agreements, understandings, loans, advances
or guarantees constituting Affiliate Transactions on the Issue Date (without
amendment or modification thereof), and (ii) the entry into a tax sharing
agreement by and among the Company and its Subsidiaries pursuant to which funds
are transferred within the affiliated group of which the Company is the parent
for the payment of U.S. Federal and state income tax liabilities consistently
with the allocation of Federal tax liabilities made pursuant to Treas. Reg.
ss.1.1552-1(a)(2) and ss.1.1502-33(d)(2), shall not be deemed Affiliate
Transactions.
8. Reports.
Whether or not required by the rules and regulations of the
Securities and Exchange Commission, so long as any shares of Preferred Stock are
outstanding, the Company shall furnish to the Holders thereof:
<PAGE>
12
(a) in respect of all periods ending prior to or on June 30, 1997:
(i) as soon as available and in any event within 45 days after the end of
each of the first three quarters of each fiscal year of the Company, an
unaudited consolidated balance sheet of the Company and its Subsidiaries
as of the end of such quarter and the related unaudited consolidated
statements of earnings and cash flows of the Company and its Subsidiaries
for such quarter and for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter; (ii) as soon as
available and in any event within 90 days after the end of each fiscal
year of the Company, a consolidated balance sheet of the Company and its
Subsidiaries as of the end of such fiscal year and the related
consolidated statements of income and cash flows of the Company and its
Subsidiaries for such year, including an audit report of the independent
public accounting firm of the Company; (iii) a report containing
management's discussion and analysis of the Company's operating
performance for such fiscal year; and (iv) all other reports and financial
information provided by Spalding & Evenflo Companies, Inc. to lenders
under its bank credit facilities;
(b) in respect of all periods ending after June 30, 1997: (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Securities and Exchange 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 Securities and
Exchange Commission on Form 8-K if the Company were required to file such
reports;
(c) an Officers' Certificate stating that a review of the activities
of the Company and its Subsidiaries during the preceding fiscal year has
been made under the supervision of the signing Officers with a view to
determining whether the Company and the Subsidiaries have kept, observed,
performed and fulfilled their obligations in respect of the Preferred
Stock and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge the Company and the
Subsidiaries have kept, observed, performed and fulfilled each and every
covenant contained in this Preferred Stock and are not in default in the
performance or observance of any of the terms, provisions and conditions
of this Preferred Stock, and that to the best of his or her knowledge no
event has occurred and remains in existence by reason of which payments on
account of the liquidation preference or dividends of the Preferred Stock
is prohibited or if such event has occurred, a description of the event
and what action the Company is taking or proposes to take with respect
thereto; and
<PAGE>
13
(d) such other information respecting the condition or operations,
financial or otherwise, of the Company as the Holders of the Preferred
Stock may from time to time reasonably request.
9. Conversion or Exchange.
Holders of shares of Preferred Stock shall not have any rights
herein to convert such shares into or exchange such shares for shares of any
other class or classes or of any other series of any class or classes of Capital
Stock of the Company.
10. Preemptive Rights.
No shares of Preferred Stock shall have any rights of preemption
whatsoever as to any securities of the Company, or any warrants, rights or
options issued or granted with respect thereto by the Company at any time,
regardless of how such securities or such warrants, rights or options may be
denominated, issued or granted.
11. Reissuance of Preferred Stock.
Shares of Preferred Stock that have been issued and reacquired in
any manner, including, without limitation, shares purchased pursuant to a Change
of Control Offer or shares redeemed pursuant to Section 4, shall be cancelled
and shall not be reissued until after such time as there shall have been no
shares of the Preferred Stock outstanding.
12. Business Day.
If any payment, redemption or exchange shall be required by the
terms hereof to be made on a day that is not a Business Day, such payment,
redemption or exchange shall be made on the immediately succeeding Business Day.
13. Definitions.
As used herein, the following terms shall have the following
meanings (with terms defined in the singular having comparable meanings when
used in the plural and vice versa), unless the context otherwise requires:
"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
<PAGE>
14
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" shall have the meaning ascribed to it in
Section 7 above.
"Business Day" shall mean a day other than a Saturday, Sunday,
national or New York state holiday or other day on which commercial banks in New
York City are authorized or required by law to close.
"Capital Lease" means, at the time any determination thereof is
made, any lease of property, real or personal, in respect of which the present
value of the minimal rental commitment would be capitalized on a balance sheet
of the lessee in accordance with GAAP.
"Capital Stock" shall mean any and all shares, interests,
participation, rights or other equivalents (however designated) of corporate
stock.
"Cash Equivalents" shall mean (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less from
the date of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any domestic commercial
bank having capital and surplus in excess of $500.0 million and a Thomson Bank
Watch Rating of "B" or better, (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types of 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 and in each case maturing within six months after
the date of acquisition.
"Change of Control" shall mean the occurrence of any of the
following: (i) the acquisition by any Person or "group" (as such term is used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than the Principals
and their Related Parties, of a direct or indirect interest in more than 35% of
the voting power of the voting stock of the Company by way of merger or
consolidation or otherwise and the Principals and their Related Parties
beneficially own, directly or indirectly, less than a majority of the voting
power of the voting stock of the Company or (ii) the first day on which a
majority of the members of the Board
<PAGE>
15
of Directors of the Company are not Continuing Directors. For purposes of this
definition, any transfer of an Equity Interest of an entity that was formed for
the purpose of acquiring voting stock of the Company shall be deemed to be a
transfer of such portion of such voting stock as corresponds to the portion of
the equity of such entity that has been so transferred.
"Change of Control Offer" shall have the meaning set forth in
Section 6(a) above.
"Change of Control Payment" shall have the meaning set forth in
Section 6(a) above.
"Change of Control Payment Date" shall have the meaning set forth in
Section 6(d)(ii) above.
"Continuing Directors" shall mean, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date hereof or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Debt" shall mean, 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 payment Obligations 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 (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.
"Dividend Payment Date" shall mean January 31, April 30, July 31 and
October 31 of each year.
"Dividend Period" shall mean the Initial Dividend Period and,
thereafter each Quarterly Dividend Period.
<PAGE>
16
"Equity Interest" shall mean Capital Stock and all warrants, options
or other rights to acquire Capital Stock or that are measured by the value of
Capital Stock (but excluding any debt security that is convertible into, or
exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means, with respect to any asset or property,
the sale value that would be obtained in an arm's length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"GAAP" shall mean 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 hereof.
"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 Debt.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Holder" shall mean a holder of shares of Preferred Stock.
"Initial Dividend Period" shall mean the dividend period commencing
on the Original Issue Date and ending on the first Dividend Payment Date to
occur thereafter.
"Investment" shall mean, with respect to any Person, all investments
by such Person in other Persons (including Affiliates) in the form of direct or
indirect loans (including guarantees of Debt or other Obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Debt, Capital Stock or other securities,
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
assets, Capital Stock or other securities by the Company for consideration
consisting of common
<PAGE>
17
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
Capital Stock of any direct or indirect Subsidiary of the Company such that,
after giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Company, 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 Capital Stock of such Subsidiary not sold or disposed of.
"Junior Securities" shall have the meaning ascribed to them in
Section 1 above.
"Notice of Change of Control" shall have the meaning ascribed to it
in Section 6(d) above.
"Obligations" means any principal, interest, penalties, fees
(including, but not limited to, reasonable fees and expenses of counsel),
indemnifications, reimbursements, damages and other liabilities and amounts
payable under the documentation governing any Debt or other agreement.
"Officer" means, (a) with respect to any Person that is a
corporation, the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Operating Officer, the Chief Financial Officer, the
Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice
President of such Person and (b) with respect to any other Person, the
individuals selected by the Board of Directors of such Person to perform
functions similar to those of the officers listed in clause (a).
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the Chief Executive
Officer, President or any Vice President and one of whom must be the Chief
Financial Officer, the Treasurer or the Controller of the Company.
"Optional Redemption Price" shall the meaning ascribed to it in
Section 4(a) above.
"Original Issue Date" shall mean the date upon which the Preferred
Stock was originally issued by the Company.
"Paying Agent" shall have the meaning ascribed to it in Section
6(d)(v) above.
"Permitted Investment" means (a) Investments in the Company or in a
wholly-owned Subsidiary of the Company that are evidenced by Capital Stock; (b)
any Investments in Cash Equivalents; (c) Investments by the Company or any
Subsidiary of the Company in a
<PAGE>
18
Person that are evidenced by Capital Stock, if as a result of such Investment
(i) such Person becomes a wholly-owned Subsidiary of the Company or (ii) such
Person 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 wholly-owned Subsidiary of the Company; and (d) other Investments in any
Person (other than an Affiliate of the Company that is not also a Subsidiary of
the Company) that do not exceed $25.0 million at any time outstanding.
"Person" shall mean any individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever nature.
"Principals" means either or both of Gustavo Cisneros and Ricardo
Cisneros.
"Put Redemption Price" shall have the meaning ascribed to it in
Section 4(b) hereof.
"Quarterly Dividend Period" shall mean the quarterly period
commencing on each February 1, May 1, August 1, and November 1, and ending on
each Dividend Payment Date, respectively.
"Redemption Date" with respect to any shares of Preferred Stock,
shall mean the date on which such shares of Preferred Stock are redeemed by the
Company.
"Redemption Notice" shall have the meaning ascribed to it in Section
4(d)(i) hereof.
"Related Party" with respect to any Principal means (A) any
controlling stockholder, 80% (or more) owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Principal or (B) trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Subsidiary" shall mean 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
<PAGE>
19
trustees thereof is at the time owned or controlled, directly or indirectly, by
any person or one or more of the other Subsidiaries of that person or a
combination thereof.
14. Registration Rights Agreement.
Reference is made to the Registration Rights Agreement dated on or
about July 25, 1996 (as the same may be amended, supplemented or modified from
time to time pursuant to the terms thereof, the "Registration Rights Agreement")
between the Company and the Agent designated therein. So long as any shares of
Preferred Stock constitute "Registrable Securities" as defined in the
Registration Rights Agreement, each Holder shall be entitled to the rights
granted by the Company thereunder and shall be bound by the restrictions
therein.
15. Legally Available Funds.
The Company shall use its best efforts, including, without
limitation, through the revaluation of its assets in accordance with the General
Corporation Law of the State of Delaware, to make or keep funds legally
available to satisfy in full its obligations under this Certificate, including,
without limitation, those obligations arising pursuant to Sections 4 and 6
hereof. The Preferred Stock shall, with respect to dividend rights and rights on
liquidation, winding-up and dissolution, rank senior to all classes of common
stock of the Company and each other class of Capital Stock or series of
preferred stock senior in right of payment and otherwise.
FIFTH: The Board of Directors, acting by majority vote, may alter,
amend or repeal the By-Laws of the Company.
SIXTH: Except as otherwise provided by the Delaware General
Corporation Law as the same exists or may hereafter be amended, no director of
the Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director. Any repeal or
modification of this Article Sixth by the stockholders of the Company shall not
adversely affect any right or protection of a director of the Company existing
at the time of such repeal or modification.
SEVENTH: To the fullest extent permitted by the laws of the State of
Delaware:
A. The Company shall indemnify any person (and such person's heirs,
executors or administrators) who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding
(brought in the right of the
<PAGE>
20
Company or otherwise), whether civil, criminal, administrative or investigative,
and whether formal or informal, including appeals, by reason of the fact that
such person is or was a director or officer of the Company or, if a director or
officer of the Company, by reason of the fact that such person is or was serving
at the request of the Company as a director, officer, partner, trustee, employee
or agent of another enterprise, partnership, joint venture, trust or other
enterprise, for and against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person or such heirs, executors or administrators in connection with such
action, suit or proceeding, including appeals. Notwithstanding the preceding
sentence, the Company shall be required to indemnify a person described in such
sentence in connection with any action, suit or proceeding (or part thereof)
commenced by such person only if the commencement of such action, suit or
proceeding (or part thereof) by such person was authorized by the Board of
Directors of the Company. The Company may indemnify any person (and such
person's heirs, executors or administrators) who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (brought in the right of the Company or otherwise), whether
civil, criminal, administrative or investigative, and whether formal or
informal, including appeals, by reason of the fact that such person is or was an
employee or agent of the Company or is or was serving at the request of the
Company as a director, officer, partner, trustee, employee or agent of another
corporation, for and against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person or such heirs, executors or administrators in connection with
such action, suit or proceeding, including appeals.
B. The Company shall promptly pay expenses incurred by (i) any
person whom the Company is obligated to indemnify pursuant to the first sentence
of Section A of this Article Seventh, or (ii) any person whom the Company has
determined to indemnify pursuant to the third sentence of Section A of this
Article Seventh, in defending any action, suit or proceeding in advance of the
final disposition of such action, suit or proceeding, including appeals, upon
presentation of appropriate documentation.
C. The Company may purchase and maintain insurance on behalf of any
person described in Section A of this Article Seventh against any liability
asserted against such person, whether or not the Company would have the power to
indemnify such person against such liability under the provisions of Section A
of this Article Seventh or otherwise.
D. The provisions of this Article Seventh shall be applicable to all
actions, claims, suits or proceedings made or commenced after the adoption
hereof, whether arising from acts or omissions to act occurring before or after
its adoption. The provisions of this Article Seventh shall be deemed to be a
contract between the Company and each director or officer who serves in such
capacity at any time while this Article Seventh and the relevant
<PAGE>
21
provisions of the laws of the State of Delaware and other applicable law, if
any, are in effect, and any repeal or modification hereof shall not affect any
rights or obligations then existing with respect to any state of facts or any
action, suit or proceeding then or theretofore existing, or any action, suit or
proceeding thereafter brought or threatened based in whole or in part on any
such state of facts. If any provision of this Article Seventh shall be found to
be invalid or limited in application by reason of any law or regulation, it
shall not affect the validity of the remaining provisions hereof. The rights of
indemnification provided in this Article Seventh shall neither be exclusive of,
nor be deemed in limitation of, any rights to which an officer, director,
employee or agent may otherwise be entitled or permitted by contract, this
Restated Certificate of Incorporation, vote of stockholders or directors or
otherwise, or as a matter of law, both as to actions in such person's official
capacity and actions in any other capacity while holding such office, it being
the policy of the Company that indemnification of any person whom the Company is
obligated to indemnify pursuant to the first sentence of Section A of this
Article Seventh shall be made to the fullest extent permitted by law.
E. For purposes of this Article Seventh, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its participants,
or beneficiaries.
IN WITNESS WHEREOF, E & S Holdings Corporation has caused this
Restated Certificate of Incorporation to be signed by Robert K. Adikes, its Vice
President, on September 25, 1996.
E & S HOLDINGS CORPORATION
By:_____________________________________
Robert K. Adikes
Vice President
<PAGE>
EXHIBIT 3.2
E & S HOLDINGS CORPORATION
BY-LAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meeting and Notice. Meetings of the stockholders
of the Corporation shall be held at such place either within or without the
State of Delaware as the Board of Directors may determine.
Section 2. Annual and Special Meetings. Annual meetings of
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of Directors and
to transact such other business as may properly come before the meeting. Special
meetings of the stockholders may be called by the President for any purpose and
shall be called by the President or Secretary if directed by the Board of
Directors or requested in writing by the holders of not less than 25% of the
capital stock of the Corporation. Each such stockholder request shall state the
purpose of the proposed meeting.
Section 3. Notice. Except as otherwise provided by law, at least 10
and not more than 60 days before each meeting of stockholders, written notice of
the time, date and place of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called, shall be given to each
stockholder.
Section 4. Quorum. At any meeting of stockholders, the holders of
record, present in person or by proxy, of a majority of the Corporation's issued
and outstanding capital stock shall constitute a quorum for the transaction of
business, except as otherwise provided by law. In the absence of a quorum, any
officer entitled to preside at or to act as secretary of the meeting shall have
power to adjourn the meeting from time to time until a quorum is present.
Section 5. Voting. Except as otherwise provided by law, all matters
submitted to a meeting of stockholders shall be decided by vote of the holders
of record, present in person or by proxy, of a majority of the Corporation's
issued and outstanding capital stock.
<PAGE>
2
ARTICLE II
DIRECTORS
Section 1. Number, Election and Removal of Directors. The number of
Directors that shall constitute the Board of Directors shall not be less than
one or more than fifteen. Within the limits specified above, the number of
Directors shall be determined by the Board of Directors or the stockholders. The
Directors shall be elected by stockholders at their annual meeting. Vacancies
and newly created directorships resulting from any increase in the number of
Directors may be filled by a majority of the Directors then in office, although
less than a quorum, or by the sole remaining Director or by the stockholders. A
Director may be removed with or without cause by the stockholders.
Section 2. Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as may from time to time be fixed by the
Board of Directors or as may be specified in a notice of meeting.
Section 3. Quorum. One-third of the total number of Directors shall
constitute a quorum for the transaction of business. If a quorum is not present
at any meeting of the Board of Directors, the Directors present may adjourn the
meeting from time to time, without notice other than an announcement at the
meeting, until such a quorum is present. Except as otherwise provided by law,
the Certificate of Incorporation of the Corporation, these By-Laws or any
contract or agreement to which the Corporation is a party, the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors.
Section 4. Committees. The Board of Directors may, by resolution
adopted by a majority of the whole Board, designate one or more committees,
including, without limitation, an Executive Committee, to have and exercise such
power and authority as the Board of Directors shall specify. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another Director to act as the
absent or disqualified member.
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of a President, a Vice
President, a Secretary, a Treasurer and such other additional officers with such
titles as the Board of
<PAGE>
3
Directors shall determine, all of which shall be chosen by and shall serve at
the pleasure of the Board of Directors. Such officers shall have the usual
powers and shall perform all the usual duties incident to their respective
offices. All officers shall be subject to the supervision and direction of the
Board of Directors. The authority, duties or responsibilities of any officer of
the Corporation may be suspended by the President with or without cause. Any
officer elected or appointed by the Board of Directors may be removed by the
Board of Directors with or without cause.
ARTICLE IV
INDEMNIFICATION
To the fullest extent permitted by the Delaware General Corporation
Law, the Corporation shall indemnify any current or former Director or officer
of the Corporation and may, at the discretion of the Board of Directors,
indemnify any current or former employee or agent of the Corporation against all
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any threatened, pending or
completed action, suit or proceeding brought by or in the right of the
Corporation or otherwise, to which he was or is a party by reason of his current
or former position with the Corporation or by reason of the fact that he is or
was serving, at the request of the Corporation, as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
Expenses incurred by a person who is or was a Director or officer of
the Corporation in appearing at, participating in or defending any such action,
suit or proceeding shall be paid by the Corporation at reasonable intervals in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the Director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized by this Article. If a claim under
this Article is not paid in full by the Corporation within ninety days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be paid
also the expense of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law or other applicable law for the Corporation
to indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation.
<PAGE>
4
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law or other applicable
law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met the applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct
ARTICLE V
GENERAL PROVISIONS
Section 1. Notices. Whenever any statute, the Certificate of
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notice may be given in writing by mail, addressed to such
Director or stockholder at his address as it appears in the records of the
Corporation, with postage thereon prepaid. Such notice shall be deemed to have
been given when it is deposited in the United States mail. Notice to Directors
may also be given by telegram.
Section 2. Fiscal Year. The fiscal year of the Corporation shall be
fixed by the Board of Directors.
<PAGE>
EXHIBIT 4.1
E&S HOLDINGS CORPORATION
Issuer
and
MARINE MIDLAND BANK,
Trustee
____________________
Indenture
Dated as of September 30, 1996
____________________
$200,000,000
10 3/8% Senior Subordinated Notes due 2006
10 3/8% Series B Senior Subordinated Notes due 2006
<PAGE>
E&S HOLDINGS CORPORATION
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of September 30, 1996
Trust Indenture
Act Section Indenture Section
ss. 310 (a)(1) ....................................... 608
(a)(2) ....................................... 608
(b) ....................................... 609
ss. 312 (a) ....................................... 701
(c) ....................................... 702
ss. 313 (a) ....................................... 703
(c) ....................................... 703
ss. 314 (a)(4) ....................................... 1010(a)
(c)(1) ....................................... 102
(c)(2) ....................................... 102
(e) ....................................... 102
ss.315 (a) ....................................... 601(a)
(b) ....................................... 602
(c) ....................................... 601(b)
(d) ....................................... 601(c), 603
316(a)(last
sentence) ....................................... 101 ("Outstanding")
(a)(1)(A) ....................................... 502, 512
(a)(1)(B) ....................................... 513
(b) ....................................... 508
(c) ....................................... 104(d)
ss. 317 (a)(1) ....................................... 503
(a)(2) ....................................... 504
(b) ....................................... 1003
ss. 318 (a) ....................................... 111
- --------
Note:This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
----
PARTIES......................................................................1
RECITALS OF THE COMPANY......................................................1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions............................................... 1
Abarco ......................................................... 2
Acquired Indebtedness.............................................. 2
Act ......................................................... 2
Affiliate ......................................................... 2
Agent ......................................................... 3
Asset Sale......................................................... 3
Authenticating Agent............................................... 3
Bank Agent......................................................... 3
Bankruptcy Law..................................................... 4
Board of Directors................................................. 4
Board Resolution................................................... 4
Business Day....................................................... 4
Capital Stock...................................................... 4
Capitalized Lease Obligation....................................... 4
Cash Equivalents................................................... 4
Change of Control.................................................. 5
Commission......................................................... 5
Common Stock....................................................... 6
Company ......................................................... 6
Company Request or Company Order................................... 6
Consolidated Depreciation and Amortization Expense................. 6
Consolidated Interest Expense...................................... 6
Consolidated Net Income............................................ 6
Contingent Obligations............................................. 7
Continuing Directors............................................... 7
Corporate Trust Office............................................. 7
Custodian ......................................................... 8
- --------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
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Default ......................................................... 8
Defaulted Interest................................................. 8
Depositary......................................................... 8
Designated Noncash Consideration................................... 8
Designated Preferred Stock......................................... 8
Designated Senior Indebtedness..................................... 8
Disinterested Director............................................. 8
Disqualified Stock................................................. 8
EBITDA ......................................................... 9
Equity Interests................................................... 9
Equity Offering.................................................... 9
Event of Default................................................... 9
Exchange Act....................................................... 9
Exchange Notes..................................................... 9
Exchange Offer..................................................... 10
Exchange Offer Registration Statement.............................. 10
Excluded Contributions............................................. 10
Existing Indebtedness.............................................. 10
Financings......................................................... 10
Fixed Charge Coverage Ratio........................................ 10
Fixed Charges...................................................... 11
Foreign Subsidiary................................................. 12
GAAP or Generally Accepted Accounting Principles................... 12
Government Securities.............................................. 12
guarantee ......................................................... 12
Guarantee ......................................................... 12
Guarantor ......................................................... 12
Hedging Obligations................................................ 13
Holder ......................................................... 13
Indebtedness....................................................... 13
Indenture ......................................................... 13
Independent Financial Advisor...................................... 13
Initial Purchasers................................................. 13
Interest Payment Date.............................................. 13
Initial Notes...................................................... 14
Investment Grade Securities........................................ 14
Investments........................................................ 14
Issuance Date...................................................... 14
KKR ......................................................... 14
Letter of Credit/Bankers' Acceptance Obligations................... 14
Lien ......................................................... 15
Maturity ......................................................... 15
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Moody's ......................................................... 15
Net Income......................................................... 15
Net Proceeds....................................................... 15
Note Register and Note Registrar................................... 15
Notes ......................................................... 16
Obligations........................................................ 16
Offering Memorandum................................................ 16
Officers' Certificate.............................................. 16
Opinion of Counsel................................................. 16
Outstanding........................................................ 16
Pari Passu Indebtedness............................................ 17
Paying Agent....................................................... 17
Permitted Holders.................................................. 17
Permitted Investments.............................................. 17
Person ......................................................... 19
PIK Preferred Stock................................................ 19
Predecessor Note................................................... 19
Preferred Stock.................................................... 19
QIB ......................................................... 19
Recapitalization................................................... 19
Redemption Date.................................................... 19
Redemption Price................................................... 19
Registration Rights Agreement...................................... 19
Regular Record Date................................................ 19
Regulation S....................................................... 19
Related Parties.................................................... 19
Responsible Officer................................................ 20
Representative..................................................... 20
Restricted Investment.............................................. 20
Restricted Subsidiary.............................................. 20
Rule 144A ......................................................... 20
S&P ......................................................... 20
Securities Act..................................................... 20
Senior Credit Facility............................................. 20
Senior Indebtedness................................................ 21
Shelf Registration Statement....................................... 21
Significant Subsidiary............................................. 21
Similar Business................................................... 21
Special Record Date................................................ 21
Stated Maturity,................................................... 21
Strata ......................................................... 22
Subordinated Indebtedness.......................................... 22
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Subordinated Note Obligations...................................... 22
Subsidiary......................................................... 22
Total Assets....................................................... 22
Trust Indenture Act or TIA......................................... 22
Trustee ......................................................... 22
Unrestricted Subsidiary............................................ 22
Vice President..................................................... 23
Voting Stock....................................................... 23
Weighted Average Life to Maturity.................................. 23
Wholly Owned Restricted Subsidiary................................. 23
Wholly Owned Subsidiary............................................ 23
SECTION 102. Compliance Certificates and Opinions...................... 24
SECTION 103. Form of Documents Delivered to Trustee.................... 24
SECTION 104. Acts of Holders........................................... 25
SECTION 105. Notices, Etc., to Trustee, the Company and any Guarantor.. 26
SECTION 106. Notice to Holders; Waiver................................. 27
SECTION 107. Effect of Headings and Table of Contents.................. 27
SECTION 108. Successors and Assigns.................................... 27
SECTION 109. Separability Clause....................................... 27
SECTION 110. Benefits of Indenture..................................... 28
SECTION 111. Governing Law............................................. 28
SECTION 112. Legal Holidays............................................ 28
SECTION 113. No Personal Liability of Directors, Officers, Employees,
Stockholders or Incorporators............................. 29
SECTION 114. Counterparts.............................................. 29
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally........................................... 29
SECTION 202. Restrictive Legends....................................... 30
SECTION 203. Form of Certificate to Be Delivered upon Termination of
Restricted Period......................................... 32
SECTION 204. Form of Face of Note...................................... 33
SECTION 205. Form of Reverse of Note................................... 36
SECTION 206. Form of Trustee's Certificate of Authentication........... 42
ARTICLE THREE
THE NOTES
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SECTION 301. Title and Terms........................................... 43
SECTION 302. Denominations............................................. 44
SECTION 303. Execution, Authentication, Delivery and Dating............ 44
SECTION 304. Temporary Notes........................................... 46
SECTION 305. Registration, Registration of Transfer and Exchange....... 46
SECTION 306. Book-Entry Provisions for U.S. Global Note................ 47
SECTION 307. Special Transfer Provisions............................... 49
SECTION 308. Form of Certificate to Be Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors... 53
SECTION 309. Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S........................ 55
SECTION 310. Mutilated, Destroyed, Lost and Stolen Notes............... 56
SECTION 311. Payment of Interest; Interest Rights Preserved............ 57
SECTION 312. Persons Deemed Owners..................................... 58
SECTION 313. Cancellation.............................................. 58
SECTION 314. Computation of Interest................................... 59
SECTION 315. CUSIP Numbers............................................. 59
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture................... 59
SECTION 402. Application of Trust Money................................ 61
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default......................................... 61
SECTION 502. Acceleration of Maturity; Rescission and Annulment........ 63
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee ............................................... 64
SECTION 504. Trustee May File Proofs of Claim.......................... 65
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.... 66
SECTION 506. Application of Money Collected............................ 66
SECTION 507. Limitation on Suits....................................... 66
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest...................................... 67
SECTION 509. Restoration of Rights and Remedies........................ 67
SECTION 510. Rights and Remedies Cumulative............................ 68
SECTION 511. Delay or Omission Not Waiver.............................. 68
SECTION 512. Control by Holders........................................ 68
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SECTION 513. Waiver of Past Defaults................................... 68
SECTION 514. Waiver of Stay or Extension Laws.......................... 69
SECTION 515. Undertaking for Costs..................................... 69
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities....................... 70
SECTION 602. Notice of Defaults........................................ 71
SECTION 603. Certain Rights of Trustee................................. 72
SECTION 604. Trustee Not Responsible for Recitals or Issuance of Notes. 73
SECTION 605. May Hold Notes............................................ 73
SECTION 606. Money Held in Trust....................................... 74
SECTION 607. Compensation and Reimbursement............................ 74
SECTION 608. Corporate Trustee Required; Eligibility................... 75
SECTION 609. Resignation and Removal; Appointment of Successor......... 75
SECTION 610. Acceptance of Appointment by Successor.................... 77
SECTION 611. Merger, Conversion, Consolidation or Succession to
Business ................................................. 77
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses............ 78
SECTION 702. Disclosure of Names and Addresses of Holders.............. 78
SECTION 703. Reports by Trustee........................................ 78
ARTICLE EIGHT
MERGER, CONSOLIDATION, OR SALE OF ASSETS
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms...... 79
SECTION 802. Successor Substituted..................................... 80
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE
SECTION 901. Supplemental Indentures Without Consent of Holders........ 81
SECTION 902. Supplemental Indentures with Consent of Holders........... 82
SECTION 903. Execution of Supplemental Indentures...................... 83
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SECTION 904. Effect of Supplemental Indentures......................... 83
SECTION 905. Conformity with Trust Indenture Act....................... 83
SECTION 906. Reference in Notes to Supplemental Indentures............. 83
SECTION 907. Notice of Supplemental Indentures......................... 84
SECTION 908. Effect on Senior Indebtedness............................. 84
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest...... 84
SECTION 1002. Maintenance of Office or Agency.......................... 84
SECTION 1003. Money for Note Payments to Be Held in Trust.............. 85
SECTION 1004. Corporate Existence...................................... 86
SECTION 1005. Payment of Taxes and Other Claims........................ 86
SECTION 1006. Maintenance of Properties................................ 87
SECTION 1007. Insurance................................................ 87
SECTION 1008. Compliance with Laws..................................... 87
SECTION 1009. Limitation on Restricted Payments........................ 88
SECTION 1010. Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock....................................... 92
SECTION 1011. Limitation on Liens...................................... 96
SECTION 1012. Limitation on Transactions with Affiliates............... 96
SECTION 1013. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries................................... 97
SECTION 1014. Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries ............................................ 99
SECTION 1015. Limitation on Other Senior Subordinated Indebtedness.... 100
SECTION 1016. Purchase of Notes upon a Change of Control.............. 100
SECTION 1017. Limitation on Sales of Assets........................... 102
SECTION 1018. Statement by Officers as to Default..................... 105
SECTION 1019. Commission Reports and Reports to Holders............... 105
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Redemption.............................................. 106
SECTION 1102. Applicability of Article................................ 106
SECTION 1103. Election to Redeem; Notice to Trustee................... 106
SECTION 1104. Selection by Trustee of Notes to Be Redeemed............ 106
SECTION 1105. Notice of Redemption.................................... 107
SECTION 1106. Deposit of Redemption Price............................. 108
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SECTION 1107. Notes Payable on Redemption Date........................ 108
SECTION 1108. Notes Redeemed in Part.................................. 109
ARTICLE TWELVE
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company's Option to Effect Legal Defeasance or Covenant
Defeasance.............................................. 109
SECTION 1202. Legal Defeasance and Discharge.......................... 109
SECTION 1203. Covenant Defeasance..................................... 110
SECTION 1204. Conditions to Legal Defeasance or Covenant Defeasance... 110
SECTION 1205. Deposited Money and U.S. Government Securities to Be
Held in Trust; Other Miscellaneous Provisions........... 112
SECTION 1206. Reinstatement........................................... 112
ARTICLE THIRTEEN
SUBORDINATION OF NOTES
SECTION 1301. Notes Subordinate to Senior Indebtedness................ 113
SECTION 1302. Payment over of Proceeds upon Dissolution, Etc.......... 113
SECTION 1303. Suspension of Payment When Senior Indebtedness in
Default ................................................ 114
SECTION 1304. Acceleration of Notes................................... 115
SECTION 1305. When Distribution Must Be Paid Over..................... 115
SECTION 1306. Notice by Company....................................... 116
SECTION 1307. Payment Permitted If No Default......................... 116
SECTION 1308. Subrogation to Rights of Holders of Senior Indebtedness. 116
SECTION 1309. Provisions Solely to Define Relative Rights............. 116
SECTION 1310. Trustee to Effectuate Subordination..................... 117
SECTION 1311. Subordination May Not Be Impaired by Company............ 117
SECTION 1312. Distribution or Notice to Representative................ 117
SECTION 1313. Notice to Trustee....................................... 118
SECTION 1314. Reliance on Judicial Order or Certificate of
Liquidating Agent ...................................... 118
SECTION 1315. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustees' Rights........................ 119
SECTION 1316. Article Applicable to Paying Agents..................... 119
SECTION 1317. No Suspension of Remedies............................... 119
SECTION 1318. Modification of Terms of Senior Indebtedness............ 119
SECTION 1319. Certain Terms........................................... 120
SECTION 1320. Trust Moneys Not Subordinated........................... 120
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TESTIMONIUM................................................................ 121
SIGNATURES................................................................. 121
<PAGE>
INDENTURE, dated as of September 30, 1996, between E&S HOLDINGS
CORPORATION, a corporation duly organized and existing under the laws of the
State of Delaware (the "Company"), having its principal office at 601 South
Harbour Island Boulevard, Suite 200, Tampa, Florida 33602-3141, and MARINE
MIDLAND BANK, a New York banking corporation and trust company, as trustee (the
"Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issuance of its
10 3/8% Senior Subordinated Notes due 2006 (the "Initial Notes"), and 10 3/8%
Series B Senior Subordinated Notes due 2006 (the "Exchange Notes", and together
with the Initial Notes, the "Notes"), of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Indenture.
Upon the issuance of the Exchange Notes, if any, or the
effectiveness of the Shelf Registration Statement (as defined herein), this
Indenture will be subject to, and shall be governed by, the provisions of the
Trust Indenture Act of 1939, as amended, that are required or deemed to be part
of and to govern indentures qualified thereunder.
All things necessary have been done to make the Notes, when executed
and duly issued by the Company and authenticated and delivered hereunder by the
Trustee or the Authenticating Agent, the valid obligations of the Company and to
make this Indenture a valid agreement of the Company in accordance with their
and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and words in the singular include the plural as well
as the singular, and words in the plural include the singular as well as
the plural;
<PAGE>
2
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, or defined by
Commission rule and not otherwise defined herein have the meanings
assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under the
Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with Generally Accepted Accounting
Principles;
(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(e) the word "or" is not exclusive; and
(f) provisions of the Indenture apply to successive events and
transactions.
Certain terms, used principally in Articles Two, Ten, Twelve and
Thirteen, are defined in those Articles.
"Abarco" means Abarco N.V., a Netherlands Antilles corporation.
"Acquired Indebtedness" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person
merged with or into or became a Restricted Subsidiary of such specified Person,
including 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 encumbering any asset acquired by such
specified Person.
"Act," when used with respect to any Holder, has the meaning set
forth in Section 104.
"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, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Agent" means any Paying Agent, Authenticating Agent and Note
Registrar under this Indenture.
"Asset Sale" means:
<PAGE>
3
(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 Investment Grade
Securities or obsolete equipment in the ordinary course of business;
(b) the disposition of all or substantially all of the assets
of the Company in a manner permitted pursuant to the provisions
described in Section 801 herein or any disposition that constitutes
a Change of Control hereunder;
(c) any Restricted Payment that is permitted to be made, and
is made, under paragraph (a) of Section 1009;
(d) any disposition, or related series of dispositions, of
assets with an aggregate fair market value of less than $1 million;
and
(e) a disposition of property or assets of a Restricted
Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Restricted Subsidiary.
"Authenticating Agent" means the Person appointed, if any, by the
Trustee as an authenticating agent pursuant to the last paragraph of Section
303.
"Bank Agent" means Bank of America National Trust and Savings
Association, in its capacity as administrative agent under the Senior Credit
Facility, and any successor administrative agent thereunder.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of
1978, as amended, or any similar United States federal or state or foreign law
relating to bankruptcy, insolvency, receivership, winding-up, liquidation,
reorganization or relief of debtors or any amendment to, succession to or change
in any such law.
"Board of Directors" means, with respect to any Person, either the
board of directors of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
<PAGE>
4
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
"Capital Stock" means with respect to any Person, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock of such Person, including, without limitation, if
such Person is a partnership, partnership interests (whether general or limited)
and 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,
such partnership.
"Capitalized 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 and reflected as a
liability on a balance sheet in accordance with GAAP.
"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, time deposits 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 commercial
bank having capital and surplus in excess of $500 million, (iv) repurchase
obligations for underlying securities of the types described in clauses (ii) and
(iii) entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper rated A-1 or the
equivalent thereof by Moody's or S&P and in each case maturing within one year
after the date of acquisition, (vi) investment funds investing 95% of their
assets in securities of the types described in clauses (i)-(v) above, (vii)
readily marketable direct obligations issued by any state of the United States
of America or any political subdivision thereof having one of the two highest
rating categories obtainable from either Moody's or S&P and (viii) Indebtedness
or Preferred Stock issued by Persons with a rating of "A" or higher from S&P or
"A2" or higher from Moody's.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries, taken as a whole;
(ii) the Company becomes aware of (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) 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 and
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 total voting power of the Voting Stock of the Company or such
Person or
<PAGE>
5
group beneficially owns more of the total voting power of the Voting Stock
of the Company than the Permitted Holders and their Related Parties;
(iii) the first day within any two-year period on which a majority
of the members of the Board of Directors of the Company are not Continuing
Directors; or
(iv) the Company consolidates with, or merges with or into, another
Person or sells, assigns, conveys, transfers, leases or otherwise disposes
of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other
property, other than (A) any such transaction where (1) the outstanding
Voting Stock of the Company is converted into or exchanged for (I) Voting
Stock (other than Disqualified Stock) of the surviving or transferee
corporation and/or (II) cash, securities and other property in an amount
which could be paid by the Company as a Restricted Payment in accordance
with Section 1009 and (2) the "beneficial owners" of the Voting Stock of
the Company immediately prior to such transaction own, directly or
indirectly, not less than a majority of the Voting Stock of the surviving
or transferee corporation immediately after such transaction or (B) any
such transaction as a result of which the Permitted Holders or their
Affiliates own a majority of the total Voting Stock and Capital Stock of
the surviving or transferee corporation immediately after the transaction.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issuance Date or issued after Issuance Date, and includes, without limitation,
all series and classes of such common stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company (i) by its Chairman, a Vice-Chairman,
its President or any Vice President and (ii) by its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee;
provided, however, that such written request or order may be signed by any two
of the officers or directors listed in clause (i) above in lieu of being signed
by one of such officers or directors listed in such clause (i) and one of the
officers listed in clause (ii) above.
"Consolidated Depreciation and Amortization Expense" means with
respect to any Person for any period, the total amount of depreciation and
amortization expense and other non-
<PAGE>
6
cash charges (excluding any noncash item that represents an accrual, reserve or
amortization of a cash expenditure for a future period) of such Person and its
Restricted Subsidiaries for such period on a consolidated basis and otherwise
determined in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period,
the sum of: (a) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, to the extent such expense was deducted in
computing Consolidated Net Income (including amortization of original issue
discount, noncash interest payments, the interest component of Capitalized Lease
Obligations, and net payments (if any) pursuant to Hedging Obligations,
excluding amortization of deferred financing fees) and (b) consolidated
capitalized interest of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued, to the extent such expense was deducted in
computing Consolidated Net Income.
"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, and otherwise determined
in accordance with GAAP; provided, however, that (i) any net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto)
shall be excluded, (ii) any net after-tax gains or losses (less all fees and
expenses relating thereto) attributable to asset dispositions other than in the
ordinary course of business shall be excluded, (iii) the Net Income for such
period of any Person that is not a Subsidiary, or is an Unrestricted 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 or other payments
paid in cash (or to the extent converted into cash) to the referent Person or a
Wholly Owned Restricted Subsidiary thereof in respect of such period, (iv) the
Net Income of any Person acquired in a pooling of interests transaction shall
not be included for any period prior to the date of such acquisition and (v) the
Net Income for such period 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 its Net Income is not at the date of determination
permitted without any prior governmental approval (which has not been obtained)
or, directly or indirectly, by the 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, unless
such restriction with respect to the payment of dividends or in similar
distributions has been legally waived.
"Contingent Obligations" means, with respect to any Person, any
obligation of such Person guaranteeing any leases, dividends or other
obligations that do not constitute Indebtedness ("primary obligations") of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (A) for the purchase or payment of any such primary obligation or
(B) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, or (iii)
to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation against loss in respect
thereof.
<PAGE>
7
"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 Issuance Date 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 a Permitted Holder or its Affiliates or was nominated by a
Permitted Holder or its Affiliates or any designees of a Permitted Holder or its
Affiliates on the Board of Directors.
"Corporate Trust Office" means the principal corporate trust office
of the Trustee, at which at any particular time its corporate trust business
shall be administered, which office at the date of execution of this Indenture
is located at 140 Broadway, 12th Floor, New York, NY 10005, except that with
respect to presentation of Notes for payment or for registration of transfer or
exchange, such term shall mean any office or agency of the Trustee at which, at
any particular time, its corporate agency business shall be conducted.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"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.
"Defaulted Interest" has the meaning set forth in Section 311.
"Depositary" means The Depository Trust Company, its nominees and
successors.
"Designated Noncash Consideration" means the fair market value of
noncash consideration received by the Company or one of its Restricted
Subsidiaries in connection with an Asset Sale that is so designated as
Designated Noncash Consideration pursuant to an Officers' Certificate, setting
forth the basis of such valuation, executed by the principal executive officer
and the principal financial officer of the Company, less the amount of cash or
Cash Equivalents received in connection with a sale of such Designated Noncash
Consideration.
"Designated Preferred Stock" means Preferred Stock of the Company
(other than Disqualified Stock) that is issued for cash (other than to a
Restricted Subsidiary) and is so designated as Designated Preferred Stock,
pursuant to an Officers' Certificate executed by the principal executive officer
and the principal financial officer of the Company, on the issuance date
thereof, the cash proceeds of which are excluded from the calculation set forth
in clause (3) of paragraph (a) of Section 1009.
"Designated Senior Indebtedness" means (i) Senior Indebtedness under
the Senior Credit Facility and (ii) any other Senior Indebtedness permitted
under this Indenture the principal amount of which is $50 million or more and
that has been designated by the Company as Designated Senior Indebtedness.
<PAGE>
8
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors hereunder, a member of the Board
of Directors who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions
(except arising exclusively as a consequence of such member's relationship to
the Company).
"Disqualified Stock" means, with respect to any Person, any Capital
Stock of such Person which, by its terms (or by the terms of any security into
which it is convertible or for which it is puttable or 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, in each case prior to the date 91 days after the
maturity date of the Notes; provided, however, that if such Capital Stock is
either (i) redeemable or repurchaseable solely at the option of such Person or
(ii) issued to employees of the Company or its Subsidiaries or to any plan for
the benefit of such employees, such Capital Stock shall not constitute
Disqualified Stock unless so designated.
"EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus (a) provision for
taxes based on income or profits of such Person for such period deducted in
computing Consolidated Net Income, plus (b) Consolidated Interest Expense of
such Person for such period, plus (c) Consolidated Depreciation and Amortization
Expense of such Person for such period to the extent such depreciation and
amortization were deducted in computing Consolidated Net Income, plus (d) any
expenses or charges related to any Equity Offering or Indebtedness permitted to
be incurred by this Indenture (including such expenses or charges related to the
Recapitalization and Financings) and deducted in such period in computing
Consolidated Net Income, plus (e) any expenses incurred prior to, or in
connection with, the Recapitalization and deducted in such period in computing
Consolidated Net Income related to the S&E Management Stock Ownership Plan, plus
(f) any expenses paid by the Company to, or for the benefit of, Abarco and its
affiliates prior to the Recapitalization for services provided by Abarco and its
affiliates to the Company and its Restricted Subsidiaries and deducted in such
period in computing Consolidated Net Income, plus (g) the amount of any
restructuring charge or reserve deducted in such period in computing
Consolidated Net Income, plus (h) without duplication, any other noncash charges
reducing Consolidated Net Income for such period (excluding any such charge
which requires an accrual of a cash reserve for anticipated cash charges for any
future period), less, without duplication, (i) noncash items increasing
Consolidated Net Income of such Person for such period (excluding any items
which represent the reversal of any accrual of, or cash reserve for, anticipated
cash charges in any prior period).
"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).
"Equity Offering" means any public or private sale of Common Stock
or Preferred Stock of the Company (excluding Disqualified Stock), other than
public offerings with respect to the Company's Common Stock registered on Form
S-8.
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9
"Event of Default" has the meaning set forth in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto.
"Exchange Notes" has the meaning stated in the first recital of this
Indenture and refers to any Exchange Notes containing terms substantially
identical to the Initial Notes (except that (i) such Exchange Notes shall not
contain terms with respect to transfer restrictions and shall be registered
under the Securities Act, and (ii) certain provisions relating to an increase in
the stated rate of interest thereon shall be eliminated) that are issued and
exchanged for the Initial Notes in accordance with the Exchange Offer, as
provided for in the Registration Rights Agreement and this Indenture.
"Exchange Offer" means the offer by the Company to the Holders of
the Initial Notes to exchange all of the Initial Notes for Exchange Notes, as
provided for in the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Excluded Contributions" means net cash proceeds received by the
Company after the Issuance Date from (a) capital contributions and (b) the
private sale (other than to a Restricted Subsidiary or to any Company or
Subsidiary's management equity plan or stock option plan or any other management
or employee benefit plan or agreement) of Capital Stock (other than Disqualified
Stock) of the Company, in each case designated as Excluded Contributions
pursuant to an Officers' Certificate executed by the principal executive officer
and the principal financial officer of the Company on the date such capital
contributions are made or the date such Equity Interests are sold, as the case
may be, the cash proceeds of which are excluded from the calculation set forth
in clause (3) of paragraph (a) of Section 1009.
"Existing Indebtedness" means Indebtedness of the Company or its
Restricted Subsidiaries in existence on the Issuance Date, plus interest
accruing thereon, after application of the net proceeds of the sale of the Notes
as described in the Offering Memorandum.
"Financings" means the financing transactions consummated on the
Issuance Date in conjunction with the Recapitalization, and consists of (a) the
equity investment made by Strata and an affiliate in the Company, (b) the
issuance and sale of the Notes to the Initial Purchasers, (c) the issuance and
sale of $150 million aggregate liquidation preference of PIK Preferred Stock to
Strata and an affiliate and (d) the consummation of Senior Credit Facility.
"Fixed Charge Coverage Ratio" means, with respect to any Person for
any period, the ratio of EBITDA of such Person for such period to the Fixed
Charges of such Person for such period. In the event that the Company or any of
its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than repayments of revolving credit borrowings with respect
to which the related commitment remains outstanding) or issues or redeems
Preferred Stock subsequent to the commencement of the period for which the Fixed
Charge
<PAGE>
10
Coverage Ratio is being calculated but prior to 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 period. For purposes of making the
computation referred to above, Investments, acquisitions, dispositions which
constitute all or substantially all of an operating unit of a business and
discontinued operations (as determined in accordance with GAAP) that have been
made by the Company or any of its Restricted Subsidiaries, including all
mergers, consolidations and dispositions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date shall be calculated on a pro forma basis assuming that all such
Investments, acquisitions, dispositions, discontinued operations, mergers,
consolidations (and the reduction of any associated fixed charge obligations and
the change in EBITDA resulting therefrom) had occurred on the first day of the
four-quarter reference period and without regard to clause (ii) of the
definition of Consolidated Net Income. If since the beginning of such period any
Person (that subsequently became a Restricted Subsidiary or was merged with or
into the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Investment, acquisition, disposition which
constitutes all or substantially all of an operating unit of a business,
discontinued operation, merger or consolidation that would have required
adjustment pursuant to this definition, then the Fixed Charge Coverage Ratio
shall be calculated giving pro forma effect thereto for such period as if such
Investment, acquisition, disposition, discontinued operation, merger or
consolidation had occurred at the beginning of the applicable four-quarter
period and without regard to clause (ii) of the definition of Consolidated Net
Income. For purposes of this definition, whenever pro forma effect is to be
given to a transaction, the pro forma calculations shall be made in good faith
by a responsible financial or accounting officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest of such Indebtedness shall be calculated as if the rate in
effect on the Calculation Date had been the applicable rate for the entire
period (taking into account any Hedging Obligations applicable to such
Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed to
accrue at an interest rate reasonably determined by a responsible financial or
accounting officer of the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP. For purposes of making the
computation referred to above, interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness during the applicable period.
Interest on Indebtedness that may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rate, shall be deemed to have been based upon the rate actually
chosen, or, if none, then based upon such optional rate chosen as the Company
may designate.
"Fixed Charges" means, with respect to any Person for any period,
the sum of (a) Consolidated Interest Expense of such Person for such period and
(b) all cash dividend payments (excluding items eliminated in consolidation) on
any series of Preferred Stock of such Person.
"Foreign Subsidiary" means a Restricted Subsidiary not organized or
existing under the laws of the United States, any State thereof, the District of
Columbia or any territory thereof.
<PAGE>
11
"GAAP" or "Generally Accepted Accounting Principles" 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 Issuance Date. For the purposes hereof, the term "consolidated"
with respect to any Person shall mean such Person consolidated with its
Restricted Subsidiaries, and shall not include any Unrestricted Subsidiary.
"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
Securities or a specific payment of principal of or interest on any such
Government Securities 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 Securities or the specific payment of principal of or
interest on the Government Securities 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 or other obligations.
"Guarantee" means any guarantee of the obligations of the Company
under the Indenture and the Notes by any Person in accordance with the
provisions of this Indenture. When used as a verb, "Guarantee" shall have a
corresponding meaning.
"Guarantor" means any Person that incurs a Guarantee; provided that
upon the release and discharge of such Person from its Guarantee in accordance
with this Indenture, such Person shall cease to be a Guarantor.
"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 the Person in whose name a Note is registered in the
Note Register.
<PAGE>
12
"Indebtedness" means, with respect to any Person, (a) any
indebtedness of such Person, whether or not contingent (i) in respect of
borrowed money, (ii) evidenced by bonds, notes, debentures or similar
instruments or letters of credit or bankers' acceptances (or reimbursement
agreements in respect thereof), (iii) representing the balance deferred and
unpaid of the purchase price of any property (including Capitalized Lease
Obligations), except any such balance that constitutes an accrued expense or
trade payable or any other monetary obligation of a trade creditor (whether or
not an Affiliate), or (iv) representing any Hedging Obligations, if and to the
extent of any of the foregoing Indebtedness (other than letters of credit and
Hedging Obligations) that would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP, (b) to the extent not otherwise
included, any obligation by such Person to be liable for, or to pay, as obligor,
guarantor or otherwise, on the Indebtedness of another Person (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business) and (c) to the extent not otherwise included, Indebtedness of another
Person secured by a Lien on any asset owned by such Person (whether or not such
Indebtedness is assumed by such Person); provided, however, that Contingent
Obligations incurred in the ordinary course of business shall be deemed not to
constitute Indebtedness.
"Indenture" means this instrument as originally executed and as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Independent Financial Advisor" means an accounting, appraisal,
investment banking firm or consultant to Persons engaged in Similar Businesses
of nationally recognized standing that is, in the judgment of the Company's
Board of Directors, qualified to perform the task for which it has been engaged.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, NationsBanc Capital Markets, Inc., BA Securities, Inc. and BT
Securities Corporation, as purchasers of the Initial Notes.
"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Notes.
"Initial Notes" has the meaning specified in the recitals to this
Indenture.
"Investment Grade Securities" means (i) securities issued or
directly and fully guaranteed or insured by the United States government or any
agency or instrumentality thereof (other than Cash Equivalents), (ii) debt
securities or debt instruments with a rating of BBB- or higher by S&P or Baa3 or
higher by Moody's or the equivalent of such rating by such rating organization,
or, if no rating of S&P or Moody's then exists, the equivalent of such rating by
any other nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
<PAGE>
13
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the form of loans
(including guarantees), advances or capital contributions (excluding advances to
customers, commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities issued by
any other Person and investments that are required by GAAP to be classified on
the balance sheet of the Company in the same manner as the other investments
included in this definition to the extent such transactions involve the transfer
of cash or other property. For purposes of the definition of "Unrestricted
Subsidiary" and Section 1009, (i) "Investments" shall include the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of a Subsidiary of the Company at the time that
such Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the
Company shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the
Company's "Investment" in such Subsidiary at the time of such redesignation less
(y) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time of such redesignation; and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined in good faith by the Board of
Directors.
"Issuance Date" means the closing date for the sale and original
issuance of the Notes hereunder.
"KKR" means Kohlberg Kravis Roberts & Co., L.P.
"Letter of Credit/Bankers' Acceptance Obligations" means
Indebtedness of the Company or any of its Restricted Subsidiaries with respect
to letters of credit or bankers' acceptances constituting Senior Indebtedness or
Pari Passu Indebtedness which shall be deemed to consist of (i) the aggregate
maximum 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), (ii) the aggregate face amount of all unmatured bankers'
acceptances and (iii) the aggregate amount that has then been paid by, and not
reimbursed to, the issuers under such letters of credit or creation of such
bankers' acceptances.
"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);
provided that in no event shall an operating lease be deemed to constitute a
Lien.
"Maturity" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity by declaration of acceleration, call for
redemption or purchase or otherwise.
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14
"Moody's" means Moody's Investors Service, Inc. and its successors.
"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.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of 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 principal, premium (if any) and interest on
Indebtedness required (other than required by clause (i) of the second paragraph
of Section 1017 to be paid as a result of such transaction and any deduction of
appropriate amounts to be provided by the Company as a reserve in accordance
with GAAP against any liabilities associated with the asset disposed of in such
transaction and retained by the Company after such sale or other disposition
thereof, including, without limitation, pension and other post-employment
benefit liabilities and liabilities related to environmental matters or against
any indemnification obligations associated with such transaction.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 305.
"Notes" has the meaning stated in the first recital of this
Indenture and more particularly means any Notes authenticated and delivered
under this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and banker's acceptances), damages
and other liabilities payable under the documentation governing any
Indebtedness.
"Offering Memorandum" means the Offering Memorandum dated September
24, 1996 with respect to the offering of the Notes.
"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 Section 102.
"Opinion of Counsel" means a written opinion of counsel, which and
who are reasonably acceptable to, and addressed to, the Trustee complying with
the requirements of Section 102. Unless otherwise required by the TIA, such
legal counsel may be an employee of or counsel to the Company or the Trustee.
"Outstanding," when used with respect to Notes, means, as of the
date of determination, all Notes theretofore authenticated and delivered under
this Indenture, except:
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15
(i) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its
own Paying Agent) for the Holders of such Notes; provided that, if such
Notes are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made;
(iii) Notes, except to the extent provided in Sections 1202 and
1203, with respect to which the Company has effected defeasance and/or
covenant defeasance as provided in Article Eleven; and
(iv) Notes in exchange for or in lieu of which other Notes
(including pursuant to Section 310) have been authenticated and delivered
pursuant to this Indenture, other than any such Notes in respect of which
there shall have been presented to the Trustee proof satisfactory to it
that such Notes are held by a bona fide purchaser in whose hands the Notes
are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding
(provided, that in connection with any offer by the Company or any obligor to
purchase the Notes, Notes tendered for purchase will be deemed to be Outstanding
and held by the tendering Holder until the date of purchase), except that, in
determining whether the Trustee shall be protected in making such calculation or
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Notes which the Trustee actually knows to be so owned
shall be so disregarded. Notes so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to such Notes and that
the pledgee is not the Company or any other obligor upon the Notes or any
Affiliate of the Company or such other obligor.
"Pari Passu Indebtedness" means (a) with respect to the Notes,
Indebtedness which ranks pari passu in right of payment to the Notes and (b)
with respect to any Guarantee, Indebtedness which ranks pari passu in right of
payment to such Guarantee.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium, if
any) or interest on any Notes on behalf of the Company.
"Permitted Holders" means Strata, KKR and any of their Affiliates.
"Permitted Investments" means any of the following:
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16
(a) any Investment in the Company or any Restricted Subsidiary;
(b) any Investment in cash and Cash Equivalents or Investment Grade
Securities;
(c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person that is a Similar Business if as a result of such
Investment (i) such Person becomes a Restricted Subsidiary or (ii) 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;
(d) any Investment in securities or other assets not constituting
cash or Cash Equivalents and received in connection with an Asset Sale
made pursuant to Section 1017 or any other disposition of assets not
constituting an Asset Sale;
(e) any Investment existing on the Issuance Date;
(f) advances to employees not in excess of $5 million outstanding at
any one time;
(g) any Investment acquired by the Company or any of its Restricted
Subsidiaries (i) 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 (ii) 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;
(h) Hedging Obligations;
(i) 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;
(j) any Investment in a Similar Business (other than an Investment
in an Unrestricted Subsidiary) having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (j)
that are at that time outstanding, not to exceed 10% of Total Assets 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);
(k) Investments the payment for which consists of Equity Interests
of the Company (exclusive of Disqualified Stock); provided, however, that
such Equity Interests will not increase the amount available for
Restricted Payments under clause (3) of paragraph (a) of Section 1009; and
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17
(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 5% of Total Assets 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).
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"PIK Preferred Stock" means the $150,000,000 aggregate liquidation
preference of the 12 1/2% Preferred Stock issued by the Company on the Issuance
Date and any shares of PIK Preferred Stock issued as payment in kind dividends
thereon or on shares of PIK Preferred Stock so issued as payment in kind
dividends.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 310 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means any Equity Interest with preferential right
of payment of dividends or upon liquidation, dissolution, or winding up.
"QIB" means a "Qualified Institutional Buyer" under Rule 144A.
"Recapitalization" means the acquisition of 88.4% of the common
stock, par value $.01 per share, of the Company by Strata pursuant to the
Recapitalization and Stock Purchase Agreement dated as of August 15, 1996 among
the Company, Strata and Abarco.
"Redemption Date," when used with respect to any Note to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price," when used with respect to any Note to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of September 30, 1996, among the Company and the holders of
Initial Notes.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the March 15 or September 15 (whether or not a Business Day),
as the case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
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18
"Related Parties" means any Person controlled by the Permitted
Holder, including any partnership of which the Permitted Holder or its
Affiliates is the general partner.
"Responsible Officer," when used with respect to the Trustee, means
the chairman or any vice chairman of the board of directors, the chairman or any
vice chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
trust officer or assistant trust officer, the controller or any assistant
controller or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above-designated officers, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"Representative" means (i) with respect to the Senior Credit
Facility, the Bank Agent and (ii) with respect to any other Senior Indebtedness,
the indenture trustee or other trustee, agent or representative for the holders
of such Senior Indebtedness.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means, at any time, any direct or indirect
Subsidiary of the Company that is not then 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 under the Securities Act.
"S&P" means Standard and Poor's Ratings Group, a division of
McGraw-Hill, Inc. and its successors.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Senior Credit Facility" means, that certain credit facility
pursuant to the Credit Agreement dated as of September 30, 1996 among the
Company, Bank of America National Trust and Savings Association, as
administrative agent, Merrill Lynch Capital Corporation, as Documentation Agent
and NationsBank, N.A. (South), as Syndication Agent, and the lenders from time
to time party thereto, including any collateral documents, instruments and
agreements executed in connection therewith, and the term Senior Credit Facility
shall also include any amendments, supplements, modifications, extensions,
renewals, restatements or refundings thereof and any credit facilities that
replace, refund or refinance any part of the loans, other credit facilities or
commitments thereunder, including any such replacement, refunding or refinancing
facility that increases the amount borrowable thereunder or alters the maturity
thereof, provided, however, that, there shall not be more than one facility at
any one time that constitutes the Senior Credit Facility and, if at any time
there is more than one facility which would constitute the Senior Credit
Facility, the Company will designate to the Trustee in an Officers' Certificate
<PAGE>
19
which one of such facilities will be the Senior Credit Facility hereunder and
the name and address of the administrative agent with respect to such facility.
"Senior Indebtedness" means (i) the Obligations under the Senior
Credit Facility and (ii) any other Indebtedness permitted to be incurred by the
Company hereunder, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in right
of payment to the Notes, including, with respect to clauses (i) and (ii),
interest accruing subsequent to the filing of, or which would have accrued but
for the filing of, a petition for bankruptcy, whether or not such interest is an
allowable claim in such bankruptcy proceeding. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness will not include (1) any
liability for federal, state, local or other taxes owed or owing by the Company,
(2) any obligation of the Company to any of its Subsidiaries, (3) any accounts
payable or trade liabilities arising in the ordinary course of business
(including instruments evidencing such liabilities) other than obligations in
respect of bankers' acceptances and letters of credit under the Senior Credit
Facility, (4) any Indebtedness that is incurred in violation hereof, (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
subordinate or junior to any other Indebtedness, guarantee or obligation of the
Company, (7) Indebtedness evidenced by the Notes and (8) Capital Stock of the
Company.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Issuance Date.
"Similar Business" means a business, the majority of whose revenues
are derived from sales of consumer products or any business or activity that is
reasonably similar thereto or a reasonable extension, development or expansion
thereof or ancillary thereto.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 311.
"Stated Maturity," when used with respect to any Note or any
installment of interest thereon, means the date specified in such Note as the
fixed date on which the principal of such Note or such installment of interest
is due and payable, and, when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Strata" means Strata Associates L.P., a Delaware limited
partnership.
"Subordinated Indebtedness" means any Indebtedness of the Company
which is by its terms subordinated in right of payment to the Notes.
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20
"Subordinated Note Obligations" means any principal of, premium, if
any, and interest on the Notes payable pursuant to the terms of the Notes or
upon acceleration, together with and including any amounts received upon the
exercise of rights of rescission or other rights of action (including claims for
damages) or otherwise, to the extent relating to the purchase price of the Notes
or amounts corresponding to such principal, premium, if any, or interest on the
Notes.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) 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 of determination 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,
joint venture, limited liability company or similar entity of which (x) more
than 50% of the capital accounts, distribution rights, total equity and voting
interests or general or limited partnership interests, as applicable, are owned
or controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person or a combination thereof whether in the form
of membership, general, special or limited partnership or otherwise and (y) such
person or any Wholly Owned Restricted Subsidiary of such person is a controlling
general partner or otherwise controls such entity.
"Total Assets" means the total consolidated assets of the Company
and its Restricted Subsidiaries, as shown on the most recent balance sheet of
the Company.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force on the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
which at the time of determination is an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary of the Company (including any existing Subsidiary
and any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Equity
Interests of, or owns, or holds any Lien on, any property of, the Company or any
Subsidiary of the Company (other than any Subsidiary of the Subsidiary to be so
designated), provided that (a) any Unrestricted Subsidiary must be an entity of
which shares of the capital stock or other equity interests (including
partnership interests) entitled to cast at least a majority of the votes that
may be cast by all shares or equity interests having ordinary voting power for
the election of directors or other governing body are owned, directly or
indirectly, by the Company, (b) the Company certifies that such designation
complies with the requirements of Section 1009 and (c) each of (I) the
Subsidiary to be so designated and (II) its Subsidiaries has not at the time of
designation, and does not thereafter, create, incur, issue, assume, guarantee or
otherwise become directly or
<PAGE>
21
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that, immediately after giving effect to
such designation, the Company could incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test described in
Section 1010 on a pro forma basis taking into account such designation. Any such
designation by the Board of Directors shall be notified by the Company to the
Trustee by promptly filing with the Trustee a copy of the board resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing provisions.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"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 or Disqualified Stock, as the case may be, at any date, the
quotient obtained by dividing (i) the sum of the products of the number of years
from the date of determination to the date of each successive scheduled
principal payment of such Indebtedness or redemption or similar payment with
respect to such Disqualified Stock multiplied by the amount of such payment, by
(ii) the sum of all such payments.
"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 100% 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 and one
or more Wholly Owned Subsidiaries of such Person.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company and any
Guarantor (if applicable) and any other obligor on the Notes (if applicable)
shall furnish to the Trustee an Officers' Certificate in form and substance
reasonably acceptable to the Trustee stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
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22
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (including certificates
provided pursuant to Section 1018(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual or such
firm, he or it has made such examination or investigation as is necessary
to enable him or it to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company, any
Guarantor or other obligor on the Notes may be based, insofar as it relates to
legal matters, upon a certificate or opinion of, or representations by, counsel,
unless such officer knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to the matters
upon which his certificate or opinion is based are erroneous. Any such
certificate or Opinion of Counsel may be based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations by, an officer or
officers of the Company, any Guarantor or other obligor on the Notes stating
that the information with respect to such factual matters is in the possession
of the Company, any Guarantor or other obligor on the Notes unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
<PAGE>
23
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section 104.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held by any
Person, and the date of holding the same, shall be proved by the Note Register.
(d) If the Company shall solicit from the Holders of Notes any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the Holders
of record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Notes have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other Act,
and for that purpose the Outstanding Notes shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than six months after the
record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the
<PAGE>
24
Holder of every Note issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof (including in accordance with Section 310)
in respect of anything done, omitted or suffered to be done by the Trustee, any
Paying Agent or the Company or any Guarantor in reliance thereon, whether or not
notation of such action is made upon such Note.
SECTION 105. Notices, Etc., to Trustee, the Company and any
Guarantor.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company or any Guarantor or
any other obligor on the Notes shall be sufficient for every purpose
hereunder if made, given, furnished or delivered in writing and mailed,
first-class postage prepaid, or delivered by recognized overnight courier,
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Services-E&S, or
(2) the Company or any Guarantor by the Trustee or by any Holder
shall be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or delivered, in writing, or
mailed, first-class postage prepaid, or delivered by recognized overnight
courier, to the Company or such Guarantor addressed to it at the address
of its principal office specified in the first paragraph of this
Indenture, or at any other address previously furnished in writing to the
Trustee by the Company or such Guarantor.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Note Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any
<PAGE>
25
manner of giving such notice as shall be satisfactory to the Trustee shall be
deemed to be a sufficient giving of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, (other than the parties hereto, any Agent and their
successors hereunder and each of the Holders and, with respect to any provisions
hereof relating to the subordination of the Notes or the rights of holders of
Senior Indebtedness, the holders of Senior Indebtedness) any benefit or any
legal or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY THE LAW OF THE
STATE OF NEW YORK. EXCLUDING (TO THE GREATEST EXTENT PERMISSIBLE BY LAW) ANY
RULE OF LAW THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK. UPON THE ISSUANCE OF THE EXCHANGE NOTES OR THE
EFFECTIVENESS OF THE SHELF REGISTRATION STATEMENT, THIS INDENTURE SHALL BE
SUBJECT TO THE PROVISIONS OF THE TRUST INDENTURE ACT THAT ARE REQUIRED TO BE
PART OF THIS INDENTURE AND SHALL, TO THE EXTENT APPLICABLE, BE GOVERNED BY SUCH
PROVISIONS.
SECTION 112. Legal Holidays.
In any case where any Interest Payment Date, any date established
for payment of Defaulted Interest pursuant to Section 311 or Redemption Date or
Stated Maturity or Maturity of any Note shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Notes) payment
of principal (or premium, if any) or interest need not be made on such date, but
may be made on the next succeeding Business Day with the same force and
<PAGE>
26
effect as if made on the Interest Payment Date or date established for payment
of Defaulted Interest pursuant to Section 311, Redemption Date, or at the Stated
Maturity or Maturity; provided that no interest shall accrue for the period from
and after such Interest Payment Date, Redemption Date or date established for
payment of Defaulted Interest pursuant to Section 311, Stated Maturity or
Maturity, as the case may be, to the next succeeding Business Day.
SECTION 113. No Personal Liability of Directors, Officers,
Employees, Stockholders or Incorporators.
No director, officer, employee, incorporator or stockholders, as
such, of the Company or any Guarantor shall have any liability for any
obligations of the Company or such Guarantor under the Notes, this Indenture or
any Guarantee or for any claim based on, in respect of, or by reason of, such
obligations or their creations. Each Holder by accepting a Note waives and
releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Notes.
SECTION 114. Counterparts.
This Indenture may be executed in any number of counterparts, each
of which shall be original; but such counterparts shall together constitute but
one and the same instrument.
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally.
The Initial Notes shall be known as the "10 3/8% Senior Subordinated
Notes due 2006" and the Exchange Notes shall be known as the "10 3/8% Series B
Senior Notes due 2006", in each case, of the Company. The Notes and the
Trustee's certificate of authentication shall be in substantially the forms set
forth in this Article, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange or as may, consistently herewith, be
determined by the officers executing such Notes, as evidenced by their execution
of the Notes. Any portion of the text of any Note may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the Note.
Each Note shall be dated the date of its authentication.
The definitive Notes shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined
by the officers of the Company executing such Notes, as evidenced by their
execution of such Notes.
Initial Notes offered and sold in reliance on Rule 144A may be
issued in the form of one or more permanent global Notes substantially in the
form set forth in Sections 204 and
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27
205 (the "U.S. Global Note") deposited with the Trustee, as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the U.S. Global Note may
from time to time be increased or decreased by adjustments made on the records
of the Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Initial Notes offered and sold in reliance on Regulation S shall be
issued initially in the form of temporary certificated Notes in registered form
substantially in the form set forth in Sections 204 and 205 (the "Temporary
Offshore Physical Notes"). The Temporary Offshore Physical Notes will be
registered in the name of, and held by, a temporary certificate holder
designated by Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and NationsBanc Capital Markets, Inc. until the later of the
completion of the distribution of the Initial Notes and the termination of the
"restricted period" (as defined in Regulation S) with respect to the offer and
sale of the Initial Notes (the "Offshore Notes Exchange Date"). The Company
shall promptly notify the Trustee in writing of the occurrence of the Offshore
Notes Exchange Date and, at any time following the Offshore Notes Exchange Date,
upon receipt by the Trustee and the Company of a certificate substantially in
the form set forth in Section 203, the Company shall execute, and the Trustee
shall authenticate and deliver, one or more permanent certificated Notes in
registered form substantially in the form set forth in Sections 204 and 205 (the
"Permanent Offshore Physical Notes") in exchange for the Temporary Offshore
Physical Notes of like tenor and amount.
Initial Notes offered and sold other than as described in the
preceding two paragraphs shall be issued in the form of permanent certificated
Notes in registered form in substantially the form set forth in Sections 204 and
205 (the "U.S. Physical Notes").
The Temporary Offshore Physical Notes, Permanent Offshore Physical
Notes and U.S. Physical Notes are sometimes collectively herein referred to as
the "Physical Notes".
SECTION 202. Restrictive Legends.
Unless and until (i) an Initial Note is sold under an effective
Registration Statement or (ii) an Initial Note is exchanged for an Exchange Note
in connection with an effective Registration Statement, in each case pursuant to
the Registration Rights Agreement, each such U.S. Global Note, Temporary
Offshore Physical Note, Permanent Offshore Physical Note and U.S. Physical Note
shall bear the following legend (the "Private Placement Legend") on the face
thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR
NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS
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28
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH
SECURITY PRIOR TO THE DATE WHICH IS THREE YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING
OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3)
OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR", FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR
FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT (AND IF ACQUIRING THE SECURITIES FROM SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR", IS ACQUIRING SECURITIES HAVING AN AGGREGATE
PRINCIPAL AMOUNT OF NOT LESS THAN $100,000), OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT; PROVIDED THAT THE COMPANY AND THE TRUSTEE SHALL HAVE THE RIGHT PRIOR
TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F)
TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE
FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE TRUSTEE.
Each U.S. Global Note, whether or not an Initial Note, shall also
bear the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY ("DTC") TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
<PAGE>
29
REPRESENTATIVE OF DTC AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE.
SECTION 203. Form of Certificate to Be Delivered upon Termination of
Restricted Period.
On or after November 9, 1996
MARINE MIDLAND BANK
140 Broadway, 12th Floor
New York, NY 10005
Attention: Corporate Trust Services - E&S
Re: E&S HOLDINGS CORPORATION (the "Company")
10 3/8% Senior Subordinated Notes due 2006 (the "Notes")
--------------------------------------------------------
Ladies and Gentlemen:
This letter relates to $200 million principal amount of Notes
represented by the temporary global note certificate (the "Temporary
Certificate"). Pursuant to Section 201 of the Indenture dated as of September
30, 1996 relating to the Notes (the "Indenture"), we hereby certify that (1) we
are the beneficial owner of such principal amount of Notes represented by the
Temporary Certificate and (2) we are a person outside the United States to whom
the Notes could be transferred in accordance with Rule 904 of Regulation S
promulgated under the Securities Act of 1933, as amended. Accordingly, you are
hereby requested to issue a Certificated Note representing the undersigned's
interest in the principal amount of Notes represented by the Temporary
Certificate, all in the manner provided by the Indenture.
<PAGE>
30
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:_____________________________________
Authorized Signature
SECTION 204. Form of Face of Note.
E&S HOLDINGS CORPORATION
10 3/8% [Series B]* Senior Subordinated Note due 2006
CUSIP No. _____
No. __________ $________
E&S HOLDINGS CORPORATION, a Delaware corporation (herein called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
____________________ or registered assigns, the principal sum of
____________________ Dollars on October 1, 2006, at the office or agency of the
Company referred to below, and to pay interest thereon on April 1, 1997 and
semi-annually thereafter, on April 1 and October 1 in each year, from September
30, 1996, or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, at the rate of 10 3/8% per annum, until the
principal hereof is paid or duly provided for, and (to the extent lawful) to pay
on demand interest on any overdue interest at the rate borne by the Notes from
the date on which such overdue interest becomes payable to the date payment of
such interest has been made or duly provided for. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Note (or
one or more Predecessor Notes) is registered at the close of business on the
Regular Record Date for such interest, which shall be the March 15 or September
15 (whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly provided
for shall forthwith cease to be payable to the Holder on such Regular Record
Date, and such defaulted interest, and (to the extent lawful) interest on such
defaulted interest at the rate borne by the Notes, may be paid to the Person in
whose name this Note (or one or more Predecessor Notes) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Notes not less than 10 days prior to such Special Record Date, or may be paid at
any time in any other lawful manner not inconsistent
- --------
* Include only for Exchange Notes.
<PAGE>
31
with the requirements of any securities exchange on which the Notes may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in said Indenture.
[The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of September 30, 1996 (the "Registration
Rights Agreement"), between the Company and the Initial Purchasers named
therein. In the event that either (a) an Exchange Offer Registration Statement
(as such term is defined in the Registration Rights Agreement) is not filed with
the Commission on or prior to the 45th day following the date of original issue
of the Notes, (b) such Exchange Offer Registration Statement has not been
declared effective on or prior to the 105th day following the date of original
issue of the Notes or (c) the Exchange Offer (as such term is defined in the
Registration Rights Agreement) is not consummated on or prior to the 135th day
following the date of original issue of the Notes or a Shelf Registration
Statement (as such term is defined in the Registration Rights Agreement) with
respect to the Notes is not declared effective on or prior to the 135th day
following the date of original issue of the Notes, the interest rate borne by
this Note shall be increased by one-quarter of one percent per annum following
such 45-day period in the case of clause (a) above, such 105-day period in the
case of clause (b) above or such 135-day period in the case of clause (c) above,
which rate will be increased by an additional one-quarter of one percent per
annum for each 90-day period that any such additional interest continues to
accrue; provided that the aggregate increase in such annual interest rate will
in no event exceed one percent. Upon (x) the filing of the Exchange Offer
Registration Statement after the 45-day period described in clause (a) above,
(y) the effectiveness of the Exchange Offer Registration Statement after the
105-day period described in clause (b) above or (z) the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, after the 135-day period described in clause (c) above, the
interest rate borne by the Note from the date of such filing, effectiveness or
consummation, as the case may be, will be reduced to the original interest rate
set forth above if the Company is otherwise in compliance with this paragraph;
provided, however, that, if after such reduction in interest rate, a different
event specified in clause (a), (b) or (c) above occurs, the interest rate may
again be increased and thereafter reduced pursuant to the foregoing provisions.
If the Company issues a notice that the Shelf Registration Statement is unusable
pending the announcement of a material corporate transaction or otherwise
pursuant to Section 3(k) of the Registration Rights Agreement, or such a notice
is required under applicable securities laws to be issued by the Company, and
the aggregate number of days in any consecutive twelve-month period for which
all such notices are issued or required to be issued exceeds 30 days in the
aggregate, then the interest rate borne by the Notes will be increased by
one-quarter of one percent per annum following the date that such Shelf
Registration Statement ceases to be usable beyond the period permitted above,
which rate shall be increased by an additional one-quarter of one percent per
annum for each 90-day period that such additional interest continues to accrue;
provided that the aggregate increase in such annual interest rate may in no
event exceed one percent. Upon the Company declaring that the Shelf Registration
Statement is usable after the interest rate has been increased pursuant to the
preceding sentence, the interest rate borne by the Notes will be reduced to the
original interest rate if the Company is otherwise in compliance with this
paragraph; provided, however, that if after any such reduction in interest rate
the Shelf
<PAGE>
32
Registration Statement again ceases to be usable beyond the period permitted
above, the interest rate will again be increased and thereafter reduced pursuant
to the foregoing provisions.]*
Payment of the principal of (and premium, if any, on) and interest
on this Note will be made at the office or agency of the Company maintained for
that purpose in The City of New York, or at such other office or agency of the
Company as may be maintained for such purpose, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that payment of interest may be
made at the option of the Company (i) by check mailed to the address of the
Person entitled thereto as such address shall appear on the Note Register or
(ii) by wire transfer to an account maintained by the payee located in the
United States.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee or the Authenticating Agent referred to on the reverse
hereof by manual signature, this Note shall not be entitled to any benefit under
the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed under its corporate seal.
Dated: E&S HOLDINGS CORPORATION
By____________________________________
Name:
Title:
Attest: [SEAL]
_____________________
Authorized Officer
- ----------
* Include only for Initial Notes.
<PAGE>
33
SECTION 205. Form of Reverse of Note.
This Note is one of a duly authorized issue of securities of the
Company designated as its 10 3/8% [Series B]* Senior Subordinated Notes due 2006
(the "Notes"), limited (except as otherwise provided in the Indenture referred
to below) in aggregate principal amount to $200,000,000, which may be issued
under an indenture (the "Indenture") dated as of September 30, 1996 between the
Company and Marine Midland Bank, as trustee (the "Trustee", which term includes
any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Trustee and the Holders of the Notes, and of the
terms upon which the Notes are, and are to be, authenticated and delivered.
The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all Senior Indebtedness as defined in the
Indenture, and this Note is issued subject to such provisions. Each Holder of
this Note, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination as
provided in the Indenture and (c) appoints the Trustee his attorney-in-fact for
such purpose.
On or before each payment date, the Company shall deliver or cause
to be delivered to the Trustee or the Paying Agent an amount in dollars
sufficient to pay the amount due on such payment date.
The Notes are subject to redemption upon not less than 30 nor more
than 60 days', written notice, at any time on and after October 1, 2001, as a
whole or in part, at the election of the Company, at a Redemption Price equal to
the percentage of the principal amount set forth below, plus, in each case,
accrued and unpaid interest, if any, to the applicable Redemption Date, if
redeemed during the twelve month period beginning October 1, of the years
indicated below:
Redemption
Year Price
---- -----
2001 . . . . . . . . . . . . . . . . . . . . 105.187%
2002 . . . . . . . . . . . . . . . . . . . . 103.458%
2003 . . . . . . . . . . . . . . . . . . . . 101.729%
2004 and thereafter . . . . . . . . . . . . . 100.000%
- ----------
* Include only for the Exchange Notes
<PAGE>
34
In addition, at any time or from time to time, on or prior to
October 1, 1999, the Company may, at its option, redeem up to 40% of the
aggregate principal amount of Notes originally issued under the Indenture on the
Issuance Date at a Redemption Price equal to 110% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Redemption Date, with the net proceeds of one or more Equity Offerings; provided
that at least $120 million aggregate principal amount of Notes remains
outstanding immediately after the occurrence of such redemption; and provided
further that such redemption shall occur within 60 days of the date of the
closing of any such Equity Offering.
If less than all the Notes are to be redeemed pursuant to the
preceding two paragraphs, the Trustee shall select the Notes or portions thereof
to be redeemed in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes being redeemed are listed, or if
the Notes are not so listed, on a pro rata basis, by lot or by such other method
the Trustee shall deem fair and appropriate; provided that no such partial
redemption shall reduce the portion of the principal amount of a Note not
redeemed to less than $1,000.
In the case of any redemption of Notes, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of such Notes, or one or more Predecessor Notes, of record at the close
of business on the relevant Regular Record Date or Special Record Date, as the
case may be, referred to on the face hereof. Notes (or portions thereof) for
whose redemption and payment provision is made in accordance with the Indenture
shall cease to bear interest from and after the Redemption Date.
In the event of redemption or repurchase of this Note in part only,
a new Note or Notes for the unredeemed portion hereof shall be issued in the
name of the Holder hereof upon the cancellation hereof.
Upon the occurrence of a Change of Control, the Company will be
required to make an offer to purchase on the Change of Control Payment Date all
outstanding Notes at a purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of purchase, in accordance with the Indenture. Holders of Notes that
are subject to an offer to purchase will receive a Change of Control Offer from
the Company prior to any related Change of Control Payment Date.
Under certain circumstances, in the event the Net Proceeds received
by the Company from an Asset Sale, which proceeds are not used (i) to
permanently reduce Obligations under the Senior Credit Facility (and to
correspondingly reduce commitments with respect thereto) or other Senior
Indebtedness or Pari Passu Indebtedness (provided that if the Company shall so
reduce Obligations under Pari Passu Indebtedness, it will equally and ratably
reduce
<PAGE>
35
Obligations under the Notes), (ii) to secure Letter of Credit/Bankers'
Acceptance Obligations to the extent related letters of credit have not been
drawn upon or returned undrawn or related bankers' acceptances have not matured,
(iii) to make an investment in any one or more businesses, capital expenditures
or acquisitions of other assets in each case, used or useful in a Similar
Business and/or (iv) to make an investment in properties or assets that replace
the properties and assets that are the subject of such Asset Sale, equal or
exceeds a specified amount, the Company will be required to make an offer to all
Holders to purchase the maximum principal amount of Notes, in an integral
multiple of $1,000, that may be purchased out of such amount at a purchase price
in cash equal to 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase, in accordance with the Indenture.
Holders of Notes that are subject to any offer to purchase will receive an Asset
Sale Offer from the Company prior to any related Asset Sale Purchase Date.
In the case of any redemption or repurchase of Notes, interest
installments whose Stated Maturity is on or prior to the Redemption Date will be
payable to the Holders of such Notes, or one or more Predecessor Notes, of
record at the close of business on the relevant Regular Record Date or Special
Record Date, as the case may be, referred to on the face hereof. Notes (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
If an Event of Default shall occur and be continuing, the principal
of all the Notes may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness of the Company on this Note and (b) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Note.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture and the Notes and the
Guarantees, if any, at any time by the Company and the Trustee with the consent
of the Holders of a specified percentage in aggregate principal amount of the
Notes at the time Outstanding. Additionally, the Indenture permits that, without
notice to or consent of any Holder, the Company, any Guarantor and the Trustee
together may amend or supplement the Indenture, any Guarantee or this Note (i)
to cure any ambiguity, defect or inconsistency, (ii) to provide for
uncertificated Notes in addition to or in place of certificated Notes, (iii) to
comply with the covenant relating to mergers, consolidations and sales of
assets, (iv) to provide for the assumption of the Company's obligations to
Holders of such Notes, (v) to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not adversely affect
the legal rights under the Indenture of any such
<PAGE>
36
Holder, (vi) to add covenants for the benefit of the Holders or to surrender any
right or power conferred upon the Company, (vii) to comply with the requirements
of the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act, (viii) to evidence and provide for the
acceptance of appointment under the Indenture by a successor Trustee pursuant to
the requirements of Section 610 thereof or (ix) to make any change that does not
adversely affect the legal rights of any Holder. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Notes at the time Outstanding, on behalf of the Holders
of all the Notes, to waive compliance by the Company with certain provisions of
the Indenture the Notes and the Guarantees, if any, and certain past Defaults
under the Indenture and the Notes and the Guarantees, if any, and their
consequences. Any such consent or waiver by or on behalf of the Holder of this
Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Notes (in the event such Guarantor or
other obligor is obligated to make payments in respect of the Notes), which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed, subject to the subordination provisions of the
Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registerable on the Note
Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Note Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to pay all documentary, stamp or similar issue or transfer taxes or
other governmental charge payable in connection therewith.
Prior to the time of due presentment of this Note for registration
of transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in
<PAGE>
37
whose name this Note is registered as the owner hereof for all purposes, whether
or not this Note be overdue, and neither the Company, the Trustee nor any agent
shall be affected by notice to the contrary.
THIS NOTE AND THE INDENTURE SHALL BE GOVERNED BY THE LAW OF THE
STATE OF NEW YORK EXCLUDING (TO THE GREATEST EXTENT PERMISSIBLE BY LAW) ANY RULE
OF LAW THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER
THAN THE STATE OF NEW YORK.
Interest on this Note shall be computed on the basis of a 360-day
year of twelve 30-day months.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
please print or typewrite name and address including zip code of assignee
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
attorney to transfer said Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES
EXCEPT PERMANENT OFFSHORE PHYSICAL
NOTES]
<PAGE>
38
In connection with any transfer of this Note occurring prior to the
date that is the earlier of the date of an effective Registration Statement or
September 30, 1999, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
[Check One]
[_](a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided
by Rule 144A thereunder.
or
[_](b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished that comply with the
conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 307 of the Indenture shall have
been satisfied.
Date: ____________________ __________________________________________
NOTICE: The signature must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or any
change whatsoever.
Signature Guarantee:
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
<PAGE>
39
Dated: ________________________ __________________________________________
NOTICE: To be executed by an executive
officer.
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 1016 of the Indenture, check the Box: [_].
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 1016 of the Indenture, state the amount (in original
principal amount) below:
$_____________________.
Date:
Your Signature:
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
SECTION 206. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in
substantially the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
Dated: ____________________
This is one of the Notes referred to in the within-mentioned
Indenture.
MARINE MIDLAND BANK,
as Trustee
<PAGE>
40
By______________________________________
Authorized Signatory
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms.
The aggregate principal amount of Notes which may be authenticated
and delivered under this Indenture is limited to $200,000,000, except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 304, 305, 306, 307, 310,
906, 1015, 1017 or 1108 or pursuant to an Exchange Offer.
The Initial Notes shall be known and designated as the "10 3/8%
Senior Subordinated Notes due 2006" and the Exchange Notes shall be known and
designated as the "10 3/8% Series B Senior Subordinated Notes due 2006", in each
case, of the Company. The Stated Maturity of the Notes shall be October 1, 2006,
and they shall bear interest at the rate of 10 3/8% per annum from September 30,
1996, or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, payable on April 1, 1997 and semi-annually thereafter
on October 1 and April 1 in each year, until the principal thereof is paid in
full and to the Person in whose name the Note (or any predecessor Note) is
registered at the close of business on the March 15 or September 15 next
preceding such interest payment date. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months, until the principal thereof is
paid or duly provided for. Interest on any overdue principal, interest (to the
extent lawful) or premium, if any, shall be payable on demand.
The principal of (and premium, if any) and interest on the Notes
shall be payable at the office or agency of the Company maintained for such
purpose in The City of New York, or at such other office or agency of the
Company as may be maintained for such purpose; provided, however, that, at the
option of the Company, interest may be paid (a) by check mailed to addresses of
the Persons entitled thereto as such addresses shall appear on the Note Register
or (ii) by transfer to an account maintained by the payee located in the United
States.
Holders shall have the right to require the Company to purchase
their Notes, in whole or in part, in the event of a Change of Control pursuant
to Section 1016.
The Notes shall be subject to repurchase by the Company pursuant to
an Asset Sale Offer as provided in Section 1017.
<PAGE>
41
The Notes shall be redeemable as provided in Article Twelve and in
the Notes.
The Indebtedness evidenced by the Notes shall be subordinated in
right of payment to Senior Indebtedness as provided in Article Thirteen.
SECTION 302. Denominations.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its
Chairman, its President or a Vice President, under its corporate seal reproduced
thereon and attested by its Secretary or an Assistant Secretary. The signature
of any of these officers on the Notes may be manual or facsimile signatures of
the present or any future such authorized officer and may be imprinted or
otherwise reproduced on the Notes.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Initial Notes executed by the Company
to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Notes, and the Trustee in accordance with
such Company Order shall authenticate and deliver such Initial Notes directing
the Trustee to authenticate the Notes and certifying that all conditions
precedent to the issuance of Notes contained herein have been fully complied
with, and the Trustee in accordance with such Company Order shall authenticate
and deliver such Initial Notes. On Company Order, the Trustee shall authenticate
for original issue Exchange Notes in an aggregate principal amount not to exceed
$200,000,000; provided that such Exchange Notes shall be issuable only upon the
valid surrender for cancellation of Initial Notes of a like aggregate principal
amount in accordance with an Exchange Offer pursuant to the Registration Rights
Agreement. In each case, the Trustee shall be entitled to receive an Officers'
Certificate and an Opinion of Counsel of the Company that it may reasonably
request in connection with such authentication of Notes. Such order shall
specify the amount of Notes to be authenticated and the date on which the
original issue of Initial Notes or Exchange Notes is to be authenticated.
Each Note shall be dated the date of its authentication.
<PAGE>
42
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder and is
entitled to the benefits of this Indenture.
In case the Company or any Guarantor, pursuant to Article Eight,
shall be consolidated or merged with or into any other Person or shall convey,
transfer, lease or otherwise dispose of its properties and assets substantially
as an entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company or such
Guarantor shall have been merged, or the Person which shall have received a
conveyance, transfer, lease or other disposition as aforesaid, shall have
executed an indenture supplemental hereto with the Trustee pursuant to Article
Eight, any of the Notes authenticated or delivered prior to such consolidation,
merger, conveyance, transfer, lease or other disposition may, from time to time,
at the request of the successor Person, be exchanged for other Notes executed in
the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Notes
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Notes as specified in such request for the purpose of such exchange. If Notes
shall at any time be authenticated and delivered in any new name of a successor
Person pursuant to this Section 303 in exchange or substitution for or upon
registration of transfer of any Notes, such successor Person, at the option of
the Holders but without expense to them, shall provide for the exchange of all
Notes at the time Outstanding for Notes authenticated and delivered in such new
name.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes on behalf of the Trustee. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Note Registrar or Paying Agent
to deal with the Company and its Affiliates.
SECTION 304. Temporary Notes.
Pending the preparation of definitive Notes, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Notes which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Notes may determine, as conclusively evidenced by their
execution of such Notes.
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43
If temporary Notes are issued, the Company will cause definitive
Notes to be prepared without unreasonable delay. After the preparation of
definitive Notes, the temporary Notes shall be exchangeable for definitive Notes
upon surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 1002, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Note Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Notes and of transfers of Notes. The Note Register shall be in written form
or any other form capable of being converted into written form within a
reasonable time. At all reasonable times, the Note Register shall be open to
inspection by the Trustee. The Trustee is hereby initially appointed as security
registrar (the Trustee in such capacity, together with any successor of the
Trustee in such capacity, the "Note Registrar") for the purpose of registering
Notes and transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Notes of any
authorized denomination or denominations of a like aggregate principal amount.
Furthermore, any Holder of the U.S. Global Note shall, by acceptance
of such Global Note, agree that transfers of beneficial interest in such Global
Note may be effected only through a book-entry system maintained by the Holder
of such Global Note (or its agent), and that ownership of a beneficial interest
in the Note shall be required to be reflected in a book entry.
At the option of the Holder, Notes may be exchanged for other Notes
of any authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange (including an exchange of Initial Notes
for Exchange Notes), the Company shall execute, and the Trustee shall
authenticate and deliver, the Notes which the Holder making the exchange is
entitled to receive; provided that no exchange of Initial Notes for Exchange
Notes shall occur
<PAGE>
44
until an Exchange Offer Registration Statement shall have been declared
effective by the Commission, the Trustee shall have received an Officers'
Certificate confirming that the Exchange Offer Registration Statement has been
declared effective by the Commission and the Initial Notes to be exchanged for
the Exchange Notes shall be cancelled by the Trustee.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Note Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Note Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 304, 906, 1016, 1017 or 1108, not involving any
transfer.
SECTION 306. Book-Entry Provisions for U.S. Global Note.
(a) The U.S. Global Note initially shall (i) be registered in the
name of the Depositary for such global Note or the nominee of such Depositary,
(ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear
legends as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any U.S. Global Note
held on their behalf by the Depositary, or the Trustee as its custodian, or
under the U.S. Global Note, and the Depositary may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner of
such U.S. Global Note for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent of
the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depositary or shall impair, as
between the Depositary and its Agent Members, the operation of customary
practices governing the exercise of the rights of a Holder of any Note.
(b) Transfers of the U.S. Global Note shall be limited to transfers
of such U.S. Global Note in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in the
U.S. Global Note may be transferred in accordance with the rules and procedures
of the Depositary and the provisions of Section 307. Beneficial owners may
obtain U.S. Physical Notes in exchange for their beneficial interests in
<PAGE>
45
the U.S. Global Note upon request in accordance with the Depositary's and the
Registrar's procedures. In addition, U.S. Physical Notes shall be transferred to
all beneficial owners in exchange for their beneficial interests in the U.S.
Global Note if (i) the Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for the U.S. Global Note and a successor
depositary is not appointed by the Company within 90 days of such notice or (ii)
an Event of Default has occurred and is continuing and the Note Registrar has
received a request from the Depositary.
(c) In connection with any transfer of a portion of the beneficial
interest in the U.S. Global Note pursuant to subsection (b) of this Section to
beneficial owners who are required to hold U.S. Physical Notes, the Note
Registrar shall reflect on its books and records the date and a decrease in the
principal amount of the U.S. Global Note in an amount equal to the principal
amount of the beneficial interest in the U.S. Global Note to be transferred, and
the Company shall execute, and the Trustee shall authenticate and deliver, one
or more U.S. Physical Notes of like tenor and amount.
(d) In connection with the transfer of the entire U.S. Global Note
to beneficial owners pursuant to subsection (b) of this Section, the U.S. Global
Note shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the U.S. Global Note, an equal aggregate principal amount of U.S.
Physical Notes of authorized denominations.
(e) Any U.S. Physical Note delivered in exchange for an interest in
the U.S. Global Note pursuant to subsection (c) or subsection (d) of this
Section shall, except as otherwise provided by paragraph (a)(i)(x) and paragraph
(f) of Section 307, bear the applicable legend regarding transfer restrictions
applicable to the U.S. Physical Note set forth in Section 202.
(f) The registered holder of the U.S. Global Note may grant proxies
and otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 307. Special Transfer Provisions.
Unless and until (i) an Initial Note is sold under an effective
Registration Statement, or (ii) an Initial Note is exchanged for an Exchange
Note in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, the following provisions shall
apply:
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46
(a) Transfers to Non-QIB Institutional Accredited Investors. The
following provisions shall apply with respect to the registration of any
proposed transfer of an Initial Note to any institutional "accredited investor"
(as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the
Securities Act) which is not a QIB (excluding Non-U.S. Persons):
(i) The Note Registrar shall register the transfer of any Initial
Note, whether or not such Initial Note bears the Private Placement Legend,
if (x) the requested transfer is at least three years after the original
issue date of the Initial Note or (y) the proposed transferee has
delivered to the Registrar a certificate substantially in the form set
forth in Section 308.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the Note
Registrar of (x) the documents, if any, required by paragraph (i) and (y)
instructions given in accordance with the Depositary's and the Note
Registrar's procedures therefor, the Note Registrar shall reflect on its
books and records the date and a decrease in the principal amount of the
U.S. Global Note in an amount equal to the principal amount of the
beneficial interest in the U.S. Global Note to be transferred, and the
Company shall execute, and the Trustee shall authenticate and deliver, one
or more U.S. Physical Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of an Initial Note to a QIB
(excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of U.S. Physical Notes,
Temporary Offshore Physical Notes or Permanent Offshore Physical Notes,
the Registrar shall register the transfer if such transfer is being made
by a proposed transferor who has checked the box provided for on the form
of Initial Note stating, or has otherwise advised the Company and the Note
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Initial Note stating, or has otherwise advised
the Company and the Note Registrar in writing, that it is purchasing the
Initial Note for its own account or an account with respect to which it
exercises sole investment discretion and that it, or the person on whose
behalf it is acting with respect to any such account, is a QIB within the
meaning of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule
144A or has determined not to request such information and that it is
aware that the transferor is relying upon its foregoing representations in
order to claim the exemption from registration provided by Rule 144A.
<PAGE>
47
(ii) If the proposed transferee is an Agent Member, and the Initial
Note to be transferred consists of U.S. Physical Notes, Temporary Offshore
Physical Notes or Permanent Offshore Physical Notes, upon receipt by the
Note Registrar of instructions given in accordance with the Depositary's
and the Note Registrar's procedures therefor, the Note Registrar shall
reflect on its books and records the date and an increase in the principal
amount of the U.S. Global Note in an amount equal to the principal amount
of the U.S. Physical Notes, Temporary Offshore Physical Notes or Permanent
Offshore Physical Notes, as the case may be, to be transferred, and the
Trustee shall cancel the Physical Note so transferred.
(c) Transfers by Non-U.S. Persons Prior to November 9, 1996. The
following provisions shall apply with respect to registration of any proposed
transfer of an Initial Note by a Non-U.S. Person prior to November 9, 1996:
(i) The Note Registrar shall register the transfer of any Initial
Note (x) if the proposed transferee is a Non-U.S. Person and the proposed
transferor has delivered to the Note Registrar a certificate substantially
in the form set forth in Section 309 or (y) if the proposed transferee is
a QIB and the proposed transferor has checked the box provided for on the
form of Initial Note stating, or has otherwise advised the Company and the
Note Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Initial Note stating, or has
otherwise advised the Company and the Note Registrar in writing, that it
is purchasing the Initial Note for its own account or an account with
respect to which it exercises sole investment discretion and that it, or
the person on whose behalf it is acting with respect to any such account,
is a QIB within the meaning of Rule 144A, and is aware that the sale to it
is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as it has requested
pursuant to Rule 144A or has determined not to request such information
and that it is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration provided
by Rule 144A. Unless clause (ii) below is applicable, the Company shall
execute, and the Trustee shall authenticate and deliver, one or more
Temporary Offshore Physical Notes of like tenor and amount.
(ii) If the proposed transferee is an Agent Member, upon receipt by
the Note Registrar of instructions given in accordance with the
Depositary's and the Note Registrar's procedures therefor, the Note
Registrar shall reflect on its books and records the date and an increase
in the principal amount of the U.S. Global Note in an amount equal to the
principal amount of the Temporary Offshore Physical Note to be
transferred, and the Note Registrar shall cancel the Temporary Offshore
Physical Notes so transferred.
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48
(d) Transfers by Non-U.S. Persons on or After November 9, 1996. The
following provisions shall apply with respect to any transfer of an Initial Note
by a Non-U.S.
Person on or after November 9, 1996:
(i) (x) If the Initial Note to be transferred is a Permanent
Offshore Physical Note, the Note Registrar shall register such transfer,
(y) if the Initial Note to be transferred is a Temporary Offshore Physical
Note, upon receipt of a certificate substantially in the form set forth in
Section 309 from the proposed transferor, the Note Registrar shall
register such transfer and (z) in the case of either clause (x) or (y),
unless clause (ii) below is applicable, the Company shall execute, and the
Trustee shall authenticate and deliver, one or more Permanent Offshore
Physical Notes of like tenor and amount.
(ii) If the proposed transferee is an Agent Member, upon receipt by
the Note Registrar of instructions given in accordance with the
Depositary's and the Note Registrar's procedures therefor, the Note
Registrar shall reflect on its books and records the date and an increase
in the principal amount of the U.S. Global Note in an amount equal to the
principal amount of the Temporary Offshore Physical Note or of the
Permanent Offshore Physical Note to be transferred, and the Trustee shall
cancel the Physical Note so transferred.
(e) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of an Initial Note to a
Non-U.S. Person:
(i) Prior to November 9, 1996, the Note Registrar shall register any
proposed transfer of an Initial Note to a Non-U.S. Person upon receipt of
a certificate substantially in the form set forth in Section 309 from the
proposed transferor and the Company shall execute, and the Trustee shall
authenticate and make available for delivery, one or more Temporary
Offshore Physical Notes.
(ii) On and after November 9, 1996, the Note Registrar shall
register any proposed transfer to any Non-U.S. Person (w) if the Initial
Note to be transferred is a Permanent Offshore Physical Note, (x) if the
Initial Note to be transferred is a Temporary Offshore Physical Note, upon
receipt of a certificate substantially in the form set forth in Section
309 from the proposed transferor, (y) if the Initial Note to be
transferred is a U.S. Physical Note or an interest in the U.S. Global
Note, upon receipt of a certificate substantially in the form set forth in
Section 309 from the proposed transferor and (z) in the case of either
clause (w), (x) or (y), the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Permanent Offshore Physical Notes of
like tenor and amount.
<PAGE>
49
(iii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the Note
Registrar of (x) the document, if any, required by paragraph (i), and (y)
instructions in accordance with the Depositary's and the Note Registrar's
procedures therefor, the Note Registrar shall reflect on its books and
records the date and a decrease in the principal amount of the U.S. Global
Note in an amount equal to the principal amount of the beneficial interest
in the U.S. Global Note to be transferred and the Company shall execute,
and the Trustee shall authenticate and deliver, one or more Permanent
Offshore Physical Notes of like tenor and amount.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Note
Registrar shall deliver Notes that do not bear the Private Placement Legend.
Upon the transfer, exchange or replacement of Notes bearing the Private
Placement Legend, the Note Registrar shall deliver only Notes that bear the
Private Placement Legend unless either (i) the circumstances contemplated by the
fourth paragraph of Section 201 (with respect to Permanent Offshore Physical
Notes) or paragraph (a)(i)(x), (d)(i) or (e)(ii) of this Section 307 exist or
(ii) there is delivered to the Note Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(g) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Note Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 306 or this Section
307. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Note Registrar.
<PAGE>
50
SECTION 308. Form of Certificate to Be Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors.
[date]
E&S HOLDINGS CORPORATION
c/o Marine Midland Bank, as Trustee
140 Broadway, 12th Floor
New York, NY 10005
Attention: Corporate Trust Services - E&S
Dear Sirs:
In connection with our proposed purchase of $_______ Senior
Subordinated Notes due 2006 (the "Notes") of E&S Holdings Corporation, a
Delaware corporation (the "Company"), we confirm that:
(1) We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act
of 1933, as amended (the "Securities Act")) purchasing for our own account
or for the account of such an institutional "accredited investor," and we
are acquiring the Notes for investment purposes and not with a view to, or
for offer or sale in connection with, any distribution in violation of the
Securities Act or other applicable securities law and we have such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes,
and we and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
(2) We understand and acknowledge that the Notes have not been
registered under the Securities Act, or any other applicable securities
law and may not be offered, sold or otherwise transferred except in
compliance with the registration requirements of the Securities Act or any
other applicable securities law, or pursuant to an exemption therefrom,
and in each case in compliance with the conditions for transfer set forth
below. We agree on our own behalf and on behalf of any investor account
for which we are purchasing Notes to offer, sell or otherwise transfer
such Notes prior to the date which is three years after the later of the
date of original issue and the last date on which the Company or any
affiliate of the Company was the owner of such Notes (or any predecessor
thereto) (the "Resale Restriction Termination Date") only (a) to the
Company, (b) pursuant to a registration statement which has been declared
effective under the Securities Act, (c) for so long as the Notes are
eligible for resale pursuant to Rule 144A
<PAGE>
51
under the Securities Act, to a person we reasonably believe is a
"Qualified Institutional Buyer" within the meaning of Rule l44A (a "QIB")
that purchases for its own account or for the account of a QIB and to whom
notice is given that the transfer is being made in reliance on Rule 144A,
(d) pursuant to offers and sales to non-U.S. persons that occur outside
the United States within the meaning of Regulation S under the Securities
Act, (e) to an institutional "accredited investor" within the meaning of
subparagraphs (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the
Securities Act that is acquiring the Notes for its own account or for the
account of such an institutional "accredited investor" for investment
purposes and not with a view to, or for offer or sale in connection with,
any distribution in violation of the Securities Act or (f) pursuant to any
other available exemption from the registration requirements of the
Securities Act, subject in each of the foregoing cases to any requirement
of law that the disposition of our property or the property of such
investor account or accounts be at all times within our or their control
and to compliance with any applicable state securities laws. The foregoing
restrictions on resale will not apply subsequent to the Resale Restriction
Termination Date. If any resale or other transfer of the Notes is proposed
to be made pursuant to clause (e) above prior to the Resale Restriction
Termination Date, the transferor shall deliver to the trustee under the
Indenture pursuant to which the Notes are issued a letter from the
transferee substantially in the form of this letter, which shall provide,
among other things, that the transferee is a person or entity as defined
in paragraph 1 of this letter and that it is acquiring such Notes for
investment purposes and not for distribution in violation of the
Securities Act. We acknowledge that the Company and the Trustee reserve
the right prior to any offer, sale or other transfer of the Notes pursuant
to clauses (d), (e) and (f) above prior to the Resale Restriction
Termination Date to require the delivery of an opinion of counsel,
certifications and/or other information satisfactory to the Company and
the Trustee.
(3) We are acquiring the Notes purchased by us for our own account
or for one or more accounts as to each of which we exercise sole
investment discretion.
(4) You are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
Very truly yours,
By: (Name of Purchaser)
Date:
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52
Upon transfer the Notes would be registered in the name of the new beneficial
owner as follows:
Taxpayer ID
Name Address Number:
- ---- ------- -------
SECTION 309. Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S.
[date]
Marine Midland Bank, as Trustee
140 Broadway, 12th Floor
New York, NY 10005
Attention: Corporate Trust Services - E&S
Re: E&S HOLDINGS CORPORATION
(the "Company") 10 3/8% Senior Subordinated
Notes due 2006 (the "Notes")
-------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the United States
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the United
States or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
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53
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
In addition, if the sale is made during a restricted period and the
provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicable
thereto, we confirm that such sale has been made in accordance with the
applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may be.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:_______________________
Authorized Signature
SECTION 310. Mutilated, Destroyed, Lost and Stolen Notes.
If (i) any mutilated Note is surrendered to the Trustee, or (ii) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and there is delivered to the Company,
any Guarantor and the Trustee such security or indemnity, in each case, as may
be required by them to save each of them harmless, then, in the absence of
notice to the Company any Guarantor or the Trustee that such Note has been
acquired by a bona fide purchaser, the Company shall execute and upon Company
Order the Trustee shall authenticate and deliver, in exchange for any such
mutilated Note or in lieu of any such destroyed, lost or stolen Note, a new Note
of like tenor and principal amount, bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
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54
Upon the issuance of any new Note under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) in connection
therewith.
Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, any Guarantor and any other
obligor upon the Notes, whether or not the mutilated, destroyed, lost or stolen
Note shall be at any time enforceable by anyone, and shall be entitled to all
benefits of this Indenture equally and proportionately with any and all other
Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 311. Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Note (or one or more Predecessor Notes) is registered at the
close of business on the Regular Record Date for such interest at the office or
agency of the Company maintained for such purpose pursuant to Section 1002;
provided, however, that each installment of interest may at the Company's option
be paid by (i) mailing a check for such interest, payable to or upon the written
order of the Person entitled thereto pursuant to Section 312, to the address of
such Person as it appears in the Note Register or (ii) wire transfer to an
account located in the United States maintained by the payee.
Any interest on any Note which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease to
be payable to the Holder on the Regular Record Date by virtue of having been
such Holder, and such defaulted interest and (to the extent lawful) interest on
such defaulted interest at the rate borne by the Notes (such defaulted interest
and interest thereon herein collectively called "Defaulted Interest") shall be
paid by the Company, at its election in each case, as provided in clause (1) or
(2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Note and the date
(not less than 30 days after such notice) of the proposed payment (the
"Special Record Date"), and at the same time the Company shall deposit
with the Trustee
<PAGE>
55
an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory
to the Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this clause provided.
Thereupon the Trustee shall fix a Special Record Date for the payment of
such Defaulted Interest which shall be not more than 15 days and not less
than 10 days prior to the Special Record Date and not less than 10 days
after the receipt by the Trustee of the notice of the proposed payment.
The Trustee shall promptly notify the Company of such Special Record Date,
and in the name and at the expense of the Company, shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record
Date therefor to be given in the manner provided for in Section 106, not
less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor having been so given, such Defaulted Interest shall be paid to
the Persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on such Special Record Date
and shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, if, after notice given by the Company
to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
SECTION 312. Persons Deemed Owners.
Prior to the due presentment of a Note for registration of transfer,
the Company, the Trustee and any agent of the Company, any Guarantor or the
Trustee may treat the Person in whose name such Note is registered as the owner
of such Note for the purpose of receiving payment of principal of (and premium,
if any) and (subject to Sections 305 and 311) interest on such Note and for all
other purposes whatsoever, whether or not such Note be overdue, and none of the
Company, any Guarantor, the Trustee nor any agent of the Company, any Guarantor
or the Trustee shall be affected by notice to the contrary.
SECTION 313. Cancellation.
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All Notes surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. If the
Company shall acquire any of the Notes other than as set forth in the preceding
sentence, the acquisition shall not operate as a redemption or satisfaction of
the Indebtedness represented by such Notes unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 313. No
Notes shall be authenticated in lieu of or in exchange for any Notes cancelled
as provided in this Section, except as expressly permitted by this Indenture.
All cancelled Notes held by the Trustee shall be disposed of by the Trustee in
accordance with its customary procedures unless by Company Order the Company
shall direct that cancelled Notes be returned to it.
SECTION 314. Computation of Interest.
Interest on the Notes shall be computed on the basis of a 360-day
year of twelve 30-day months.
SECTION 315. CUSIP Numbers.
The Company in issuing Notes may use "CUSIP" numbers (if then
generally in use) in addition to serial numbers; if so, the Trustee shall use
such "CUSIP" numbers in addition to serial numbers in notices of redemption and
repurchase as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness of such CUSIP numbers
either as printed on the Notes or as contained in any notice of a redemption or
repurchase and that reliance may be placed only on the serial or other
identification numbers printed on the Notes, and any such redemption or
repurchase shall not be affected by any defect in or omission of such CUSIP
numbers.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Notes expressly provided for herein or pursuant hereto) and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
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(a) all such Notes theretofore authenticated and delivered
(other than (i) Notes which have been lost, stolen or destroyed and
which have been replaced or paid as provided in Section 310 and (ii)
Notes for whose payment money has theretofore been deposited in
trust with the Trustee or any Paying Agent or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(b) all such Notes not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable by reason of the making
of a notice of redemption or otherwise; or
(ii) will become due and payable at their Stated
Maturity within one year; or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company or any Guarantor, in the case of (i), (ii) or (iii)
above, has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for such purpose an amount
sufficient to pay and discharge the entire indebtedness on such
Notes not theretofore delivered to the Trustee for cancellation, for
principal of (and premium, if any) and interest to the date of such
deposit (in the case of Notes which have become due and payable) or
to the Stated Maturity or Redemption Date, as the case may be;
(2) no Default or Event of Default with respect to this Indenture or
the Notes shall have occurred and be continuing on the date of such
deposit or shall occur as a result of such deposit and such deposit will
not result in a breach or violation of, or constitute a default under, any
other instrument or agreement to which the Company or any Guarantor is a
party or by which it is bound;
(3) the Company or any Guarantor has paid or caused to be paid all
sums payable hereunder by the Company or any Guarantor;
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(4) the Company has delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of such Notes at
maturity or the Redemption Date, as the case may be; and
(5) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture have been satisfied.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 606 and, if money
shall have been deposited with the Trustee pursuant to subclause (b) of clause
(1) of this Section, the obligations of the Trustee under Section 402 and the
last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 401 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and any Guarantor's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 401; provided that if the Company has made any payment of principal of,
premium, if any, or interest on any Notes because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money or Government Securities held
by the Trustee or Paying Agent.
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ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Thirteen or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal or premium, if any, on the Notes;
(ii) default for 30 days or more in the payment when due of interest
with respect to the Notes;
(iii) default in the performance, or breach, of any covenant,
warranty or other agreement of the Company or any Guarantor contained in
this Indenture or any Guarantee under this Indenture (other than a default
in the performance, or breach, of a covenant, warranty or agreement which
is specifically dealt with in clauses (i) or (ii) of this Section 501) and
continuance of such default or breach for a period of 30 days after
written notice shall have been given to the Company or such Guarantor by
the Trustee or to the Company or such Guarantor and the Trustee by the
Holders of at least 30% in aggregate principal amount of the Notes then
Outstanding;
(iv) default under any mortgage, indenture or instrument under which
there is issued or by which there is 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 (other than Indebtedness owed to the Company or a Restricted
Subsidiary), whether such Indebtedness or guarantee now exists or is
created after the Issuance Date, if both (A) such default either (1)
results from the failure to pay any such Indebtedness at its stated final
maturity (after giving effect to any applicable grace periods) or (2)
relates to an obligation other than the obligation to pay principal of any
such Indebtedness at its stated final maturity and results in the holder
or holders of such Indebtedness causing such Indebtedness to become due
prior to its stated maturity and (B) the principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at stated final
maturity (after giving effect to any applicable grace periods), or
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the maturity of which has been so accelerated, aggregate $20 million or
more at any one time outstanding;
(v) failure by the Company or any of its Significant Subsidiaries to
pay final judgments aggregating in excess of $20 million, which final
judgments remain unpaid, undischarged and unstayed for a period of more
than 60 days after such judgment becomes final, and in the event such
judgment is covered by insurance, an enforcement proceeding has been
commenced by any creditor upon such judgment or decree which is not
promptly stayed;
(vi) the Company or any of its Significant Subsidiaries pursuant to
or within the meaning of Federal Bankruptcy Code: (A) commences a
voluntary case; (B) consents to the entry of an order for relief against
it in an involuntary case; (C) consents to the appointment of a Custodian
of it or for all or substantially all of its property; (D) makes a general
assignment for the benefit of its creditors, or (E) admits in writing that
it is generally not paying its debts (other than debts which are the
subject of a bona fide dispute) as they become due;
(vii) a court of competent jurisdiction enters an order or decree
under any Federal Bankruptcy Code that remains unstayed and in effect for
60 days and: (A) is for relief against the Company or any of its
Significant Subsidiaries in an involuntary case; (B) appoints a Custodian
of the Company or any of its Significant Subsidiaries or for all or
substantially all of the property of the Company or any of its Significant
Subsidiaries; or (C) orders the liquidation of the Company or any of its
Significant Subsidiaries; provided that clauses (A), (B) and (C) shall not
apply to an Unrestricted Subsidiary, unless such action or proceeding has
a material adverse effect on the interests of the Company or any
Restricted Subsidiary; or
(viii) any Guarantee shall for any reason cease to be in full force
and effect or is declared null and void or any Responsible Officer of the
Company or any Guarantor denies that it has any further liability under
any Guarantee or gives notice to such effect (other than by reason of the
termination of this Indenture or the release of any such Guarantee in
accordance with this Indenture).
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than by reason of an Event of Default
specified in Section 501(vi) or 501(vii)) occurs and is continuing, the Trustee
or the Holders of at least 30% in principal amount of the Notes Outstanding may
declare the principal (and premium, if any), interest and any other monetary
obligations on all the then outstanding Notes to be due and payable immediately,
by a notice in writing to the Company (and to the Trustee if given by
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Holders); provided, however, that, so long as any Indebtedness permitted to be
incurred pursuant to the Senior Credit Facility shall be outstanding, such
acceleration shall not be effective until the earlier of (i) acceleration of any
such Indebtedness under the Senior Credit Facility or (ii) five Business Days
after the giving of written notice to the Company and the Bank Agent of such
acceleration. Upon the effectiveness of such declaration, such principal and
interest will be due and payable immediately. Notwithstanding the foregoing, in
the case of an Event of Default specified in Section 501(vi) or 501(vii) occurs
and is continuing, then the principal amount of all the Notes shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article, the Holders of a majority
in aggregate principal amount of the Notes Outstanding, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest on all Outstanding Notes,
(B) all unpaid principal of (and premium, if any, on) any
Outstanding Notes which has become due otherwise than by such
declaration of acceleration, and interest on such unpaid principal
and premium at the rate borne by the Notes (for purposes of this
clause (B) without duplication to amounts to be paid or deposited
under clause (A) above),
(C) to the extent that payment of such interest is lawful,
interest on overdue interest at the rate borne by the Notes, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest on Notes which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 513;
(3) if the rescission would not conflict with any judgment or
decree; and
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(4) in the event of the cure or waiver of an Event of Default
specified in clause (iv) of Section 501, the Trustee shall have received
an Officers' Certificate and, if appropriate, an Opinion of Counsel that
such Event of Default has been cured or waived.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Upon a determination by the Company that the Senior Credit Facility
is no longer in effect, the Company shall promptly give to the Trustee written
notice thereof, which notice shall be countersigned by the Bank Agent. Unless
and until the Trustee shall have received such written notice with respect to
the Senior Credit Facility, the Trustee, subject to the TIA Sections 315(a)
through 315(d), shall be entitled in all respects to assume that the Senior
Credit Facility is in effect (unless a Responsible Officer of the Trustee shall
have knowledge to the contrary).
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
If an Event of Default specified in Section 501(i) or 501(ii) occurs
and is continuing, the Trustee, in its own name as trustee of an express trust,
may institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any Guarantor (in accordance with the
applicable Guarantee) or any other obligor upon the Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company, any Guarantor or any other obligor upon the Notes,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders under this Indenture or any Guarantee by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
such rights, including, seeking recourse against any Guarantor pursuant to the
terms of any Guarantee, whether for the specific enforcement of any covenant or
agreement in this Indenture or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy including, without limitation,
seeking recourse against any Guarantor pursuant to the terms of a Guarantee, or
to enforce any other proper remedy, subject however to Section 513. No recovery
of any such judgment upon any property of the Company or any Guarantor shall
affect or impair any rights, powers or remedies of the Trustee or the Holders.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor,
including any Guarantor, upon the Notes or the property of the Company or of
such other obligor or their creditors, the Trustee (irrespective of whether the
principal of the Notes shall then be due and payable as therein expressed or by
declaration or
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otherwise and irrespective of whether the Trustee shall have made
any demand on the Company for the payment of overdue principal, premium, if any,
or interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Notes, to
take such other actions (including participating as a member, voting or
otherwise, of any official committee of creditors appointed in such
matter) and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim
for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any Custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding; provided, however, that the
Trustee may, on behalf of such Holders, vote for the election of a trustee in
bankruptcy or other similar official.
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.
All rights of action and claims under this Indenture, the Notes or
the Guarantees may be prosecuted and enforced by the Trustee without the
possession of any of the Notes or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name and as trustee of an express trust, and any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Notes in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
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Subject to Article Thirteen, any money collected by the Trustee
pursuant to this Article shall be applied in the following order, at the date or
dates fixed by the Trustee and, in case of the distribution of such money on
account of principal (or premium, if any) or interest, upon presentation of the
Notes and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due
and payable on such Notes for principal (and premium, if any) and
interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto, including the Company or any other obligor on the Notes, as their
interests may appear or as a court of competent jurisdiction may direct,
provided that all sums due and owing to the Holders and the Trustee have
been paid in full as required by this Indenture.
SECTION 507. Limitation on Suits.
No Holder of any Notes shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(2) the Holders of not less than 30% in principal amount of the
Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 30 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Holders of a
majority or more in principal amount of the Outstanding Notes;
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it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture, any Note or any Guarantee to affect, disturb or prejudice the
rights of any other Holders, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
any Note or any Guarantee, except in the manner herein provided and for the
equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment, as provided herein (including, if applicable, Article Eleven) and in
such Note of the principal of (and premium, if any) and (subject to Section 311)
interest on such Note on the respective Stated Maturities expressed in such Note
(or, in the case of redemption or repurchase, on the Redemption Date or
repurchase) and to institute suit for the enforcement of any such payment, and
such rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Guarantee and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case, subject to any determination in such proceeding, the Company, any
Guarantor, any other obligor on the Notes, the Trustee and the Holders shall be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of
Section 310, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
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No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
The Holders of not less than a majority in principal amount of the
Outstanding Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture or any Guarantee,
(2) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not
consenting; and
(3) subject to the provisions of Section 315 of the Trust Indenture
Act, the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
Subject to Sections 508 and 902, the Holders of a majority in
aggregate principal amount of the Outstanding Notes (including consents obtained
in connection with a tender offer or exchange offer for the Notes) may on behalf
of the Holders of all the Notes waive any existing Default or Event of Default
and its consequences under the Indenture or any Guarantee except a continuing
Default or Event of Default in the payment of interest on, premium, if any, or
the principal of, any such Note held by a non-consenting Holder, or in respect
of a covenant or a provision which cannot be amended or modified without the
consent of all Holders.
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In the event that any Event of Default specified in Section 501(iv)
shall have occurred and be continuing, such Event of Default and all
consequences thereof (including without limitation any acceleration or resulting
payment default) shall be annulled, waived and rescinded, automatically and
without any action by the Trustee or the Holders of the Notes, if within 20 days
after such Event of Default arose (x) the Indebtedness or guarantee that is the
basis for such Event of Default has been discharged, or (y) the holders thereof
have rescinded or waived the acceleration, notice or action (as the case may be)
giving rise to such Event of Default, or (z) if the default that is the basis
for such Event of Default has been cured.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
The Company, the Guarantors and any other obligors upon the Notes,
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, which would prohibit or forgive the Company, any
Guarantor or any such obligor from paying all or any portion of the principal
of, premium, if any, or interest on the Notes contemplated herein or in the
Notes or which may affect the covenants or the performance of this Indenture;
and each of the Company, any Guarantor and any such obligor (to the extent that
it may lawfully do so) hereby expressly waives all benefit or advantage of any
such law and covenants that it will not hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
SECTION 515. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Note by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant; but
the provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Notes, or to
any suit
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instituted by any Holder for the enforcement of the payment of the principal of
(or premium, if any) or interest on any Note on or after the respective Stated
Maturities expressed in such Note (or, in the case of redemption, on or after
the Redemption Date).
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
(a) Except during the continuance of a Default or an Event of
Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith or willful misconduct on its part,
the Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture; but in the case of any such certificates or opinions, the
Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture, but not to verify
the contents thereof.
(b) In case a Default or an Event of Default has occurred and is
continuing of which a Responsible Officer of the Trustee has actual knowledge or
of which written notice of such Default or Event of Default shall have been
given to the Trustee by the Company, any other obligor of the Notes or by any
Holder, the Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their exercise, as
a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
(1) this paragraph (c) shall not be construed to limit the effect of
paragraph (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
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(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in aggregate principal amount of
the Outstanding Notes relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this Indenture; and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
SECTION 602. Notice of Defaults.
Within 60 days after the occurrence of any Default hereunder, the
Trustee shall transmit in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder known to the Trustee, unless such
Default shall have been cured or waived; provided, however, that, except in the
case of a Default in the payment of the principal of (or premium, if any) or
interest on any Note, the Trustee shall be protected in withholding such notice
if and so long as the board of directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the Trustee in good faith
determine that the withholding of such notice is in the interest of the Holders;
and provided further that in the case of any Default of the character specified
in Section 501(iii) no such notice to Holders shall be given until at least 30
days after the occurrence thereof.
SECTION 603. Certain Rights of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Subject to the provisions of TIA Sections 315(a) through 315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness
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or other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, request and rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel of its selection and any
written advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(8) the Trustee shall not be liable for any action taken, suffered
or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Indenture.
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(c) The Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
SECTION 604. Trustee Not Responsible for Recitals or Issuance of
Notes.
The recitals contained herein and in the Notes, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Notes and
perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. The Trustee shall not
be accountable for the use or application by the Company of Notes or the
proceeds thereof.
SECTION 605. May Hold Notes.
The Trustee, any Paying Agent, any Note Registrar, any
Authenticating Agent or any other agent of the Company or of the Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes and,
subject to TIA Sections 310(b) and 311, may otherwise deal with the Company with
the same rights it would have if it were not Trustee, Paying Agent, Note
Registrar, Authenticating Agent or such other agent.
SECTION 606. Money Held in Trust.
All moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust hereunder for the purposes for which they were
received, but need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed in writing with the
Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time such compensation as
shall be agreed to in writing between the Company and the Trustee for all
services rendered by
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it hereunder (which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel and costs and expenses of
collection), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) to indemnify each of the Trustee or any predecessor Trustee (and
their respective directors, officers, employees and agents) for, and to
hold it harmless against, any and all loss, damage, claim, liability or
expense, including taxes (other than taxes based on the income of the
Trustee) incurred without negligence or bad faith on its part, arising out
of or in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such obligations
of the Company, the Trustee shall have a claim prior to the Holders of the Notes
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the payment of principal of (and premium, if any) or
interest on particular Notes.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(vi) or (vii), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 608. Corporate Trustee Required; Eligibility.
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and which shall have an
office in The City of New York, and which shall have an office in The City of
New York, and shall have a combined capital and surplus of at least $50,000,000.
If the Trustee does not have an office in The City of New York, the Trustee may
appoint an agent in The City of New York reasonably acceptable to the
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Company to conduct any activities which the Trustee may be required under this
Indenture to conduct in The City of New York. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of federal, state, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section 608, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 608, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article.
SECTION 609. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of this Section.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. Upon receiving such notice of resignation, the Company
shall promptly appoint a successor trustee by written instrument executed by
authority of the Board of Directors, a copy of which shall be delivered to the
resigning Trustee and a copy to the successor trustee. If an instrument of
acceptance required by this Section shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in principal amount of the Outstanding Notes, delivered
to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
or
(2) the Trustee shall cease to be eligible under Section 608 and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a Custodian of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
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then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Notes delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Notes in the manner provided for in Section 106. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
SECTION 610. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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SECTION 611. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this Indenture provides
for the certificate of authentication of the Trustee shall have; provided,
however, that the right to adopt the certificate of authentication of any
predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses.
The Company will furnish or cause to be furnished to the Trustee
(a) semiannually, not more than 10 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the Company of any such request, a list
of similar form and content to that in Subsection (a) hereof as of a date not
more than 15 days prior to the time such list is furnished;
provided, however that if and so long as the Trustee shall be the Note
Registrar, no such list need be furnished.
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SECTION 702. Disclosure of Names and Addresses of Holders.
Every Holder of Notes, by receiving and holding the same, agrees
with the Company and the Trustee that none of the Company or the Trustee or any
agent of either of them shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders in accordance
with TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 703. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the first
May 15 after the first issuance of Notes, the Trustee shall transmit to the
Holders, in the manner and to the extent provided in TIA Section 313(c), a brief
report dated as of such May 15 if required by TIA Section 313(a).
ARTICLE EIGHT
MERGER, CONSOLIDATION, OR SALE OF ASSETS
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
(a) The Company will not consolidate with or merge with or into or
wind up 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 any 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 will have been made is a corporation organized or existing
under the laws of the United States, any state thereof, the District of
Columbia, or any territory thereof (the Company or such Person, as the
case may be, being herein called the "Successor Company");
(ii) the Successor Company (if other than the Company) expressly
assumes all the obligations of the Company under this Indenture and the
Notes pursuant to a supplemental indenture or other documents or
instruments in form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of
Default exists;
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(iv) immediately after giving pro forma effect to such transaction,
as if such transaction had occurred at the beginning of the applicable
four-quarter period, (A) the Successor Company would be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 1010, or
(B) the Fixed Change Coverage Ratio for the Successor Company and its
Restricted Subsidiaries would be greater than such Ratio for the Company
and its Restricted Subsidiaries immediately prior to such transaction;
(v) each Guarantor, if any, unless it is the other party to the
transactions described above, shall have by supplemental indenture
confirmed that its Guarantee will apply to such Person's obligations under
this Indenture and the Notes; and
(vi) the Company or the Surviving Entity shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, or transfer and if a supplemental
indenture is required in connection with such transaction, such
supplemental indenture, comply with the requirements of this Indenture.
Notwithstanding the foregoing clause (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 State of the United States so long as the amount of Indebtedness of the
Company and its Restricted Subsidiaries is not thereby increased.
(b) Each Guarantor, if any, shall not, and the Company will not
permit a Guarantor to consolidate with or merge with or into or wind up into
(whether or not such Guarantor is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties and assets to any Person, unless at the time and after giving effect
thereto:
(i) either (1) such Guarantor is the surviving corporation or (2)
the Person formed by or surviving any such consolidation or merger (if
other than the Guarantor) or to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made is a
corporation organized or existing under the laws of the United States, any
State thereof, the District of Columbia, or any territory thereof (such
Guarantor or such Person, as the case may be, being herein called the
"Successor Guarantor");
(ii) the Successor Guarantor (if other than such Guarantor)
expressly assumes all the obligations of such Guarantor hereunder and
under such Guarantor's Guarantee pursuant to a supplemental indenture or
other documents or instruments in form reasonably satisfactory to the
Trustee;
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(iii) immediately after giving effect to such transaction, on a pro
forma basis (and treating any Indebtedness not previously an obligation of
the Guarantor, the Company or any of its Subsidiaries which becomes an
obligation of the Guarantor, the Company or any of its Subsidiaries in
connection with or as a result of such transaction as having been incurred
at the time of such transaction) no Default or Event of Default shall have
occurred and be continuing; and
(iv) the Guarantor or the Surviving Guarantor Entity will have
delivered, or caused to be delivered, to the Trustee, an Officers'
Certificate and an Opinion of Counsel, each to the effect that such
consolidation, merger or transfer and such supplemental indenture (if any)
in respect thereof comply with this Indenture.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with or merger of the Company
with or into or wind up into any other corporation or any sale, assignment,
conveyance, transfer, lease or other disposition of the properties and assets of
the Company substantially as an entirety to any Person in accordance with
Section 801, the successor Person formed by such consolidation or into which the
Company is merged or wound up or to which such sale, assignment, conveyance,
transfer, lease or other disposition is made will succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Indenture
with the same effect as if such successor Person had been named as the Company
therein, and thereafter (except in the case of a sale, assignment, transfer,
lease, conveyance or other disposition) the predecessor corporation will be
relieved of all further obligations and covenants under this Indenture and the
Notes; provided that, solely with respect to calculating amounts described in
clauses (A), (B) and (C) of paragraph (a) of Section 1009, any such surviving
entity to the Company shall only be deemed have succeeded to and be substituted
for the Company with respect to periods subsequent to the effective time of such
merger, consolidation, combination or transfer of assets.
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, the Guarantors, if
any (with respect to a Guarantee to which it is a party), when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
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(1) to cure any ambiguity, defect or inconsistency; or
(2) to provide for uncertificated Notes in addition to or in place
of certificated Notes; or
(3) to comply with Article Eight hereof; or
(4) to provide for the assumption of the Company's or any
Guarantor's obligations to Holders of such Notes; or
(5) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any such Holder; or
(6) to add covenants for the benefit of the Holders or to surrender
any right or power conferred upon the Company; or
(7) to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture
Act; or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
610; or
(9) to make any other change that does not adversely affect the
legal rights of any Holder; or
(10) to add a Guarantor hereunder.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of at least a majority in principal
amount of the Outstanding Notes (including consents obtained in connection with
a tender offer or exchange offer for the Notes), by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Note affected thereby (with respect to
any Notes held by a nonconsenting Holder of the Notes):
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(1) reduce the principal amount of the Notes whose Holders must
consent to an amendment, supplement or waiver; or
(2) reduce the principal of or change or have the effect of changing
the Stated Maturity of any Note or alter or waive the provisions with
respect to the redemption of the Notes (other than Sections 1016 and 1017
and the defined terms used therein); or
(3) reduce the rate of or change or have the effect of changing the
time for payment of interest on any Note; or
(4) waive a Default or Event of Default in the payment of principal
of, premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes Outstanding and a waiver of the
payment default that resulted from the acceleration), or in respect of a
covenant or provision contained in the Indenture or any Guarantee which
cannot be amended or modified without the consent of all Holders; or
(5) make any Note payable in money other than that stated in the
Notes; or
(6) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of the Holders of the Notes to
receive payments of principal of or premium, if any, or interest on the
Notes; or
(7) make any change in the foregoing amendment and waiver
provisions; or
(8) impair the right of any Holder of the Notes to receive payment
of principal of, or interest on such Holder's Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on
or with respect to such Holder's Notes; or
(9) make any change in the subordination provisions of this
Indenture that would adversely affect the Holders of the Notes.
It shall not be necessary for any Act of Holders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying
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upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustees own rights, duties or immunities under this Indenture or
otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby (except as provided in Section 902).
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Note affected, in
the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture.
SECTION 908. Effect on Senior Indebtedness.
No supplemental indenture shall adversely affect the rights of any
holders of Senior Indebtedness under Article Thirteen unless the requisite
holders of each issue of Senior Indebtedness affected thereby shall have
consented to such supplemental indenture.
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ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest.
The Company covenants and agrees for the benefit of the Holders that
it will duly and punctually pay the principal of (and premium, if any) and
interest on the Notes in accordance with the terms of the Notes and this
Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York, an office or
agency where Notes may be presented or surrendered for payment, where Notes may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Corporate Trust Office of the Trustee shall be such office or agency
of the Company, unless the Company shall designate and maintain some other
office or agency for one or more of such purposes. The Company will give prompt
written notice to the Trustee of any change in the location of any such office
or agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Notes may
be presented or surrendered for any or all such purposes and may from time to
time rescind any such designation; provided, however, that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in The City of New York for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and any change in the location of any such other office or agency.
SECTION 1003. Money for Note Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it
will, on or before each due date of the principal of (or premium, if any) or
interest on any of the Notes, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal of (or premium,
if any) or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure to so act.
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Whenever the Company shall have one or more Paying Agents for the
Notes, it will, on or before each due date of the principal of (or premium, if
any) or interest on any Notes, deposit with a Paying Agent a sum in same day
funds (or New York Clearing House funds if such deposit is made prior to the
date on which such deposit is required to be made) sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be held
in trust for the benefit of the Persons entitled to such principal, premium or
interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of such action or any failure to so act.
The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of
(and premium, if any) or interest on Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal
(and premium, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of (or premium,
if any) or interest on any Note and remaining unclaimed for two years after such
principal, premium or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Note shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment to the Company, may at the
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expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect the corporate
existence and that of each Restricted Subsidiary and the corporate rights
(charter and statutory) licenses and franchises of the Company and each
Restricted Subsidiary; provided, however, that the Company shall not be required
to preserve any such existence (except the Company) right, license or franchise
if the Board of Directors of the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
each of its Restricted Subsidiaries, taken as a whole, and that the loss thereof
is not, and will not be, disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a material liability or lien upon the property of the Company or any
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which appropriate reserves, if necessary (in
the good faith judgment of management of the Company) are being maintained in
accordance with GAAP.
SECTION 1006. Maintenance of Properties.
The Company will cause all material properties owned by the Company
or any Restricted Subsidiary or used or held for use in the conduct of its
business or the business of any Restricted Subsidiary to be maintained and kept
in normal condition, repair and working order and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly conducted at all times;
provided, however, that nothing in this Section shall prevent the Company or any
of its Restricted Subsidiaries from discontinuing the maintenance of any of such
properties if such discontinuance
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is, in the judgment of the Company, desirable in the conduct of its business or
the business of any Restricted Subsidiary and not adverse in any material
respect to the Holders.
SECTION 1007. Insurance.
To the extent available at commercially reasonable rates, the
Company will maintain, and will cause its Subsidiaries to maintain, insurance
with responsible carriers against such risks and in such amounts, and with such
deductibles, retentions, self-insured amounts and co-insurance provisions, as
are customarily carried by similar businesses, of similar size, including
professional and general liability, property and casualty loss, workers'
compensation and interruption of business insurance.
SECTION 1008. Compliance with Laws.
The Company shall comply, and shall cause each of its Subsidiaries
to comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States of America, all states and municipalities
thereof, and of any governmental regulatory authority, in respect of the conduct
of their respective businesses and the ownership of their respective properties,
except for such noncompliances as would not in the aggregate have a material
adverse effect on the financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole.
SECTION 1009. Limitation on Restricted Payments.
(a) The Company will not, and will not permit any Restricted
Subsidiaries, directly or indirectly, to take any of the following actions:
(i) declare or pay any dividend or make any distribution on account
of the Company's or any of its Restricted Subsidiaries' Equity Interests,
including any dividend or distribution payable in connection with any
merger or consolidation (other than (A) dividends or distributions by the
Company payable in Equity Interests (other than Disqualified Stock) of the
Company or (B) dividends or distributions by a Restricted Subsidiary of
the Company so long as, in the case of any dividend or distribution
payable on or in respect of any class or series of securities issued by a
Subsidiary other than a Wholly Owned Subsidiary, the Company or a
Restricted Subsidiary of the Company receives at least its pro rata share
of such dividend or distribution in accordance with its Equity Interests
in such class or series of securities);
(ii) purchase, redeem, defease or otherwise acquire or retire for
value any Equity Interests of the Company;
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(iii) make any principal payment on, or redeem, repurchase, defease
or otherwise acquire or retire for value in each case, prior to any
scheduled repayment, or maturity, any Subordinated Indebtedness; 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
such Restricted Payment, (1) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof; (2) immediately
before and immediately after giving effect to such transaction on a pro forma
basis, the Company could incur $1.00 of additional Indebtedness under the
provisions of the first paragraph of Section 1010; and (3) such Restricted
Payment, together with the aggregate of all other Restricted Payments made by
the Company and its Restricted Subsidiaries after the Issuance Date (including
Restricted Payments permitted by clauses (i), (ii) (with respect to the payment
of dividends on Refunding Capital Stock pursuant to clause (b) thereof), (v) and
(ix) of the next succeeding paragraph, but excluding all other Restricted
Payments permitted by the next succeeding paragraph), is less than the sum of:
(A) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the fiscal quarter that first begins
after the Issuance Date 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, in the case such Consolidated Net
Income for such period is a deficit, minus 100% of such deficit), plus
(B) 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 since immediately after the
closing of the Recapitalization from the issue or sale of Equity Interests
(including Retired Capital Stock (as defined below), but excluding cash
proceeds and marketable securities received from (A) the sale of Equity
Interests to members of management, directors or consultants of the
Company and its Subsidiaries after the Issuance Date to the extent such
amounts have been applied to Restricted Payments in accordance with clause
(iv) of the next succeeding paragraph, (B) the sale of $100,000,000
aggregate liquidation preference of PIK Preferred Stock sold on the
Issuance Date (together with all shares of PIK Preferred Stock issued as
dividends paid in kind on all PIK Preferred Stock) and (C) Excluded
Contributions) or debt securities of the Company that have been converted
into such Equity Interests of the Company (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
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(C) 100% of the aggregate amount of cash and marketable securities
contributed (other than Excluded Contributions) to the capital of the
Company following the Issuance Date, plus
(D) 100% of the aggregate amount received in cash and the fair
market value of marketable securities (other than Restricted Investments)
received from (A) the sale or other disposition (other than to the Company
or a Restricted Subsidiary) of Restricted Investments made by the Company
and its Restricted Subsidiaries or (B) a dividend from, or the sale (other
than to the Company or a Restricted Subsidiary) of the stock of, an
Unrestricted Subsidiary (other than an Unrestricted Subsidiary the
Investment in which was made by the Company or a Restricted Subsidiary
pursuant to clauses (vi) or (x) below), plus
(E) other Restricted Payments in an aggregate amount not to exceed
$15 million.
(b) 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) (a) the redemption, repurchase, retirement or other acquisition
of any Equity Interests (the "Retired Capital Stock") or Subordinated
Indebtedness of the Company in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary of
the Company) of, Equity Interests of the Company (other than any
Disqualified Stock) (the "Refunding Capital Stock"), and (b) if
immediately prior to the retirement of Retired Capital Stock, the
declaration and payment of dividends thereon was permitted under clause
(v) of this paragraph, the declaration and payment of dividends on the
Refunding Capital Stock in an aggregate amount per year no greater than
the aggregate amount of dividends per annum that was declarable and
payable on such Retired Capital Stock immediately prior to such
retirement; provided, however, that at the time of the declaration of any
such dividends, no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(iii) the redemption, repurchase or other acquisition or retirement
of Subordinated Indebtedness of the Company made by exchange for, or out
of the proceeds of the substantially concurrent sale of, new Indebtedness
of the Company so long as (A) the principal amount of such new
Indebtedness does not exceed the principal amount of the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired for
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value (plus the amount of any premium required to be paid under the terms
of the instrument governing the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired), (B) such Indebtedness is
subordinated to Senior Indebtedness and the Notes at least to the same
extent as such Subordinated Indebtedness so purchased, exchanged,
redeemed, repurchased, acquired or retired for value, (C) such
Indebtedness has a final scheduled maturity date later than the final
scheduled maturity date of the Notes and (D) such Indebtedness has a
Weighted Average Life to Maturity equal to or greater than the remaining
Weighted Average Life to Maturity of the Notes;
(iv) a Restricted Payment to pay for the repurchase, retirement or
other acquisition or retirement for value of common Equity Interests of
the Company held by any future, present or former employee, director or
consultant of the Company or any Subsidiary pursuant to any management
equity plan or stock option plan or any other management or employee
benefit plan or agreement; provided, however, that the aggregate
Restricted Payments made under this clause (iv) does not exceed in any
calendar year $5 million (with unused amounts in any calendar year being
carried over to the next two immediately succeeding calendar years subject
to a maximum (without giving effect to the following proviso) of $10
million in any calendar year); provided further that such amount in any
calendar year may be increased by an amount not to exceed (i) the cash
proceeds from the sale of Equity Interests of the Company to members of
management, directors or consultants of the Company and its Subsidiaries
that occurs after the Issuance Date (to the extent the cash proceeds from
the sale of such Equity Interest have not otherwise been applied to the
payment of Restricted Payments by virtue of the preceding subclause
(a)(3)) plus (ii) the cash proceeds of key man life insurance policies
received by the Company and its Restricted Subsidiaries after the Issuance
Date less (iii) the amount of any Restricted Payments previously made
pursuant to clauses (i) and (ii) of this subparagraph (iv); and provided
further that cancellation of Indebtedness owing to the Company from
members of management of the Company or any of its Restricted Subsidiaries
in connection with a repurchase of Equity Interests of the Company will
not be deemed to constitute a Restricted Payment for purposes of this
Section 1009 or any other provision hereof;
(v) the declaration and payment of dividends to holders of any class
or series of Designated Preferred Stock (other than Disqualified Stock)
issued after the Issuance Date (including, without limitation, the
declaration and payment of dividends on Refunding Capital Stock in excess
of the dividends declarable and payable thereon pursuant to clause (ii);
provided, however, that for the most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date of issuance of such Designated Preferred Stock, after
giving effect to such issuance on a pro forma basis, the Company and its
Restricted Subsidiaries would have had a Fixed Charge Coverage Ratio of at
least 2.00 to 1.00;
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(vi) Investments in Unrestricted Subsidiaries having an aggregate
fair market value, taken together with all other Investments made pursuant
to this clause (vi) that are at that time outstanding, not to exceed $20
million 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);
(vii) repurchases of Equity Interests deemed to occur upon exercise
of stock options if such Equity Interests represent a portion of the
exercise price of such options;
(viii) the issuance by the Company of shares of PIK Preferred Stock
as dividends paid in kind on the PIK Preferred Stock or on shares of PIK
Preferred Stock so issued as payment in kind dividends;
(ix) the payment of dividends on the Company's Common Stock,
following the first public offering of the Company's Common Stock after
the Issuance Date, of up to 6% per annum of the net proceeds received by
the Company in such public offering, other than public offerings with
respect to the Company's Common Stock registered on Form S-8; and
(x) Investments in Unrestricted Subsidiaries that are made with
Excluded Contributions;
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (iii), (iv), (v), (vi), (vii),
(viii), (ix) and (x) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and provided further that
for purposes of determining the aggregate amount expended for Restricted
Payments in accordance with subclause (a)(3) of the immediately preceding
paragraph, only the amounts expended under clauses (i), (ii) (with respect to
the payment of dividends on Refunding Capital Stock pursuant to clause (b)
thereof), (v) and (ix) shall be included.
(c) Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 1009 were computed, which calculations may
be based upon the Company's latest available financial statements. The Trustee
shall have no duty to recompute or recalculate or verify the accuracy of the
information set forth in such Officers' Certificate.
(d) As of the Issuance Date, all of the Company's Subsidiaries will
be Restricted Subsidiaries. The Company will not permit any Unrestricted
Subsidiary to become a Restricted Subsidiary except pursuant to the second to
last sentence of the definition of "Unrestricted Subsidiary." For purposes of
designating any Restricted Subsidiary as an
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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 determined as
set forth in the last sentence of the definition of "Investments." 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 this Indenture.
SECTION 1010. Limitation on Incurrence of Indebtedness and Issuance
of Disqualified Stock.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to (collectively,
"incur" and collectively, an "incurrence" of) any Indebtedness (including
Acquired Indebtedness) or any shares of Disqualified Stock; provided, however,
that the Company may incur Indebtedness or issue shares of Disqualified Stock if
the Fixed Charge Coverage Ratio for the Company and its Restricted Subsidiaries
for the most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date of such
incurrence would have been at least 2.00 to 1.00 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 proceeds had occurred at the
beginning of such four-quarter period.
(b) The foregoing limitations will not apply to:
(i) the incurrence by the Company of Indebtedness under the Senior
Credit Facility and the issuance and creation of letters of credit and
banker's acceptances thereunder (with letters of credit and banker's
acceptances being deemed to have a principal amount equal to the face
amount thereof) up to an aggregate principal amount of $675 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 and banker's acceptances under the Senior Credit
Facility made after the Issuance Date;
(ii) the incurrence by the Company of Indebtedness represented by
the Notes and the issuance by the Company of the PIK Preferred Stock, in
each case issued on the Issuance Date;
(iii) Existing Indebtedness (other than (A) Indebtedness described
in clauses (i) and (ii) and (B) Indebtedness of any Foreign Subsidiary
outstanding on the Issuance Date together with any future Indebtedness of
any such Foreign Subsidiary incurred in
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connection with any undrawn commitment or unused line of credit in each
case existing on the Issuance Date);
(iv) Indebtedness (including Capitalized Lease Obligations) incurred
by the Company or any of its Restricted Subsidiaries to finance the
purchase, lease or improvement of property (real or personal) or equipment
(whether through the direct purchase of assets or the Capital Stock of any
Person owning such assets) in an aggregate principal amount which, when
aggregated with the principal amount of all other Indebtedness then
outstanding and incurred pursuant to this clause (iv) (together with any
Refinancing Indebtedness with respect thereto), does not exceed $10
million;
(v) 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;
provided, however, that upon the drawing of such letters of credit or the
incurrence of such Indebtedness, such obligations are reimbursed within 30
days following such drawing or incurrence;
(vi) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or assumed
in connection with the disposition of any business, assets or a
Subsidiary, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or a Subsidiary for
the purpose of financing such acquisition; provided, however, that (A)
such Indebtedness is not reflected on the balance sheet of the Company or
any Restricted Subsidiary (contingent obligations referred to in a
footnote to financial statements and not otherwise reflected on the
balance sheet will not be deemed to be reflected on such balance sheet for
purposes of this clause (A)) and (B) the maximum assumable liability in
respect of all such Indebtedness shall at no time exceed the gross
proceeds including noncash proceeds (the fair market value of such noncash
proceeds being measured at the time received and without giving effect to
any subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
(vii) Indebtedness of the Company to a Restricted Subsidiary;
provided that any such Indebtedness is made pursuant to an intercompany
note and is subordinated in right of payment to the Notes; provided
further that any subsequent issuance or transfer of any Capital Stock or
any other event which results in any such Restricted Subsidiary ceasing to
be a Restricted Subsidiary or any other subsequent transfer of any such
Indebtedness
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(except to the Company or another Restricted Subsidiary) shall be deemed,
in each case to be an incurrence of such Indebtedness;
(viii) Indebtedness of a Restricted Subsidiary to the Company or
another Restricted Subsidiary; provided that (A) any such Indebtedness is
made pursuant to an intercompany note and (B) if a Guarantor incurs such
Indebtedness from a Restricted Subsidiary that is not a Guarantor such
Indebtedness is subordinated in right of payment to the Guarantee of such
Guarantor; provided further that any subsequent transfer of any such
Indebtedness (except to the Company or another Restricted Subsidiary)
shall be deemed, in each case to be an incurrence of such Indebtedness;
(ix) Hedging Obligations that are incurred (A) for the purpose of
fixing or hedging interest rate risk with respect to any Indebtedness that
is permitted by the terms of the Indenture to be outstanding or (B) for
the purpose of fixing or hedging currency exchange rate risk with respect
to any currency exchanges;
(x) 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;
(xi) Indebtedness of any Guarantor in respect of such Guarantor's
Guarantee;
(xii) Any Excluded Guarantee of any Restricted Subsidiary;
(xiii) Indebtedness of the Company or any of its Restricted
Subsidiaries not otherwise permitted hereunder in an aggregate principal
amount, which when aggregated with the principal amount of all other
Indebtedness then outstanding and incurred pursuant to this clause (xiii),
does not exceed $75 million at any one time outstanding; provided,
however, that (A) Indebtedness of a Restricted Subsidiary organized under
the laws of the United States, any State thereof, the District of Columbia
or any territory thereof, which when aggregated with the principal amount
of all other Indebtedness of such Restricted Subsidiaries then outstanding
and incurred pursuant to this clause (xiii), does not exceed $25 million
at any one time outstanding and (B) Indebtedness of a Foreign Subsidiary,
which when aggregated with the principal amount of all other Indebtedness
of Foreign Subsidiaries then outstanding and incurred pursuant to this
clause (xiii), does not exceed $50 million (or the equivalent thereof in
any other currency) at any one time outstanding (Indebtedness of any
Foreign Subsidiary outstanding on the Issuance Date is deemed to have been
incurred and outstanding pursuant to this clause (xiii));
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(xiv) any guarantee by the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the
incurrence of such Indebtedness incurred by such Restricted Subsidiary is
permitted under the terms of this Indenture;
(xv) PIK Preferred Stock issued as payment in kind dividends on PIK
Preferred Stock and any shares of PIK Preferred Stock issued as payment in
kind dividends thereon, such dividends made pursuant to the terms of the
Certificate of Designations for such PIK Preferred Stock as in effect on
the Issuance Date; and
(xvi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness which serves to refund, refinance or
restructure any Indebtedness incurred as permitted under the first
paragraph of this covenant and clauses (ii) and (iii) above, or any
Indebtedness issued to so refund, refinance or restructure such
Indebtedness including additional Indebtedness incurred to pay premiums
and fees in connection therewith (the "Refinancing Indebtedness") prior to
its respective maturity; provided, however, that such Refinancing
Indebtedness (A) has a Weighted Average Life to Maturity at the time such
Refinancing Indebtedness is incurred which is not less than the remaining
Weighted Average Life to Maturity of Indebtedness being refunded or
refinanced, (B) to the extent such Refinancing Indebtedness refinances
Indebtedness subordinated or pari passu to the Notes, such Refinancing
Indebtedness is subordinated or pari passu to the Notes at least to the
same extent as the Indebtedness being refinanced or refunded and (C) shall
not include (x) Indebtedness of a Subsidiary that refinances Indebtedness
of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary; and
provided further that subclauses (A) and (B) of this clause (xvi) will not
apply to any refunding or refinancing of any Senior Indebtedness.
SECTION 1011. Limitation on Liens.
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 Pari Passu Indebtedness or
Subordinated Indebtedness on any asset or property of the Company or such
Restricted Subsidiary, or any income or profits therefrom, or assign or convey
any right to receive income therefrom, unless the 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.
No Guarantor will directly or indirectly create, incur, assume or
suffer to exist any Lien that secures obligations under any pari passu
Indebtedness or subordinated Indebtedness of such Guarantor on any asset or
property of such Guarantor or any income or profits therefrom, or assign or
convey any right to receive income therefrom, unless the Guarantee of such
Guarantor is equally and ratably secured with the obligations so secured or
until such time as such obligations are no longer secured by a Lien.
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SECTION 1012. Limitation on Transactions with Affiliates.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
any contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction") involving aggregate consideration in excess of $5 million, unless:
(i) such Affiliate Transaction is on terms that are not materially
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 with respect to any
Affiliate Transaction involving aggregate payments in excess of $10
million, a resolution adopted by a majority of the Disinterested Directors
of the Board of Directors approving such Affiliate Transaction and set
forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above.
(b) 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 permitted by Section 1009; (iii) the
payment of customary annual management, consulting and advisory fees and related
expenses to KKR and its Affiliates; (iv) the payment of reasonable and customary
regular fees paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company or any Restricted Subsidiary; (v)
payments by the Company or any of its Restricted Subsidiaries to KKR and its
Affiliates made pursuant to any financial advisory, financing, underwriting or
placement agreement or in respect of other investment banking activities,
including, without limitation, in connection with acquisitions or divestitures
which are approved by a majority of the Disinterested Directors of the Company
in good faith; (vi) transactions in which the Company or any of its Restricted
Subsidiaries, as the case may be, delivers to the Trustee a letter from an
Independent Financial Advisor stating that such transaction is fair to the
Company or such Restricted Subsidiary from a financial point of view or meets
the requirements of clause (i) of the preceding paragraph; (vii) payments or
loans to employees or consultants which are approved by a majority of the
Disinterested Directors of the Company in good faith; (viii) any agreement as in
effect as of the Issuance Date or any amendment thereto (so long as any such
amendment is not disadvantageous to the Holders of the Notes in any material
respect) or any transaction contemplated thereby; (ix) transactions permitted
by, and complying with, Article Eight; (x) 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 Issuance Date and any similar agreements which it may enter into
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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 Issuance Date shall only be permitted by this clause (x) to the
extent that the terms of any such amendment or new agreement are not otherwise
disadvantageous to the holders of the Notes in any material respect; (xi) the
payment of all fees and expenses related to the Recapitalization and the
Financings; and (xii) transactions with customers, clients, suppliers, or
purchasers or sellers of goods or services, in each case in the ordinary course
of business 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 the Board of Directors of the Company or the senior management
thereof, or are on terms at least as favorable as might reasonably have been
obtained at such time from an unaffiliated party.
SECTION 1013. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause to become
effective any consensual encumbrance or consensual restriction on the ability of
any such Restricted Subsidiary to:
(a) (i) pay dividends or make any other distributions to the Company
or any of its Restricted Subsidiaries on its Capital Stock or any other
interest or participation in, or measured by, its profits or (ii) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries;
(b) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(c) sell, lease, or transfer any of its properties or assets to the
Company, or any of its Restricted Subsidiaries;
except (in each case) for such encumbrances or restrictions existing under or by
reason of:
(1) contractual encumbrances or restrictions in effect on the
Issuance Date, including pursuant to the Senior Credit Facility and its
related documentation;
(2) this Indenture and the Notes;
(3) customary non-assignment or subletting provisions in leases
entered into in the ordinary course of business and consistent with past
practices;
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(4) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature discussed in
clause (c) above on the property so acquired;
(5) applicable law or any applicable rule, regulation or order;
(6) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary of the Company in existence at the
time of such acquisition (but not created in contemplation thereof), 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;
(7) contracts for the sale of assets, including, without limitation,
customary restrictions with respect to a Subsidiary pursuant to agreement
that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary;
(8) secured Indebtedness otherwise permitted to be incurred pursuant
to Sections 1010 and 1011 that limit the right of the debtor to dispose of
the assets securing such Indebtedness;
(9) customary provisions contained in leases and other agreements
entered into in the ordinary course of business;
(10) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
and
(11) any encumbrances or restrictions of the type referred to in
clauses (a), (b) and (c) above imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements
or refinancings of the contracts, instruments or obligations referred to
in clauses (c)(1) through (c)(10) above, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of the
Company's Board of Directors, no more restrictive with respect to such
dividend and other payment restrictions than those contained in the
dividend or other payment restrictions prior to such amendment,
modification, restatement, renewal, increase, supplement, refunding,
replacement or refinancing.
SECTION 1014. Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries.
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(a) The Company will not permit any Restricted Subsidiary to
guarantee the payment of any Indebtedness of the Company or any Indebtedness of
any other Restricted Subsidiary unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Guarantee of payment of the Notes by such Restricted Subsidiary
except that (A) if the Notes are subordinated in right of payment to such
Indebtedness, the Guarantee under the supplemental indenture shall be
subordinated to such Restricted Subsidiary's guarantee with respect to such
Indebtedness substantially to the same extent as the Notes are subordinated to
such Indebtedness under the Indenture and (B) if such Indebtedness is by its
express terms subordinated in right of payment to the Notes, any such guarantee
of such Restricted Subsidiary with respect to such Indebtedness shall be
subordinated in right of payment to such Restricted Subsidiary's Guarantee with
respect to the Notes substantially to the same extent as such Indebtedness is
subordinated to the Notes; (ii) such Restricted Subsidiary waives and will not
in any manner whatsoever claim or take the benefit or advantage of, any rights
of reimbursement, indemnity or subrogation or any other rights against the
Company or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Guarantee; and (iii) such Restricted Subsidiary
shall deliver to the Trustee an Opinion of Counsel to the effect that (A) such
Guarantee of the Notes has been duly executed and authorized and (B) such
Guarantee of the Notes constitutes a valid, binding and enforceable obligation
of such Restricted Subsidiary, except insofar as enforcement thereof may be
limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; provided that
this paragraph (a) shall not be applicable to any guarantee of any Restricted
Subsidiary (x) that (A) existed at the time such Person became a Restricted
Subsidiary of the Company and (B) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of the Company
and (y) that guarantees the payment of Obligations of the Company or any
Restricted Subsidiary under the Senior Credit Facility or any other bank
facility which is designated as Senior Indebtedness and any refunding,
refinancing or replacement thereof, in whole or in part, provided that such
refunding, refinancing or replacement thereof constitutes Senior Indebtedness
and is not incurred pursuant to a registered offering of securities under the
Securities Act or a private placement of securities (including under Rule 144A)
pursuant to an exemption from the registration requirements of the Securities
Act, which private placement provides for registration rights under the
Securities Act (any guarantee excluded by operations of this clause (y) being an
"Excluded Guarantee").
(b) Notwithstanding the foregoing and the other provisions of this
Indenture, any Guarantee by a Restricted Subsidiary of the Notes shall provide
by its terms that it shall be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited hereunder) or (ii) the release or
discharge of the guarantee which resulted in the
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creation of such Guarantee, except a discharge or release by or as a result of
payment under such guarantee.
SECTION 1015. Limitation on Other Senior Subordinated Indebtedness.
The Company will not, and will not permit any Guarantor to, directly
or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is
subordinate in right of payment to any Indebtedness of the Company or any
Indebtedness of any Guarantor, as the case may be, unless such Indebtedness is
either (a) pari passu in right of payment with the Notes or such Guarantor's
Guarantee, as the case may be or (b) subordinate in right of payment to the
Notes, or such Guarantor's Guarantee, as the case may be, in the same manner and
at least to the same extent as the Notes are subordinate to Senior Indebtedness
or such Guarantor's Guarantee is subordinate to such Guarantor's Senior
Indebtedness, as the case may be.
SECTION 1016. Purchase of Notes upon a Change of Control.
(a) Upon the occurrence of a Change of Control, the Company will
make an offer to purchase all or any part (equal to $1,000 or an integral
multiple thereof) of the Notes pursuant to the offer described below (the
"Change of Control Offer") at a price in cash (the "Change of Control Payment")
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of purchase.
(b) Within 30 days following any Change of Control, the Company
shall give to each Holder of the Notes, with a copy to the Trustee, in the
manner provided in Section 106 a notice stating:
(1) a Change of Control Offer is being made pursuant to the covenant
entitled "Purchase of Notes upon Change of Control," and that all Notes
properly tendered pursuant to such Change of Control Offer will be
accepted for payment;
(2) the purchase price and the purchase date, which will be no
earlier than 30 days nor later than 60 days from the date such notice is
mailed, except as may be otherwise required by applicable law (the "Change
of Control Payment Date");
(3) any Note not properly tendered will remain outstanding and
continue to accrue interest;
(4) unless the Company defaults in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest on the Change of Control
Payment Date;
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(5) Holders electing to have any Notes purchased pursuant to a
Change of Control Offer will be required to surrender the Notes, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Notes completed, to the Paying Agent and at the address specified in the
notice prior to the close of business on the third Business Day preceding
the Change of Control Payment Date;
(6) Holders will be entitled to withdraw their tendered Notes and
their election to require the Company to purchase such Notes, provided
that the Paying Agent receives, not later than the close of business on
the last day of the offer period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes tendered for purchase, and a statement that such Holder is
withdrawing such Holder's tendered Notes and his election to have such
Notes purchased;
(7) that Holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered, which unpurchased portion must be equal to
$1,000 in principal amount or an integral multiple thereof; and
(8) any additional instructions a Holder must follow in order to
have its Notes repurchased in accordance with this Section 1016.
(c) Prior to complying with the provisions of this Section 1016, but
in any event within 30 days following a Change of Control, the Company will
either repay all outstanding amounts under the Senior Credit Facility or offer
to repay in full all outstanding amounts under the Senior Credit Facility and
repay the Obligations held by each lender who has accepted such offer or obtain
the requisite consents, if any, under the Senior Credit Facility to permit the
repurchase of the Notes required by this Section 1016. 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 or
regulations are applicable in connection with the purchase of the Notes pursuant
to a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with the provisions hereunder, the
Company will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described hereunder by
virtue thereof.
(d) On the Change of Control Payment Date, the Company shall, to the
extent permitted by law,
(i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer,
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(ii) deposit with the Paying Agent an amount equal to the aggregate
Change of Control Payment in respect of all Notes or portions thereof so
tendered and
(iii) deliver, or cause to be delivered, to the Trustee for
cancellation the Notes so accepted together with an Officers' Certificate
stating that such Notes or portions thereof have been tendered to and
purchased by the Company.
(e) The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
(f) The Paying Agent shall promptly mail to each Holder of Notes the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any, provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof.
SECTION 1017. Limitation on Sales of Assets.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, cause, make or suffer to exist an Asset Sale, unless (x) the
Company, or its Restricted Subsidiaries, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined in good faith by the Company) of the assets sold or
otherwise disposed of and (y) at least 75% of the proceeds from such Asset Sale
when received consists of cash or Cash Equivalents; provided that the amount of
(a) 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 liabilities that are by their terms subordinated to the Notes) that are
assumed by the transferee of any such assets, (b) 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) and (c) any Designated Noncash
Consideration received by the Company or any of its Restricted Subsidiaries in
such Asset Sale having an aggregate fair market value, taken together with all
other Designated Noncash Consideration received pursuant to this clause (c) that
is at that time outstanding, not to exceed 5% of Total Assets at the time of the
receipt of such Designated Noncash Consideration (with the fair market value of
each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value), shall be
deemed to be cash for the 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, the Company or such Restricted
Subsidiary may apply the Net Proceeds from such Asset Sale, at its option, (i)
to permanently reduce Obligations under the Senior Credit Facility (and to
correspondingly reduce commitments with respect thereto) or other
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Senior Indebtedness or Pari Passu Indebtedness (provided that if the Company
shall so reduce Obligations under Pari Passu Indebtedness, it will equally and
ratably reduce Obligations under the Notes), (ii) to secure Letter of
Credit/Bankers' Acceptance Obligations to the extent related letters of credit
have not been drawn upon or returned undrawn or related bankers' acceptances
have not matured, (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
Similar Business and/or (iv) to an investment in properties or assets that
replace the properties and assets that are the subject 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 or Investment Grade Securities. The Indenture will provide that any
Net Proceeds from the Asset Sale that are not invested 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 $10 million,
the Company shall make an offer to all Holders of Notes (an "Asset Sale Offer")
to purchase the maximum principal amount of Notes, 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 principal amount thereof, plus accrued
and unpaid interest, if any, to the date fixed for the closing of such offer
(the "Offered Price"). Within 10 Business Days after the date on which the
aggregate amount of Excess Proceeds exceeds $10 million, the Company shall give
to each Holder of the Notes, with a copy to the Trustee, in the manner provided
in Section 106 a notice stating:
(i) that the Holder has the right to require the Company to
repurchase such Holder's Notes at the Offered Price, subject to proration
in the event the Excess Proceeds are less than the aggregate Offered Price
of all Notes tendered;
(ii) the date of purchase of Notes pursuant to the Asset Sale Offer
(the "Asset Sale Purchase Date"), which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed;
(iii) that the Offered Price will be paid to Holders electing to
have Notes purchased on the Asset Sale Purchase Date, provided that a
Holder must surrender its Note to the Paying Agent at the address
specified in the notice prior to the close of business at least five
Business Days prior to the Asset Sale Purchase Date;
(iv) any Note not tendered will continue to accrue interest pursuant
to its terms;
(v) that unless the Company defaults in the payment of the Offered
Price, any Note accepted for payment pursuant to the Asset Sale Offer
shall cease to accrue interest on and after the Asset Sale Purchase Date;
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(vi) that Holders will be entitled to withdraw their tendered Notes
and their election to require the Company to purchase such Notes, provided
that the Company receives, not later than the close of business on the
third Business Day preceding the Asset Sale Purchase Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Notes tendered for purchase, and a
statement that such Holder is withdrawing its election to have such Notes
purchased;
(vii) that the Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered; which unpurchased portion must be equal
to $1,000 in principal amount or an integral multiple thereof; and
(viii) the instructions a Holder must follow in order to have his
Notes purchased in accordance with this Section 1017.
To the extent that the aggregate amount of Notes tendered pursuant
to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased in the
manner described in Section 1104. 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 purchase
of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of
any securities laws or regulations conflict with the provisions of this Section
1017, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Indenture.
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SECTION 1018. Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, within 120 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing officers with a view to
determining whether it has kept, observed, performed and fulfilled, and has
caused each of its Subsidiaries to keep, observe, perform and fulfill its
obligations under this Indenture and further stating, as to each such officer
signing such certificate, that, to the best of his or her knowledge, the Company
during such preceding fiscal year has kept, observed, performed and fulfilled,
and has caused each of its Subsidiaries to keep, observe, perform and fulfill
each and every such covenant contained in this Indenture and no Default or Event
of Default occurred during such year and at the date of such certificate there
is no Default or Event of Default which has occurred and is continuing or, if
such signers do know of such Default or Event of Default, the certificate shall
describe its status, with particularity and that, to the best of his or her
knowledge, no event has occurred and remains by reason of which payments on the
account of the principal of or interest, if any, on the Notes is prohibited or
if such event has occurred, a description of the event and what action each is
taking or proposes to take with respect thereto. The Officers' Certificate shall
also notify the Trustee should the Company elect to change the manner in which
it fixes its fiscal year end. For purposes of this Section 1018(a), such
compliance shall be determined without regard to any period of grace or
requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $10 million), the Company
shall deliver to the Trustee by registered or certified mail or facsimile
transmission an Officers' Certificate specifying such event, notice or other
action within five Business Days of its occurrence.
SECTION 1019. Commission Reports and Reports to Holders.
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on
an annual and quarterly basis on forms provided for such annual and quarterly
reporting pursuant to rules and regulations promulgated by the Commission the
Company will file with the Commission (and provide the Trustee and Holders with
copies thereof, without cost to each Holder, within 15 days after it files them
with the Commission), (a) within 90 days after the end of each fiscal year,
annual reports on Form 10-K (or any successor or comparable form) containing the
information required to be contained therein (or required in such successor or
comparable form); (b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, reports on Form 10-Q (or any successor or
comparable form); (c) promptly from time to time after the occurrence of an
event required to be therein reported,
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such other reports on Form 8-K (or any successor or comparable form); and (d)
any other information, documents and other reports which the Company would be
required to file with the Commission if it were subject to Section 13 or 15(d)
of the Exchange Act; provided, however, the Company shall not be so obligated to
file such reports with the Commission if the Commission does not permit such
filing, in which event the Company will make available such information to
prospective purchasers of Notes, in addition to providing such information to
the Trustee and the Holders, in each case within 15 days after the time the
Company would be required to file such information with the Commission, if it
were subject to Sections 13 or 15(d) of the Exchange Act.
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Redemption.
The Notes may or shall, as the case may be, be redeemed, as a whole
or from time to time in part, subject to the conditions and at the Redemption
Prices specified in the form of Note, together with accrued interest to the
Redemption Date.
SECTION 1102. Applicability of Article.
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Notes pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
If less than all the Notes are to be redeemed, the particular Notes
to be redeemed shall be selected not more than 60 days prior to the Redemption
Date by the Trustee, from the
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Outstanding Notes not previously called for redemption, in compliance with the
requirements of the principal national securities exchange, if any, on which
such Notes are listed, or, if such Notes are not so listed, on a pro rata basis,
by lot or by such other method as the Trustee shall deem fair and appropriate
(and in such manner as complies with applicable legal requirements) and which
may provide for the selection for redemption of portions of the principal of
Notes; provided, however, that no such partial redemption shall reduce the
portion of the principal amount of a Note not redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of the
principal amount of such Note which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Notes to be redeemed. The Trustee shall give notice of
redemption in the Company's name and at the Company's expense; provided,
however, that the Company shall deliver to the Trustee, at least 45 days prior
to the Redemption Date, an Officers' Certificate requesting that the Trustee
give such notice and setting forth the information to be stated in such notice
as provided in the following items.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Notes are to be redeemed, the
identification of the particular Notes (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Notes to be
redeemed and the aggregate principal amount of Notes to be outstanding
after such partial redemption,
(4) in case any Note is to be redeemed in part only, the notice
which relates to such Note shall state that on and after the Redemption
Date, upon surrender of such
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Note, the holder will receive, without charge, a new Note or Notes of
authorized denominations for the principal amount thereof remaining
unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such Note, or the portion
thereof, to be redeemed, and, unless the Company defaults in making the
redemption payment, that interest on Notes called for redemption (or the
portion thereof) will cease to accrue on and after said date,
(6) the place or places where such Notes are to be surrendered for
payment of the Redemption Price and accrued interest, if any,
(7) the name and address of the Paying Agent,
(8) that Notes called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price,
(9) the CUSIP number, and that no representation is made as to the
accuracy or correctness of the CUSIP number, if any, listed in such notice
or printed on the Notes, and
(10) the paragraph of the Notes pursuant to which the Notes are to
be redeemed.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and accrued interest on, all
the Notes which are to be redeemed on that date.
SECTION 1107. Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with said notice, such Note shall be paid by the Company at the
Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided, however, that installments of interest whose Stated Maturity is
on or prior to the Redemption Date shall be payable to the Holders of such
Notes, or one or more Predecessor Notes, registered as such at
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the close of business on the relevant Regular Record Date or Special Record
Date, as the case may be, according to their terms and the provisions of Section
311.
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Notes.
SECTION 1108. Notes Redeemed in Part.
Any Note which is to be redeemed only in part (pursuant to the
provisions of this Article) shall be surrendered at the office or agency of the
Company maintained for such purpose pursuant to Section 1002 (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or such Holders attorney duly authorized in writing), and
the Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder, in an aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Note so surrendered, provided, that each such new Note will be in a
principal amount of $1,000 or integral multiple thereof.
ARTICLE TWELVE
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company's Option to Effect Legal Defeasance or
Covenant Defeasance.
The Company and the Guarantors may, at their option by Board
Resolution, at any time, with respect to the Notes, elect to have either Section
1202 or Section 1203 be applied to all Outstanding Notes upon compliance with
the conditions set forth below in this Article Twelve.
SECTION 1202. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1202, the Company and any Guarantor shall be deemed
to have been discharged from its obligations with respect to all Outstanding
Notes on the date the conditions set forth in Section 1204 are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means
that the Company and any such Guarantor shall be deemed to have paid and
discharged the entire Indebtedness represented by the Outstanding Notes, which
shall thereafter be deemed to be "Outstanding" only for the purposes of Section
1205 and the other Sections of
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this Indenture referred to in (A) and (B) below, and to have satisfied all its
other obligations under such Notes and this Indenture insofar as such Notes are
concerned (and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of Outstanding Notes to receive, solely from the trust fund described in
Section 1204 and as more fully set forth in such Section, payments in respect of
the principal of (and premium, if any, on) and interest on such Notes when such
payments are due, (B) the Company's obligations with respect to such Notes under
Sections 304, 305, 308, 1002 and 1003, (C) the rights, powers, trusts, duties
and immunities of the Trustee hereunder, and the Company's obligations in
connection therewith and (D) this Article Twelve.
Subject to compliance with this Article Twelve, the Company may
exercise its option under this Section 1202 notwithstanding the prior exercise
of its option under Section 1203 with respect to the Notes.
SECTION 1203. Covenant Defeasance.
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1203, the Company shall be released from its
obligations under any covenant contained in Section 801 and in Sections 1009
through 1019 with respect to the Outstanding Notes on and after the date the
conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"),
and the Notes shall thereafter be deemed not to be "Outstanding" for the
purposes of any direction, waiver, consent or declaration or Act of Holders (and
the consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder (it being
understood that such Notes will not be outstanding for accounting purposes). For
this purpose, such Covenant Defeasance means that, with respect to the
Outstanding Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section
501(iii), but, except as specified above, the remainder of this Indenture and
such Notes shall be unaffected thereby.
SECTION 1204. Conditions to Legal Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 1202 or Section 1203 to the Outstanding Notes:
(i) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of the Indenture who shall agree to comply with the provisions of this
Article Twelve applicable to it) as trust funds
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in trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of such Notes, 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 selected by the Company, to pay the principal of,
premium, if any, and interest due on the Outstanding Notes on the Stated
Maturity or on the applicable Redemption Date as the case may be, of such
principal, premium, if any, or interest on the Outstanding Notes;
(ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee (which opinon may be subject to
customary assumptions and exclusions) confirming that (A) the Company has
received from, or there has been published by, the United States Internal
Revenue Service a ruling or (B) since the Issuance Date, there has been a
change in the applicable U.S. federal income tax law, in either case to
the effect that, and based thereon such Opinion of Counsel in the United
States (which opinion may be subject to customary assumptions and
exclusions) shall confirm that the Holders of the Outstanding Notes will
not recognize income, gain or loss for U.S. federal income tax purposes as
a result of such Legal Defeasance and will be subject to U.S. federal
income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the Outstanding Notes will not
recognize income, gain or loss for U.S. federal income tax purposes as a
result of such Covenant Defeasance and will be subject to such tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default
from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company
or any Guarantor is a party or by which the Company or any Guarantor is
bound;
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(vi) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions 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 under any applicable U.S. federal or state law, and that the
Trustee has a perfected security interest in such trust funds for the
ratable benefit of the Holders;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of defeating, hindering, delaying or defrauding any creditors of
the Company or any Guarantor or others; and
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States (which Opinion
of Counsel may be subject to customary assumptions and exclusions) each
stating that all conditions precedent provided for or relating to the
Legal Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.
SECTION 1205. Deposited Money and U.S. Government Securities to Be
Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all
money and Government Securities (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1205, the "Trustee") pursuant to Section 1204 in respect of the
Outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Holders of such Notes of
all sums due and to become due thereon in respect of principal (and premium, if
any) and interest, but such money need not be segregated from other funds except
to the extent required by law. Money and Government Securities so held in trust
are not subject to Article Thirteen.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the Government Securities
deposited pursuant to Section 1204 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Notes.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Securities held by it as provided in
Section 1204 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
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thereof delivered to the Trustee, are in excess of the amount thereof which
would then be required to be deposited to effect an equivalent legal defeasance
or covenant defeasance, as applicable, in accordance with this Article.
SECTION 1206. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money or
Government Securities in accordance with Section 1205 by reason of any legal
proceeding or by any reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 1202 or 1203, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
1205; provided, however, that if the Company makes any payment of principal of
(or premium, if any) or interest on any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money and Government Securities held
by the Trustee or Paying Agent.
ARTICLE THIRTEEN
SUBORDINATION OF NOTES
SECTION 1301. Notes Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Note, by his
acceptance thereof, likewise covenants and agrees, for the benefit of the
holders, from time to time, of Senior Indebtedness that, to the extent and in
the manner hereinafter set forth in this Article, the Indebtedness represented
by the Notes and the payment of the principal of (and premium, if any) and
interest on each and all of the Notes and all other Subordinated Note
Obligations are hereby expressly made subordinate and subject in right of
payment as provided in this Article to the prior payment in full in cash or cash
equivalents of all Senior Indebtedness, whether outstanding on Issuance Date or
thereafter incurred, created, assumed or, except as set forth in Section 1014,
guaranteed.
SECTION 1302. Payment over of Proceeds upon Dissolution, Etc.
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 marshalling of the Company's
assets and liabilities:
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(1) the holders of Senior Indebtedness shall be entitled to receive
payment in full in cash or cash equivalents of all Obligations due in
respect of such Senior Indebtedness before the Holders are entitled to
receive any payment with respect to the Subordinated Note Obligations
(except that Holders may receive (i) shares of stock and any debt
securities that are subordinated at least to the same extent as the Notes
to (a) Senior Indebtedness and (b) any securities issued in exchange for
Senior Indebtedness and (ii) payments and other distributions made from
the trusts described in Article Twelve); and
(2) until all Obligations with respect to Senior Indebtedness (as
provided in subsection (1) above) are paid in full in cash or cash
equivalents, any distribution to which Holders would be entitled but for
this Article shall be made to holders of Senior Indebtedness (except that
Holders may receive (i) shares of stock and any debt securities that are
subordinated to at least the same extent as the Notes to (a) Senior
Indebtedness and (b) any securities issued in exchange for Senior
Indebtedness and (ii) payments and other distributions made from the
trusts described in Article Twelve) as their interests may appear.
SECTION 1303. Suspension of Payment When Senior Indebtedness in
Default.
The Company may not make any payment or distribution to the Trustee
or any Holder in respect of Subordinated Note Obligations and may not acquire
from the Trustee or any Holder any Notes for cash or property (other than (i)
securities that are subordinated to at least the same extent as the Notes to (a)
Senior Indebtedness and (b) any securities issued in exchange for Senior
Indebtedness and (ii) payments and other distributions made from the trusts
described in Article Twelve) until all Senior Indebtedness has been paid in full
in cash or cash equivalents if:
(i) a default in the payment of any principal of, premium, if any,
or interest on, or of unreimbursed amounts under drawn letters of credit
or in respect of banker's acceptances or fees relating to letters of
credit or banker's acceptances constituting, Designated Senior
Indebtedness occurs and is continuing beyond any applicable grace period
in the agreement, indenture or other document governing such Designated
Senior Indebtedness (a "payment default"); or
(ii) a default, other than a payment default, on Designated Senior
Indebtedness occurs and is continuing that then permits holders of the
Designated Senior Indebtedness to accelerate its maturity (a "non-payment
default") and the Trustee receives a notice of the default (a "Payment
Blockage Notice") from a Person who may give it pursuant to Section 1313
hereof. No new period of payment blockage may be commenced unless and
until 365 days have elapsed since the effectiveness of the immediately
prior Payment
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Blockage Notice. However, if any Payment Blockage Notice within such 365-day
period is given by or on behalf of any holders of Designated Senior Indebtedness
(other than the Bank Agent under the Senior Credit Facility), the Bank Agent may
give another Payment Blockage Notice within such period. In no event, however,
may the total number of days during which any Payment Blockage Period or Periods
is in effect exceed 179 days in the aggregate during any 365 consecutive day
period. 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 cured or waived for a period of not less than 90 days.
The Company may and shall resume payments on and distributions in
respect of the Notes and may acquire them upon the earlier of:
(1) in the case of a payment default, upon the date on which such
default is cured or waived or shall have ceased to exist or such
Designated Senior Indebtedness shall have been discharged or paid in full
in cash or cash equivalents, or
(2) in case of a nonpayment default, the earlier of (x) the date on
which such nonpayment default is cured or waived, (y) 179 days after the
date on which the applicable Payment Blockage Notice is received (the
"Payment Blockage Period") or (z) the date such Payment Blockage Period
shall be terminated by written notice to the Trustee from the requisite
holders of such Designated Senior Indebtedness necessary to terminate such
period or from their Representative, after which the Company shall resume
making any and all required payments in respect of the Notes, including
any missed payments,
if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
SECTION 1304. Acceleration of Notes.
If payment of the Notes is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Indebtedness of the
acceleration.
SECTION 1305. When Distribution Must Be Paid Over.
In the event that the Trustee or any Holder receives any payment of
any Subordinated Note Obligations at a time when such payment is prohibited by
Sections 1302 or 1303, such payment shall be held by the Trustee or such Holder,
for the benefit of, and shall be paid forthwith over and delivered, upon written
request, to, the holders of Senior Indebtedness as their interests may appear or
to their Representative under the indenture or other agreement
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(if any) pursuant to which such Senior Indebtedness may have been issued, as
their respective interests may appear, for application to the payment of all
Senior Indebtedness remaining unpaid to the extent necessary to pay such Senior
Indebtedness in full in cash or cash equivalents in accordance with their terms,
after giving effect to any concurrent payment or distribution to or for the
benefit of holders of Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article Thirteen, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into the Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness, and shall not be
liable to any such holders if the Trustee shall pay over or distribute to or on
behalf of Holders or the Company or any other Person money or assets to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
Thirteen, except if such payment is made as a result of the willful misconduct
or gross negligence of the Trustee.
SECTION 1306. Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent
of any facts known to the Company that would cause a payment of any Obligations
with respect to the Notes that violate this Article, but failure to give such
notice shall not affect the subordination of the Notes to the Senior
Indebtedness as provided in this Article Thirteen.
SECTION 1307. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or
in any of the Notes shall prevent the Company, at any time except during the
pendency of any case, proceeding, dissolution, liquidation or other winding up,
assignment for the benefit of creditors or other marshalling of assets and
liabilities of the Company referred to in Section 1302 or under the conditions
described in Section 1303, from making payments at any time of principal of (and
premium, if any, on) or interest on the Notes.
SECTION 1308. Subrogation to Rights of Holders of Senior
Indebtedness.
Subject to the payment in full of all Senior Indebtedness in cash or
cash equivalents, the Holders shall be subrogated (equally and ratably with the
holders of all Pari Passu Indebtedness of the Company) to the rights of the
holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness until the
Subordinated Note Obligations shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of Senior Indebtedness
of any cash, property or securities to which the Holders of the Notes or the
Trustee would be entitled except
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for the provisions of this Article, and no payments over pursuant to the
provisions of this Article to the holders of Senior Indebtedness by Holders of
the Notes or on their behalf or by the Trustee, shall, as among the Company, its
creditors other than holders of Senior Indebtedness, and the Holders of the
Notes, be deemed to be a payment or distribution by the Company to or on account
of the Senior Indebtedness; it being understood that the provisions of this
Article are intended solely for the purpose of determining the relative rights
of the Holders of the Notes, on the one hand, and the holders of Senior
Indebtedness, on the other hand.
SECTION 1309. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders on the one hand and the
holders of Senior Indebtedness on the other hand. Nothing contained in this
Article or elsewhere in this Indenture or in the Notes is intended to or shall
(a) impair, as between the Company and the Holders, the obligation of the
Company, which is absolute and unconditional, to pay to the Holders the
principal of (and premium, if any) and interest on the Notes as and when the
same shall become due and payable in accordance with their terms; or (b) affect
the relative rights against the Company of the Holders and creditors of the
Company other than their rights in relation to holders of Senior Indebtedness;
or (c) prevent the Trustee or any Holder from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article of the holders of Senior Indebtedness. If the
Company fails because of this Article to pay principal (or premium, if any) or
interest on a Note on the due date, the failure is still a Default or Event of
Default.
SECTION 1310. Trustee to Effectuate Subordination.
Each Holder of a Note by his acceptance thereof authorizes and
directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article and appoints the Trustee his attorney-in-fact for any and all such
purposes. If the Trustee does not file a proper proof of claim or proof of debt
in the form required in any proceeding referred to in Section 504 hereof at
least 30 days before the expiration of the time to file such claim, the Bank
Agent (if the Senior Credit Facility is still outstanding) is hereby authorized
to file an appropriate claim for and on behalf of the Holders of the Notes.
SECTION 1311. Subordination May Not Be Impaired by Company.
No right of any present or future holder of any Senior Indebtedness
to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
non-compliance by the Company with the terms, provisions and
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covenants of this Indenture, regardless of any knowledge thereof any such holder
may have or be otherwise charged with.
SECTION 1312. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders
of Senior Indebtedness, the distribution may be made and the notice given to
their Representative.
Upon any payment or distribution of assets of the Company referred
to in this Article Thirteen, the Trustee and the Holders shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
for the purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other Indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other acts pertinent thereto or to this Article
Thirteen.
SECTION 1313. Notice to Trustee.
(a) The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of any payment to
or by the Trustee in respect of the Notes. Notwithstanding the provisions of
this Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Notes, unless and
until the Trustee shall have received written notice thereof from the Company,
the Bank Agent or a holder of Senior Indebtedness or from any trustee, fiduciary
or agent therefor; and, prior to the receipt of any such written notice, the
Trustee, subject to TIA Sections 315(a) through 315(d), shall be entitled in all
respects to assume that no such facts exist; provided, however, that, if the
Trustee shall not have received the notice provided for in this Section at least
three Business Days prior to the date upon which by the terms hereof any money
may become payable for any purpose (including, without limitation, the payment
of the principal of (and premium, if any) or interest on any Note), then,
anything herein contained to the contrary notwithstanding, the Trustee shall
have full power and authority to receive such money and to apply the same to the
purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within three Business Days
prior to such date.
(b) Subject to TIA Sections 315(a) through 315(d), the Trustee shall
be entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor) to establish that such notice has been given by a
holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor). In
the
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event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article and, if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
SECTION 1314. Reliance on Judicial Order or Certificate of
Liquidating Agent.
Upon any payment or distribution of assets of the Company referred
to in this Article, the Trustee, subject to TIA Sections 315(a) through 315(d),
and the Holders of the Notes shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Notes, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article;
provided that such court, trustee, receiver, custodian, assignee, agent or other
Person has been apprised of, or the order, decree or certificate makes reference
to, the provisions of this Article.
SECTION 1315. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustees' Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 607.
SECTION 1316. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall
have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee; provided,
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however, that Section 1315 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
SECTION 1317. No Suspension of Remedies.
Nothing contained in this Article shall limit the right of the
Trustee or the Holders of Notes to take any action to accelerate the maturity of
the Notes pursuant to Article Five or to pursue any rights or remedies hereunder
or under applicable law, except as provided in Article Five.
SECTION 1318. Modification of Terms of Senior Indebtedness.
Any renewal or extension of the time of payment of any Senior
Indebtedness or the exercise by the holders of Senior Indebtedness of any of
their rights under any instrument creating or evidencing Senior Indebtedness,
including, without limitation, the waiver of default thereunder, may be made or
done all without notice to or assent from the Holders or the Trustee.
No compromise, alteration, amendment, modification, extension,
renewal or other change of, or waiver, consent or other action in respect of,
any liability or obligation under or in respect of, or of any of the terms,
covenants or conditions of any indenture or other instrument under which any
Senior Indebtedness is outstanding or of such Senior Indebtedness, whether or
not such release is in accordance with the provisions of any applicable
document, shall in any way alter or affect any of the provisions of this Article
Thirteen or of the Notes relating to the subordination thereof.
SECTION 1319. Certain Terms.
For purposes of this Article Thirteen, (i) "cash equivalents" means
Government Securities with maturities of nine months or less and (ii) unless the
context clearly indicates otherwise, any payment or distribution to the Trustee
or any Holder in respect of any Subordinated Note Obligation shall include any
payment or distribution of any kind or character from any source, whether in
cash, property or securities, by set-off or otherwise, including any repurchase,
redemption or acquisition of the Notes and any direct or indirect payment
payable by reason of any other Indebtedness or Obligation being subordinated to
the Notes.
SECTION 1320. Trust Moneys Not Subordinated.
Notwithstanding anything contained herein to the contrary, payments
from cash or the proceeds of Government Securities held in trust under Article
Twelve hereof by the Trustee (or other qualifying trustee) and which were
deposited in accordance with the terms of Article Twelve hereof and not in
violation of Section 1303 hereof for the payment of principal
<PAGE>
119
of (and premium, if any) and interest on the Notes shall not be subordinated to
the prior payment of any Senior Indebtedness or subject to the restrictions set
forth in this Article Thirteen, and none of the Holders shall be obligated to
pay over any such amount to the Company or any holder of Senior Indebtedness or
any other creditor of the Company.
This Indenture may be signed in any number of counterparts each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Indenture.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
E&S HOLDINGS CORPORATION,
a Delaware corporation
By______________________________________
Name:
Title:
MARINE MIDLAND BANK,
as Trustee
By______________________________________
Name:
Title:
<PAGE>
EXHIBIT 4.2
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE
WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE
LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF
THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT
TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
THAT IS ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL "ACCREDITED INVESTOR", FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION
OF THE SECURITIES ACT (AND IF ACQUIRING THE SECURITIES FROM SUCH AN
INSTITUTIONAL "ACCREDITED INVESTOR", IS ACQUIRING SECURITIES HAVING AN AGGREGATE
PRINCIPAL AMOUNT OF NOT LESS THAN $100,000), OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT;
PROVIDED THAT THE COMPANY AND THE TRUSTEE SHALL HAVE THE RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO
REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE
OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY ("DTC") TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER REPRESENTATIVE OF DTC AS IS REQUESTED BY
<PAGE>
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE &
CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 306 AND 307 OF THE INDENTURE.
E&S HOLDINGS CORPORATION
10 3/8% Senior Subordinated Note due 2006
CUSIP No.
No. G-00 $
E&S HOLDINGS CORPORATION, a Delaware corporation (herein called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to CEDE &
CO., or registered assigns, the principal sum of _______________________________
Dollars on October 1, 2006, at the office or agency of the Company referred to
below, and to pay interest thereon on April 1, 1997 and semi-annually
thereafter, on April 1 and October 1 in each year, from September 30, 1996, or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, at the rate of 10 3/8% per annum, until the principal hereof
is paid or duly provided for, and (to the extent lawful) to pay on demand
interest on any overdue interest at the rate borne by the Notes from the date on
which such overdue interest becomes payable to the date payment of such interest
has been made or duly provided for. The interest so payable, and punctually paid
or duly provided for, on any Interest Payment Date will, as provided in such
Indenture, be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the Regular Record
Date for such interest, which shall be the March 15 or September 15 (whether or
not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid or duly provided for shall
forthwith cease to be payable to the Holder on such Regular Record Date, and
such defaulted interest, and (to the extent lawful) interest on such defaulted
interest at the rate borne by the Notes, may be paid to the Person in whose name
this Note (or one or more Predecessor Notes) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Notes not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of September 30, 1996 (the "Registration
Rights Agreement"), between the Company and the Initial Purchasers named
therein. In the event that either (a) an Exchange
<PAGE>
3
Offer Registration Statement (as such term is defined in the Registration Rights
Agreement) is not filed with the Commission on or prior to the 45th day
following the date of original issue of the Notes, (b) such Exchange Offer
Registration Statement has not been declared effective on or prior to the 105th
day following the date of original issue of the Notes or (c) the Exchange Offer
(as such term is defined in the Registration Rights Agreement) is not
consummated on or prior to the 135th day following the date of original issue of
the Notes or a Shelf Registration Statement (as such term is defined in the
Registration Rights Agreement) with respect to the Notes is not declared
effective on or prior to the 135th day following the date of original issue of
the Notes, the interest rate borne by this Note shall be increased by
one-quarter of one percent per annum following such 45-day period in the case of
clause (a) above, such 105-day period in the case of clause (b) above or such
135-day period in the case of clause (c) above, which rate will be increased by
an additional one-quarter of one percent per annum for each 90-day period that
any such additional interest continues to accrue; provided that the aggregate
increase in such annual interest rate will in no event exceed one percent. Upon
(x) the filing of the Exchange Offer Registration Statement after the 45-day
period described in clause (a) above, (y) the effectiveness of the Exchange
Offer Registration Statement after the 105-day period described in clause (b)
above or (z) the consummation of the Exchange Offer or the effectiveness of a
Shelf Registration Statement, as the case may be, after the 135-day period
described in clause (c) above, the interest rate borne by the Note from the date
of such filing, effectiveness or consummation, as the case may be, will be
reduced to the original interest rate set forth above if the Company is
otherwise in compliance with this paragraph; provided, however, that, if after
such reduction in interest rate, a different event specified in clause (a), (b)
or (c) above occurs, the interest rate may again be increased and thereafter
reduced pursuant to the foregoing provisions. If the Company issues a notice
that the Shelf Registration Statement is unusable pending the announcement of a
material corporate transaction or otherwise pursuant to Section 3(k) of the
Registration Rights Agreement, or such a notice is required under applicable
securities laws to be issued by the Company, and the aggregate number of days in
any consecutive twelve-month period for which all such notices are issued or
required to be issued exceeds 30 days in the aggregate, then the interest rate
borne by the Notes will be increased by one-quarter of one percent per annum
following the date that such Shelf Registration Statement ceases to be usable
beyond the period permitted above, which rate shall be increased by an
additional one-quarter of one percent per annum for each 90-day period that such
additional interest continues to accrue; provided that the aggregate increase in
such annual interest rate may in no event exceed one percent. Upon the Company
declaring that the Shelf Registration Statement is usable after the interest
rate has been increased pursuant to the preceding sentence, the interest rate
borne by the Notes will be reduced to the original interest rate if the Company
is otherwise in compliance with this paragraph; provided, however, that if after
any such reduction in interest rate the Shelf Registration Statement again
ceases to be usable beyond the period permitted above, the interest rate will
again be increased and thereafter reduced pursuant to the foregoing provisions.
Payment of the principal of (and premium, if any, on) and interest
on this Note will be made at the office or agency of the Company maintained for
that purpose in The City of New York, or at such other office or agency of the
Company as may be maintained for such purpose, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that payment of interest may be
made at the option of the Company (i) by check mailed to the address of the
Person entitled thereto as such address shall appear on the Note Register or
(ii) by wire transfer to an account maintained by the payee located in the
United States.
<PAGE>
4
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
Authenticating Agent appointed as provided in the Indenture by manual signature,
this Note shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed under its corporate seal.
Dated: E&S HOLDINGS CORPORATION
By
Name:
Title:
Attest:
__________________
Authorized Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
Dated:
This is one of the Notes referred to in the within-mentioned
Indenture.
MARINE MIDLAND BANK,
as Trustee
By
Authorized Signatory
<PAGE>
6
[Reverse of Note]
This Note is one of a duly authorized issue of securities of the
Company designated as its 10 3/8% Senior Subordinated Notes due 2006 (the
"Notes"), limited (except as otherwise provided in the Indenture referred to
below) in aggregate principal amount to $200,000,000, which may be issued under
an indenture (the "Indenture") dated as of September 30, 1996 between the
Company and Marine Midland Bank, as trustee (the "Trustee", which term includes
any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Trustee and the Holders of the Notes, and of the
terms upon which the Notes are, and are to be, authenticated and delivered.
The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all Senior Indebtedness as defined in the
Indenture, and this Note is issued subject to such provisions. Each Holder of
this Note, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination as
provided in the Indenture and (c) appoints the Trustee his attorney-in-fact for
such purpose.
On or before each payment date, the Company shall deliver or cause
to be delivered to the Trustee or the Paying Agent an amount in dollars
sufficient to pay the amount due on such payment date.
The Notes are redeemable only as set forth herein and in the
Indenture and are not entitled to the benefit of any sinking fund.
The Notes are subject to redemption upon not less than 30 nor more
than 60 days', written notice, at any time on and after October 1, 2001, as a
whole or in part, at the election of the Company, at a Redemption Price equal to
the percentage of the principal amount set forth below, plus, in each case,
accrued and unpaid interest, if any, to the applicable Redemption Date, if
redeemed during the twelve month period beginning October 1, of the years
indicated below:
Redemption
Year Price
---- ----------
2001 ........................................ 105.187%
2002 ........................................ 103.458%
2003 ........................................ 101.729%
2004 and thereafter ......................... 100.000%
In addition, at any time or from time to time, on or prior to
October 1, 1999, the Company may, at its option, redeem up to 40% of the
aggregate principal amount of Notes originally issued under the Indenture on the
Issuance Date at a Redemption Price equal to 110% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Redemption Date, with the net proceeds of one or more Equity Offerings; provided
that at least
<PAGE>
7
$120 million aggregate principal amount of Notes remains outstanding immediately
after the occurrence of such redemption; and provided further that such
redemption shall occur within 60 days of the date of the closing of each such
Equity Offering.
If less than all the Notes are to be redeemed pursuant to the
preceding two paragraphs, the Trustee shall select the Notes or portions thereof
to be redeemed in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes being redeemed are listed, or if
the Notes are not so listed, on a pro rata basis, by lot or by such other method
the Trustee shall deem fair and appropriate; provided that no such partial
redemption shall reduce the portion of the principal amount of a Note not
redeemed to less than $1,000.
In the case of any redemption of Notes, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of such Notes, or one or more Predecessor Notes, of record at the close
of business on the relevant Regular Record Date or Special Record Date, as the
case may be, referred to on the face hereof. Notes (or portions thereof) for
whose redemption and payment provision is made in accordance with the Indenture
shall cease to bear interest from and after the Redemption Date.
In the event of redemption or repurchase of this Note in part only,
a new Note or Notes for the unredeemed portion hereof shall be issued in the
name of the Holder hereof upon the cancellation hereof.
Upon the occurrence of a Change of Control, the Company will be
required to make an offer to purchase on the Change of Control Payment Date all
outstanding Notes at a purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of purchase, in accordance with the Indenture. Holders of Notes that
are subject to an offer to purchase will receive a Change of Control Offer from
the Company prior to any related Change of Control Payment Date.
Under certain circumstances, in the event the Net Proceeds received
by the Company from an Asset Sale, which proceeds are not used (i) to
permanently reduce Obligations under the Senior Credit Facility (and to
correspondingly reduce commitments with respect thereto) or other Senior
Indebtedness or Pari Passu Indebtedness (provided that if the Company shall so
reduce Obligations under Pari Passu Indebtedness, it will equally and ratably
reduce Obligations under the Notes), (ii) to secure Letter of Credit/Bankers'
Acceptance Obligations to the extent related letters of credit have not been
drawn upon or returned undrawn or related bankers' acceptances have not matured,
(iii) to make an investment in any one or more businesses, capital expenditures
or acquisitions of other assets in each case, used or useful in a Similar
Business and/or (iv) to make an investment in properties or assets that replace
the properties and assets that are the subject of such Asset Sale, equal or
exceeds a specified amount, the Company will be required to make an offer to all
Holders to purchase the maximum principal amount of Notes, in an integral
multiple of $1,000, that may be purchased out of such amount at a purchase price
in cash equal to 100% of the principal amount thereof, plus accrued and
<PAGE>
8
unpaid interest, if any, to the date of purchase, in accordance with the
Indenture. Holders of Notes that are subject to an offer to purchase will
receive an Asset Sale Offer from the Company prior to any related Asset Sale
Purchase Date.
In the case of any redemption or repurchase of Notes, interest
installments whose Stated Maturity is on or prior to the Redemption Date will be
payable to the Holders of such Notes, or one or more Predecessor Notes, of
record at the close of business on the relevant Regular Record Date or Special
Record Date, as the case may be, referred to on the face hereof. Notes (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
If an Event of Default shall occur and be continuing, the principal
of all the Notes may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness of the Company on this Note and (b) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Note.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture and the Notes and the
Guarantees, if any, at any time by the Company and the Trustee with the consent
of the Holders of a specified percentage in aggregate principal amount of the
Notes at the time Outstanding. Additionally, the Indenture permits that, without
notice to or consent of any Holder, the Company, any Guarantor and the Trustee
together may amend or supplement the Indenture, any Guarantee or this Note (i)
to cure any ambiguity, defect or inconsistency, (ii) to provide for
uncertificated Notes in addition to or in place of certificated Notes, (iii) to
comply with the covenant relating to mergers, consolidations and sales of
assets, (iv) to provide for the assumption of the Company's obligations to
Holders of such Notes, (v) to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder, (vi) to add covenants
for the benefit of the Holders or to surrender any right or power conferred upon
the Company, (vii) to comply with the requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act, (viii) to evidence and provide for the acceptance of appointment under the
Indenture by a successor Trustee pursuant to the requirements of Section 610
thereof or (ix) to make any change that does not adversely affect the legal
rights of any Holder. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Notes at
the time Outstanding, on behalf of the Holders of all the Notes, to waive
compliance by the Company with certain provisions of the Indenture the Notes and
the Guarantees, if any, and certain past Defaults under the Indenture and the
Notes and the Guarantees, if any, and their consequences. Any such consent or
waiver by or on behalf of the Holder of this Note shall be conclusive and
binding upon such Holder and upon all future Holders of this Note and of any
<PAGE>
9
Note issued upon the registration of transfer hereof or in exchange herefor or
in lieu hereof whether or not notation of such consent or waiver is made upon
this Note.
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Notes (in the event such Guarantor or
other obligor is obligated to make payments in respect of the Notes), which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed, subject to the subordination provisions of the
Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registerable on the Note
Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Note Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to pay all documentary, stamp or similar issue or transfer taxes or
other governmental charge payable in connection therewith.
Prior to the time of due presentment of this Note for registration
of transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Note is registered as the owner
hereof for all purposes, whether or not this Note be overdue, and neither the
Company, the Trustee nor any agent shall be affected by notice to the contrary.
Interest on this Note shall be computed on the basis of a 360-day
year of twelve 30-day months.
THIS NOTE AND THE INDENTURE SHALL BE GOVERNED BY THE LAW OF THE
STATE OF NEW YORK EXCLUDING (TO THE GREATEST EXTENT PERMISSIBLE BY LAW) ANY RULE
OF LAW THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER
THAN THE STATE OF NEW YORK.
<PAGE>
10
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
please print or typewrite name and address including zip code of assignee
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
attorney to transfer said Note on the books of the Company with full power of
substitution in the premises.
In connection with any transfer of this Note occurring prior to the
date that is the earlier of the date of an effective Registration Statement or
September 30, 1999, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
[Check One]
[ ](a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided
by Rule 144A thereunder.
or
[ ](b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished that comply with the
conditions of transfer set forth in this Note and the Indenture.
<PAGE>
11
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 307 of the Indenture shall have
been satisfied.
Date: ____________________ _______________________________________________
NOTICE: The signature must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or any
change whatsoever.
Signature Guarantee:
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Date: ______________________________ _______________________________________
NOTICE: To be executed by an executive
officer.
<PAGE>
12
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 1016 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 1016 of the Indenture, state the amount (in original
principal amount) below:
$_____________________.
Date:
Your Signature:
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
<PAGE>
EXHIBIT 4.4
Registration Rights Agreement
Dated as of September 30, 1996
among
E&S Holdings Corporation
Issuer,
and
Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
NationsBanc Capital Markets, Inc.,
BA Securities, Inc.,
and
BT Securities Corporation
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of September 30, 1996, by and between E&S Holdings Corporation,
a Delaware corporation (the "Company"), and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), NationsBanc Capital
Markets, Inc., BA Securities, Inc. and BT Securities Corporation (collectively,
the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated
September 24, 1996 among the Company and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial
Purchasers of $200,000,000 aggregate principal amount of the Company's 103/8%
Senior Subordinated Notes due 2006 (the "Notes"). In order to induce the Initial
Purchasers to enter into the Purchase Agreement, the Company has agreed to
provide to the Initial Purchasers and their direct and indirect transferees and
assigns the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the closing under the Purchase
Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following capitalized
defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from
time to time, and the rules and regulations of the SEC promulgated
thereunder.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations of the SEC
promulgated thereunder.
"Closing Time" shall mean the Closing Time as defined in the
Purchase Agreement.
"Company" shall have the meaning set forth in the preamble of this
Agreement and also includes the Company's successors.
"Depositary" shall mean The Depository Trust Company, or any other
depositary appointed by the Company, provided, however, that any such
depositary must have an address in the Borough of Manhattan, in the City
of New York.
<PAGE>
2
"Exchange Notes" shall mean 103/8% Series B Senior Subordinated
Notes due 2006 issued by the Company under the Indenture containing terms
identical to the Notes (except that (i) interest thereon shall accrue from
the last date on which interest was paid on the Notes or, if no such
interest has been paid, from September 30, 1996, (ii) the transfer
restrictions thereon shall be eliminated and (iii) certain provisions
relating to an increase in the stated rate of interest thereon shall be
eliminated) to be offered to Holders of Notes in exchange for Notes
pursuant to the Exchange Offer.
"Exchange Offer" shall mean the exchange offer by the Company of
Registrable Notes for Exchange Notes pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under the
1933 Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Holders" shall mean the Initial Purchasers, for so long as they own
any Registrable Notes, and each of their successors, assigns and direct
and indirect transferees who become registered owners of Registrable Notes
under the Indenture.
"Indenture" shall mean the Indenture relating to the Notes dated as
of September 30, 1996 among the Company and Marine Midland Bank, a New
York banking corporation and trust company, as trustee, as the same may be
amended from time to time in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the
preamble of this Agreement.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Notes; provided that
whenever the consent or approval of Holders of a specified percentage of
Registrable Notes is required hereunder, Registrable Notes held by the
Company or any of its affiliates (as such term is defined in Rule 405
under the 1933 Act) (other than the Initial Purchasers or subsequent
holders of Registrable Notes if such subsequent holders are deemed to be
such affiliates solely by reason of their holding of such Registrable
Notes) shall be disregarded in determining whether such consent or
approval was given by the Holders of such required percentage or amount.
<PAGE>
3
"Person" shall mean an individual, partnership, limited liability
company, corporation, trust or unincorporated organization, or a
government or agency or political subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus
as amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Notes covered by a Shelf Registration
Statement, and by all other amendments and supplements to a prospectus,
including post-effective amendments, and in each case including all
material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the
preamble of this Agreement.
"Registrable Notes" shall mean the Notes; provided, however, that
the Notes shall cease to be Registrable Notes when (i) a Registration
Statement with respect to such Notes shall have been declared effective
under the 1933 Act and such Notes shall have been disposed of pursuant to
such Registration Statement, (ii) such Notes shall have been sold to the
public pursuant to Rule 144 (or any similar provision then in force, but
not Rule 144A) under the 1933 Act, (iii) such Notes shall have ceased to
be outstanding or (iv) such Notes have been exchanged for Exchange Notes
upon consummation of the Exchange Offer.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. ("NASD") registration and filing fees, (ii) all
fees and expenses incurred in connection with compliance with state or
other securities or blue sky laws and compliance with the rules of the
NASD (including reasonable fees and disbursements of counsel for any
underwriters or Holders in connection with state or other securities or
blue sky qualification of any of the Exchange Notes or Registrable Notes),
(iii) all expenses of any Persons in preparing or assisting in preparing,
word processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, certificates
representing the Exchange Notes and other documents relating to the
performance of and compliance with this Agreement, (iv) all rating agency
fees, (v) all fees and expenses incurred in connection with the listing,
if any, of any of the Registrable Notes on any securities exchange or
exchanges, (vi) all fees and disbursements relating to the qualification
of the Indenture under applicable securities laws, (vii) the reasonable
fees and disbursements of counsel for the Company and, in the case of a
Shelf Registration Statement, the reasonable fees and disbursements
(including
<PAGE>
4
the expenses of preparing and distributing any underwriting or securities
sales agreement) of one counsel (in addition to appropriate local counsel)
for the Holders (which counsel shall be selected in writing by the
Majority Holders), (viii) the fees and expenses of the independent public
accountants of the Company, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, (ix) the fees and expenses of a "qualified independent
underwriter" as defined by Conduct Rule 2720 of the NASD (if required by
the NASD rules) in connection with the offering of the Registrable
Securities, (x) the fees and expenses of the trustee, including its
counsel, and any escrow agent or custodian, and (xi) any fees and
disbursements of the underwriters customarily required to be paid by
issuers or sellers of securities and the reasonable fees and expenses of
any special experts retained by the Company in connection with any
Registration Statement, but excluding underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or
disposition of Registrable Notes by a Holder.
"Registration Statement" shall mean any registration statement of
the Company which covers any of the Exchange Notes or Registrable Notes
pursuant to the provisions of this Agreement, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of
this Agreement which covers all of the then Registrable Notes on an
appropriate form under Rule 415 under the 1933 Act, or any similar rule
that may be adopted by the SEC, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Trustee" shall mean the trustee with respect to the Notes under the
Indenture.
2. Registration Under the 1933 Act. (a) Exchange Offer Registration.
To the extent not prohibited by any applicable law or applicable interpretation
of the Staff of the SEC, the Company shall (A) file within 45 days after the
date hereof an Exchange Offer
<PAGE>
5
Registration Statement covering the offer by the Company to the Holders to
exchange all of the Registrable Notes for Exchange Notes, (B) use its best
efforts to cause such Exchange Offer Registration Statement to be declared
effective by the SEC within 105 days after the date hereof, (C) use its best
efforts to cause such Exchange Offer Registration Statement to remain effective
until the closing of the Exchange Offer and (D) use its best efforts to
consummate the Exchange Offer within 135 days following the date hereof. The
Exchange Notes will be issued under the Indenture. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company shall promptly commence the
Exchange Offer, it being the objective of such Exchange Offer to enable each
Holder (other than Participating Broker-Dealers (as defined in Section 3(f))
eligible and electing to exchange Registrable Notes for Exchange Notes (assuming
that such Holder is not an affiliate of the Company within the meaning of Rule
405 under the 1933 Act, acquires the Exchange Notes in the ordinary course of
such Holder's business and has no arrangements or understandings with any person
to participate in the Exchange Offer for the purpose of distributing the
Exchange Notes) to trade such Exchange Notes from and after their receipt
without any limitations or restrictions under the 1933 Act and without material
restrictions under the securities laws of a substantial proportion of the
several states of the United States.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) keep the Exchange Offer open for not less than 30 business days
after the date notice thereof is mailed to the Holders (or longer if
required by applicable law);
(iii) use the services of the Depositary for the Exchange Offer with
respect to Notes evidenced by global certificates;
(iv) permit Holders to withdraw tendered Registrable Notes at any
time prior to the close of business, New York City time, on the last
business day on which the Exchange Offer shall remain open, by sending to
the institution specified in the notice, a telegram, telex, facsimile
transmission or letter setting forth the name of such Holder, the
principal amount of Registrable Notes delivered for exchange, and a
statement that such Holder is withdrawing his election to have such Notes
exchanged; and
(v) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer, the
Company shall:
<PAGE>
6
(i) accept for exchange Registrable Notes duly tendered and not
validly withdrawn pursuant to the Exchange Offer in accordance with the
terms of the Exchange Offer Registration Statement and the letter of
transmittal which is an exhibit thereto;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Notes so accepted for exchange by the
Company; and
(iii) cause the Trustee promptly to authenticate and deliver
Exchange Notes to each Holder of Registrable Notes equal in amount to the
Registrable Notes of such Holder so accepted for exchange.
Interest on each Exchange Note will accrue from the last date on
which interest was paid on the Registrable Notes surrendered in exchange
therefor or, if no interest has been paid on the Registrable Notes, from
September 30, 1996. The Exchange Offer shall not be subject to any conditions,
other than that the Exchange Offer, or the making of any exchange by a Holder,
does not violate applicable law or any applicable interpretation of the Staff of
the SEC. Each Holder of Registrable Notes (other than Participating
Broker-Dealers) who wishes to exchange such Registrable Notes for Exchange Notes
in the Exchange Offer shall have represented that (i) it is not an affiliate (as
defined in Rule 405 under the 1933 Act) of the Company, (ii) any Exchange Notes
to be received by it were acquired in the ordinary course of business, (iii) at
the time of the commencement of the Exchange Offer it has no arrangement with
any person to participate in the distribution (within the meaning of the 1933
Act) of the Exchange Notes and (iv) it is not acting on behalf of any person who
could not make the representations in clauses (i) through (iii). The Company
shall inform the Initial Purchasers of the names and addresses of the Holders to
whom the Exchange Offer is made, and the Initial Purchasers shall have the right
to contact such Holders and otherwise facilitate the tender of Registrable Notes
in the Exchange Offer.
(b) Shelf Registration. (i) If, because of any change in law or
applicable interpretations thereof by the Staff of the SEC, the Company is not
permitted to effect the Exchange Offer as contemplated by Section 2(a) hereof,
or (ii) if for any other reason the Exchange Offer cannot be consummated within
135 days following the date hereof, or (iii) if any Holder (other than an
Initial Purchaser) is not eligible to participate in the Exchange Offer or (iv)
upon the request of any Initial Purchaser (with respect to any Registrable Notes
which it acquired directly from the Company) following the consummation of the
Exchange Offer if any such Initial Purchaser shall hold Registrable Notes which
it acquired directly from the Company and if such Initial Purchaser is not
permitted, in the opinion of counsel to such Initial Purchaser, pursuant to
applicable law or applicable interpretation of the Staff of the SEC to
participate in the Exchange Offer, the Company shall, at its cost:
<PAGE>
7
(A) as promptly as practicable, file with the SEC a Shelf
Registration Statement relating to the offer and sale of the then
outstanding Registrable Notes by the Holders from time to time in
accordance with the methods of distribution elected by the Majority
Holders of such Registrable Notes and set forth in such Shelf Registration
Statement, and use their best efforts to cause such Shelf Registration
Statement to be declared effective by the SEC by the 135th day after the
date hereof (or promptly in the event of a request by any Initial
Purchaser pursuant to clause (iv) above). In the event that the Company is
required to file a Shelf Registration Statement upon the request of any
Holder (other than an Initial Purchaser) not eligible to participate in
the Exchange Offer pursuant to clause (iii) above or upon the request of
any Initial Purchaser pursuant to clause (iv) above, the Company shall
file and have declared effective by the SEC both an Exchange Offer
Registration Statement pursuant to Section 2(a) with respect to all
Registrable Notes and a Shelf Registration Statement (which may be a
combined Registration Statement with the Exchange Offer Registration
Statement) with respect to offers and sales of Registrable Notes held by
such Holder or such Initial Purchaser after completion of the Exchange
Offer;
(B) use its best efforts to keep the Shelf Registration Statement
continuously effective in order to permit the Prospectus forming part
thereof to be usable by Holders for a period of three years from the
Issuance Date (or one year from the date the Shelf Registration Statement
is declared effective if such Shelf Registration Statement is filed upon
the request of any Initial Purchaser pursuant to clause (iv) above) or
such shorter period which will terminate when all of the Registrable Notes
covered by the Shelf Registration Statement have been sold pursuant to the
Shelf Registration Statement or all of the Registrable Notes become
eligible for resale pursuant to Rule 144 under the 1933 Act without volume
restrictions; and
(C) notwithstanding any other provisions hereof, use its best
efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming a part thereof and any
supplement thereto complies in all material respects with the 1933 Act and
the rules and regulations thereunder, (ii) any Shelf Registration
Statement and any amendment thereto does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading and (iii) any Prospectus forming part of any Shelf
Registration Statement, and any supplement to such Prospectus (as amended
or supplemented from time to time), does not include an untrue statement
of a material fact or omit to state a material fact necessary in order to
make the statements, in light of the circumstances under which they were
made, not misleading.
<PAGE>
8
The Company further agrees, if necessary, to supplement or amend the
Shelf Registration Statement if reasonably requested by the Majority Holders
with respect to information relating to the Holders and otherwise as required by
Section 3(b) below, to use all reasonable efforts to cause any such amendment to
become effective and such Shelf Registration to become usable as soon as
practicable thereafter and to furnish to the Holders of Registrable Notes copies
of any such supplement or amendment promptly after its being used or filed with
the SEC.
(c) Expenses. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) and 2(b). Each Holder
shall pay all expenses of its counsel other than as set forth in the preceding
sentence, underwriting discounts and commissions (prior to the reduction thereof
with respect to selling concessions, if any) and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Notes pursuant
to the Shelf Registration Statement.
(d) Effective Registration Statement. (i) The Company will be deemed
not to have used its best efforts to cause a Registration Statement to become,
or to remain, effective during the requisite period if the Company voluntarily
takes any action that would result in any such Registration Statement not being
declared effective or in the Holders of Registrable Notes covered thereby not
being able to exchange or offer and sell such Registrable Notes during that
period unless (A) such action is required by applicable law or (B) such action
is taken by the Company in good faith and for valid business reasons (but not
including avoidance of the Company's obligations hereunder), including a
material corporate transaction, so long as the Company promptly complies with
the requirements of Section 3(k) hereof, if applicable.
(ii) An Exchange Offer Registration Statement pursuant to Section
2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof
will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that if, after it has been declared
effective, the offering of Registrable Notes pursuant to a Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have been effective during the
period of such interference, until the offering of Registrable Notes pursuant to
such Registration Statement may legally resume.
(e) Increase in Interest Rate. In the event that either (i) the
Exchange Offer Registration Statement is not filed with the Commission on or
prior to the 45th day following the date hereof, (ii) the Exchange Offer
Registration Statement is not declared effective on or prior to the 105th day
following the date hereof or (iii) the Exchange Offer is not consummated on or
prior to the 135th day following the date hereof or a Shelf Registration
Statement with respect to the Registrable Notes is not declared effective on or
prior to the 135th day following the date hereof, the interest rate borne by the
Notes shall be increased by one-quarter of one
<PAGE>
9
percent per annum following such 45-day period in the case of clause (i) above,
following such 105-day period in the case of clause (ii) above or following such
135-day period in the case of clause (iii) above, which rate will be increased
by an additional one-quarter of one percent per annum for each 90-day period
that any such additional interest continues to accrue, provided that the
aggregate increase in such interest rate will in no event exceed one-percent.
Upon (x) the filing of the Exchange Offer Registration Statement after the
45-day period described in clause (i) above, (y) the effectiveness of the
Exchange Offer Registration Statement after the 105-day period described in
clause (ii) above, or (z) consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement, as the case may be, after the
135-day period described in clause (iii) above, the interest rate borne by the
Notes from the date of such filing, effectiveness or consummation, as the case
may be, will be reduced to the original interest rate if the Company is
otherwise in compliance with this paragraph; provided, however, that, if after
any such reduction in interest rate, a different event specified in clauses (i),
(ii) or (iii) above occurs, the interest rate will again be increased and
thereafter reduced pursuant to the foregoing conditions. If the Company issues a
notice that the Shelf Registration Statement is unusable pending the
announcement of a material corporate transaction or otherwise pursuant to
Section 3(k) hereof, or such a notice is required under applicable securities
laws to be issued by the Company, and the aggregate number of days in any
consecutive twelve-month period for which all such notices are issued or
required to be issued exceeds 30 days in the aggregate, then the interest rate
borne by the Notes will be increased by one-quarter of one percent per annum
following the date that such Shelf Registration Statement ceases to be usable
beyond the 30-day period permitted above, which rate shall be increased by an
additional one-quarter of one percent per annum for each 90-day period that such
additional interest continues to accrue; provided that the aggregate increase in
such annual interest rate may in no event exceed one percent. Upon the Company
declaring that the Shelf Registration Statement is usable after the interest
rate has been increased pursuant to the preceding sentence, the interest rate
borne by the Notes will be reduced to the original interest rate if the Company
is otherwise in compliance with this paragraph; provided, however, that if after
any such reduction in interest rate the Shelf Registration Statement again
ceases to be usable beyond the period permitted above, the interest rate will
again be increased and thereafter reduced pursuant to the foregoing provisions.
(f) Specific Enforcement. Without limiting the remedies available to
the Initial Purchasers and the Holders, the Company acknowledges that any
failure by the Company to comply with its respective obligations under Sections
2(a) and 2(b) hereof may result in material irreparable injury to the Initial
Purchasers or the Holders for which there is no adequate remedy at law, that it
will not be possible to measure damages for such injuries precisely and that, in
the event of any such failure, the Initial Purchasers or any Holder may obtain
such relief as may be required to specifically enforce the Company's obligations
under Sections 2(a) and 2(b) hereof.
<PAGE>
10
3. Registration Procedures. In connection with the obligations of
the Company with respect to the Registration Statements pursuant to Sections
2(a) and 2(b) hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement, within
the time period specified in Section 2, on the appropriate form under the
1933 Act, which form (i) shall be selected by the Company, (ii) shall, in
the case of a Shelf Registration, be available for the sale of the
Registrable Notes by the selling Holders thereof and (iii) shall comply as
to form in all material respects with the requirements of the applicable
form and include or incorporate by reference all financial statements
required by the SEC to be filed therewith, and use its best efforts to
cause such Registration Statement to become effective and remain effective
in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to (i) the Exchange Offer Registration Statement as may be
necessary under applicable law to keep such Exchange Offer Registration
Statement effective for the period required to comply with Section 2(a)
(except to the extent the Company is unable to consummate the Exchange
Offer and the Company complies with Section 2(b), subject in all respects
to Section 3(f) hereof), and (ii) the Shelf Registration Statement as may
be necessary under applicable law to keep such Shelf Registration
Statement effective for the period required pursuant to Section 2(b)
hereof; cause each Prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to Rule
424 under the 1933 Act; and comply with the provisions of the 1933 Act
with respect to the disposition of all securities covered by each
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the selling Holders thereof;
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Notes, at least ten days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Notes is being
filed and advising such Holders that the distribution of Registrable Notes
will be made in accordance with the method elected by the Majority
Holders; and (ii) furnish to each Holder of Registrable Notes, to counsel
for the Initial Purchasers, to counsel for the Holders and to each
underwriter of an underwritten offering of Registrable Notes, if any,
without charge, as many copies of each Prospectus, including each
preliminary Prospectus, and any amendment or supplement thereto and such
other documents as such Holder or underwriter may reasonably request,
including financial statements and schedules and, if the Holder so
requests, all exhibits (including those incorporated by reference) in
order to facilitate the public sale or other disposition of the
Registrable Notes; and (iii) subject to the last paragraph of Section 3,
hereby consent to the use of the Prospectus, including each preliminary
Prospectus, or any amendment or supplement thereto by each of the selling
Holders of Registrable Notes in
<PAGE>
11
connection with the offering and sale of the Registrable Notes covered by
the Prospectus or any amendment or supplement thereto;
(d) use its best efforts to register or qualify the Registrable
Notes under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Notes covered by a Registration
Statement and each underwriter of an underwritten offering of Registrable
Notes shall reasonably request by the time the applicable Registration
Statement is declared effective by the SEC, to cooperate with the Holders
in connection with any filings required to be made with the NASD, keep
each such registration or qualification effective during the period such
Registration Statement is required to be effective and do any and all
other acts and things which may be reasonably necessary or advisable to
enable such Holder to consummate the disposition in each such jurisdiction
of such Registrable Notes owned by such Holder; provided, however, that
the Company shall not be required to (i) qualify as a foreign corporation
or as a dealer in securities in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d) or (ii) take
any action which would subject it to general service of process or
taxation in any such jurisdiction if it is not then so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes and counsel for such Holders promptly and, if requested
by such Holder or counsel, confirm such advice in writing promptly (i)
when a Registration Statement has become effective and when any
post-effective amendments and supplements thereto become effective, (ii)
of any request by the SEC or any state securities authority for
post-effective amendments and supplements to a Registration Statement and
Prospectus or for additional information after the Registration Statement
has become effective, (iii) of the issuance by the SEC or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if, between the effective date of a Registration Statement
and the closing of any sale of Registrable Notes covered thereby, the
representations and warranties of the Company contained in any
underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to such offering cease to be true and correct
in all material respects, (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Notes for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (vi) of the happening of
any event or the discovery of any facts during the period a Shelf
Registration Statement is effective which makes any statement made in such
Shelf Registration Statement or the related Prospectus untrue in any
material respect or which requires the making of any changes in such Shelf
Registration Statement or Prospectus in order to make the statements
therein not misleading and (vii) of any determination by the Company that
a post-effective amendment to a Registration Statement would be
appropriate;
<PAGE>
12
(f) (A) in the case of the Exchange Offer, (i) include in the
Exchange Offer Registration Statement a "Plan of Distribution" section
covering the use of the Prospectus included in the Exchange Offer
Registration Statement by broker-dealers who have exchanged their
Registrable Notes for Exchange Notes for the resale of such Exchange
Notes, (ii) furnish to each broker-dealer who desires to participate in
the Exchange Offer, without charge, as many copies of each Prospectus
included in the Exchange Offer Registration Statement, including any
preliminary prospectus, and any amendment or supplement thereto, as such
broker-dealer may reasonably request, (iii) include in the Exchange Offer
Registration Statement a statement that any broker-dealer who holds
Registrable Notes acquired for its own account as a result of
market-making activities or other trading activities (a "Participating
Broker-Dealer"), and who receives Exchange Notes for Registrable Notes
pursuant to the Exchange Offer, may be a statutory underwriter and must
deliver a prospectus meeting the requirements of the 1933 Act in
connection with any resale of such Exchange Notes, (iv) subject to the
last paragraph of Section 3, hereby consent to the use of the Prospectus
forming part of the Exchange Offer Registration Statement or any amendment
or supplement thereto, by any broker-dealer in connection with the sale or
transfer of the Exchange Notes covered by the Prospectus or any amendment
or supplement thereto, and (v) include in the transmittal letter or
similar documentation to be executed by an exchange offeree in order to
participate in the Exchange Offer (x) the following provision:
"If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage
in, a distribution of Exchange Notes. If the undersigned is a
broker-dealer that will receive Exchange Notes for its own account
in exchange for Registrable Notes, it represents that the
Registrable Notes to be exchanged for Exchange Notes were acquired
by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus
meeting the requirements of the 1933 Act in connection with any
resale of such Exchange Notes pursuant to the Exchange Offer;
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 1933 Act"; and
(y) a statement to the effect that by a broker-dealer making the
acknowledgment described in subclause (x) and by delivering a Prospectus
in connection with the exchange of Registrable Securities, the
broker-dealer will not be deemed to admit that it is an underwriter within
the meaning of the 1933 Act; and
(B) to the extent any Participating Broker-Dealer participates in
the Exchange Offer, the Company shall use its best efforts to cause to be
delivered at the request of an entity representing the Participating
Broker-Dealers (which entity shall be one of the
<PAGE>
13
Initial Purchasers, unless it elects not to act as such representative)
only one, if any, "cold comfort" letter with respect to the Prospectus in
the form existing on the last date for which exchanges are accepted
pursuant to the Exchange Offer and with respect to each subsequent
amendment or supplement, if any, effected during the period specified in
clause (C) below; and
(C) to the extent any Participating Broker-Dealer participates in
the Exchange Offer, the Company shall use its best efforts to maintain the
effectiveness of the Exchange Offer Registration Statement for a period of
120 days following the closing of the Exchange Offer; and
(D) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement as would
otherwise be contemplated by Section 3(b), or take any other action as a
result of this Section 3(f), for a period exceeding 120 days after the
last date for which exchanges are accepted pursuant to the Exchange Offer
(as such period may be extended by the Company) and Participating
Broker-Dealers shall not be authorized by the Company to, and shall not,
deliver such Prospectus after such period in connection with resales
contemplated by this Section 3.
(g) (A) in the case of an Exchange Offer, furnish counsel for the
Initial Purchasers and (B) in the case of a Shelf Registration, furnish
counsel for the Holders of Registrable Notes copies of any request by the
SEC or any state securities authority for amendments or supplements to a
Registration Statement and Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement as soon as
practicable and provide immediate notice to each Holder of the withdrawal
of any such order;
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Notes to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold and not
bearing any restrictive legends; and cause such Registrable Notes to be in
such denominations (consistent with the provisions of the Indenture) and
registered in such names as the selling Holders or the underwriters,
<PAGE>
14
if any, may reasonably request at least one business day prior to the
closing of any sale of Registrable Notes;
(k) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Section
3(e)(vi) hereof, use its best efforts to prepare a supplement or
post-effective amendment to a Registration Statement or the related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers
of the Registrable Notes, such Prospectus will not contain at the time of
such delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company
agrees to notify each Holder to suspend use of the Prospectus as promptly
as practicable after the occurrence of such an event, and each Holder
hereby agrees to suspend use of the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or
omission. At such time as such public disclosure is otherwise made or the
Company determines that such disclosure is not necessary, in each case to
correct any misstatement of a material fact or to include any omitted
material fact, the Company agrees promptly to notify each Holder of such
determination and to furnish each Holder such numbers of copies of the
Prospectus, as amended or supplemented, as such Holder may reasonably
request;
(l) obtain a CUSIP number for all Exchange Notes, or Registrable
Notes, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates
for the Exchange Notes or the Registrable Notes, as the case may be, in a
form eligible for deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), in connection with the
registration of the Exchange Notes, or Registrable Notes, as the case may
be, (ii) cooperate with the Trustee and the Holders to effect such changes
to the Indenture as may be required for the Indenture to be so qualified
in accordance with the terms of the TIA and (iii) execute, and use its
best efforts to cause the Trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents
required to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner;
(n) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and
appropriate actions (including those reasonably requested by the Majority
Holders) in order to expedite or facilitate the disposition of such
Registrable Notes and in such connection whether or not an underwriting
agreement is entered into and whether or not the registration is an
underwritten registration:
<PAGE>
15
(i) make such representations and warranties to the Holders of
such Registrable Notes and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to
underwriters in similar underwritten offerings as may be reasonably
requested by them;
(ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if
any, and the holders of a majority in principal amount of the
Registrable Notes being sold) addressed to each selling Holder and
the underwriters, if any, covering the matters customarily covered
in opinions requested in sales of securities or underwritten
offerings;
(iii) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to
the underwriters, if any, and will use best efforts to have such
letters addressed to the selling Holders of Registrable Notes, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters to underwriters in
connection with similar underwritten offerings;
(iv) enter into a securities sales agreement with the Holders
and an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Notes, which agreement shall be
in form, substance and scope customary for similar offerings; and
(v) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
offerings.
The above shall be done at (i) the effectiveness of such Shelf
Registration Statement (and, if appropriate, each post-effective amendment
thereto) and (ii) each closing under any underwriting or similar agreement
as and to the extent required thereunder. In the case of any underwritten
offering, the Company shall provide written notice to the Holders of all
Registrable Notes of such underwritten offering at least 30 days prior to
the filing of a prospectus supplement for such underwritten offering. Such
notice shall (x) offer each such Holder the right to participate in such
underwritten offering, (y) specify a date, which shall be no earlier than
10 days following the date of such notice, by which such Holder must
inform the Company of its intent to participate in such underwritten
offering and (z) include the instructions such Holder must follow in order
to participate in such underwritten offering;
<PAGE>
16
(o) in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable Notes and
any underwriters participating in any disposition pursuant to a Shelf
Registration Statement and any counsel or accountant retained by such
Holders or underwriters, at reasonable times and in a reasonable manner,
all financial and other records, pertinent corporate documents and
properties of the Company reasonably requested by any such persons, and
cause the respective officers, directors, employees, and any other agents
of the Company to supply all information reasonably requested by any such
representative, underwriter, special counsel or accountant in connection
with such Shelf Registration Statement, provided, however, that such
Persons shall first agree in writing with the Company that any information
that is reasonably and in good faith designated by the Company in writing
as confidential at the time of delivery of such information shall be kept
confidential by such Persons, unless (i) disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities, (ii) disclosure of such information
is required by law (including any disclosure requirements pursuant to
Federal securities laws in connection with the filing of such Shelf
Registration Statement or the use of any Prospectus), (iii) such
information becomes generally available to the public other than as a
result of a disclosure or failure to safeguard such information by such
Person or (iv) such information becomes available to such Person from a
source other than the Company and its subsidiaries and such source is not
bound by a confidentiality agreement; provided, further, that the
foregoing investigation shall be coordinated on behalf of the Holders by
one representative designated by and on behalf of such Holders and any
such confidential information shall be available from such representative
to such Holders so long as any Holder agrees to be bound by such
confidentiality agreement;
(p) (i) a reasonable time prior to the filing of any Exchange Offer
Registration Statement, any Prospectus forming a part thereof, any
amendment to an Exchange Offer Registration Statement or amendment or
supplement to a Prospectus, provide copies of such document to the Initial
Purchasers, and make such changes in any such document prior to the filing
thereof as any of the Initial Purchasers or their counsel may reasonably
request; (ii) in the case of a Shelf Registration, a reasonable time prior
to filing any Shelf Registration Statement, any Prospectus forming a part
thereof, any amendment to such Shelf Registration Statement or amendment
or supplement to such Prospectus, provide copies of such document to the
Holders of Registrable Notes, to the Initial Purchasers, to counsel on
behalf of the Holders and to the underwriter or underwriters of an
underwritten offering of Registrable Notes, if any, and make such changes
in any such document prior to the filing thereof as the Holders of
Registrable Notes, the Initial Purchasers on behalf of such Holders, their
counsel and any underwriter may reasonably request; and (iii) cause the
representatives of the Company to be available for discussion of such
document as shall be reasonably requested by the
<PAGE>
17
Holders of Registrable Notes, the Initial Purchasers on behalf of such
Holders or any underwriter and shall not at any time make any filing of
any such document of which such Holders, the Initial Purchasers on behalf
of such Holders, their counsel or any underwriter shall not have
previously been advised and furnished a copy or to which such Holders, the
Initial Purchasers on behalf of such Holders, their counsel or any
underwriter shall reasonably object, each of which actions in this clause
(iii) by the Holders shall be coordinated by one representative for all
the Holders at reasonable times and in a reasonable manner;
(q) in the case of a Shelf Registration, use their best efforts to
cause all Registrable Securities to be listed on any securities exchange
on which similar debt securities issued by the Company are then listed if
requested by the Majority Holders or by the underwriter or underwriters of
an underwritten offering of Registrable Securities, if any;
(r) in the case of a Shelf Registration, unless the rating in effect
for the Notes applies to the Exchange Notes and the Notes to be sold
pursuant to a Shelf Registration, use its best efforts to cause the
Registrable Notes to be rated with the appropriate rating agencies, if so
requested by the Majority Holders or by the underwriter or underwriters of
an underwritten offering of Registrable Notes, if any, unless the
Registrable Notes are already so rated;
(s) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
at least 12 months which shall satisfy the provisions of Section 11(a) of
the 1933 Act and Rule 158 thereunder; and
(t) cooperate and assist in any filings required to be made with the
NASD.
In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Notes to furnish to the Company such information regarding
such Holder and the proposed distribution by such Holder of such Registrable
Notes and make such representations, in each case, as the Company may from time
to time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
or the discovery of any facts, each of the kind described in Section
3(e)(ii)-(vi) hereof, such Holder will forthwith discontinue disposition of
Registrable Notes pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3(k) hereof, and, if so directed by the Company, such Holder will
deliver to the
<PAGE>
18
Company (at its expense) all copies in its possession, other than permanent file
copies then in such Holder's possession, of the Prospectus covering such
Registrable Notes current at the time of receipt of such notice. If the Company
shall give any such notice to suspend the disposition of Registrable Notes
pursuant to a Shelf Registration Statement as a result of the happening of any
event or the discovery of any facts, each of the kind described in Section
3(e)(vi) hereof, the Company shall be deemed to have used its best efforts to
keep the Shelf Registration Statement effective during such period of suspension
provided that the Company shall use its best efforts to file and have declared
effective (if an amendment) as soon as practicable an amendment or supplement to
the Shelf Registration Statement and shall extend the period during which the
Registration Statement shall be maintained effective pursuant to this Agreement
by the number of days during the period from and including the date of the
giving of such notice to and including the date when the Holders shall have
received copies of the supplemented or amended Prospectus necessary to resume
such dispositions.
4. Underwritten Registrations. If any of the Registrable Notes
covered by any Shelf Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Majority Holders of such Registrable
Notes included in such offering and shall be reasonably acceptable to the
Company.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
5. Indemnification and Contribution. (a) The Company shall indemnify
and hold harmless each Initial Purchaser, each Holder (in its capacity as a
Holder), including Participating Broker-Dealers, their respective affiliates,
and their respective directors, officers, employees, agents and each Person, if
any, who controls any of such parties within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever (which, in the case of legal fees, will be reasonable), as
incurred, arising out of any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement (or any
amendment thereto) pursuant to which Exchange Notes or Registrable Notes
were registered under the 1933 Act, including all documents incorporated
therein by reference, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of any untrue statement
or alleged untrue statement of a
<PAGE>
19
material fact contained in any Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever (which, in the case of legal fees, will be reasonable), as
incurred, to the extent of the aggregate amount paid in settlement of any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission; provided that (subject to Section 5(d) below) any
such settlement is effected with the written consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of counsel chosen by any
indemnified party), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding by
any court or governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under subparagraph (i) or (ii) of this Section 5(a);
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Initial Purchasers, any Holder (in its capacity as a Holder), including
Participating Broker-Dealers, expressly for use in the Registration Statement
(or any amendment or supplement thereto) or the Prospectus (or any amendment or
supplement thereto). The foregoing indemnity with respect to any untrue
statement contained in or any omission from a Prospectus shall not inure to the
benefit of any Initial Purchaser, any Holder (in its capacity as a Holder),
including Participating Broker-Dealers (or any person who controls such party
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act)
from whom the person asserting any such loss, liability, claim, damage or
expense purchased any of the Notes that are the subject thereof, was not sent or
given a copy of such Prospectus (as amended or supplemented) by such Initial
Purchaser or such selling Holder (in its capacity as a Holder) to the extent
such Initial Purchaser or such selling Holder (in its capacity as a Holder) was
required by law to deliver such Prospectus as amended or supplemented, at or
prior to the written confirmation of the sale of such Notes and the untrue
statement contained in or the omission from such Prospectus was corrected in
such amended or supplemented Prospectus, unless such failure resulted from
noncompliance by the Company with its obligations hereunder to furnish Initial
Purchaser or such Holder (in its capacity as a Holder), as the case may be, with
copies of such Prospectus as amended or supplemented.
<PAGE>
20
(b) In the case of a Shelf Registration, each Holder (in its
capacity as a Holder) agrees, severally and not jointly, to indemnify and hold
harmless the Company, each Initial Purchaser and the other selling Holders (in
their capacity as Holders) and each of their respective directors and officers
(including each officer of the Company who signed the Registration Statement)
and each Person, if any, who controls the Company, any Initial Purchaser or any
other selling Holder (in their capacity as Holders) within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all
loss, liability, claim, damage and expense whatsoever described in the indemnity
contained in Section 5(a) hereof, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by such Holder (in its capacity as a
Holder), as the case may be, expressly for use in the Registration Statement (or
any amendment thereto), or the Prospectus (or any amendment or supplement
thereto); provided, however, that no such Holder (in its capacity as a Holder)
shall be liable for any claims hereunder in excess of the amount of net proceeds
received by such Holder (in its capacity as a Holder) from the sale of
Registrable Notes pursuant to such Shelf Registration Statement.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to either paragraph (a) or
paragraph (b) above, such person (the "indemnified party") shall give notice as
promptly as reasonably practicable to each person against whom such indemnity
may be sought (the "indemnifying party"), but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. An indemnifying party may
participate at its own expense in the defense of such action; provided, however,
that counsel to the indemnifying party shall not (except with the consent of the
indemnified party) also be counsel to the indemnified party. In no event shall
the indemnifying party or parties be liable for the fees and expenses of more
than one counsel (in addition to any local counsel) for all indemnified parties
in connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 5 hereof (whether or not the indemnified parties are actual
or potential parties thereof), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) 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.
<PAGE>
21
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 5(a)(ii) hereof effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request with such request prior to the date of such
settlement.
(e) If the indemnification provided for in any of the indemnity
provisions set forth in this Section 5 is for any reason unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred, (i) in such proportion as is appropriate to reflect the relative
benefits received by such indemnifying party or parties on the one hand, and
such indemnified party or parties on the other hand, from the offering of the
Exchange Notes or Registrable Notes included in such offering or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of such indemnifying party or
parties on the one hand, and such indemnified party or parties on the other
hand, in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party or
parties on the one hand, and such indemnified party or parties, on the other
hand shall be determined by reference to, among other things, whether any such
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by such
indemnifying party or parties or such indemnified party or parties and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, the Initial
Purchasers and the Holders (in their capacity as Holders) of the Registrable
Securities agree that it would not be just and equitable if contribution
pursuant to this Section 5 were determined by pro rata allocation (even if the
Initial Purchasers were treated as one entity, and the Holders (in their
capacity as Holders) were treated as one entity, for such purpose) or by another
method of allocation which does not take account of the equitable considerations
referred to above in Section 5. The aggregate amount of losses, liabilities,
claims, damages and expenses incurred by an indemnified party and referred to
above in this Section 5 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in investigating, preparing or
defending against any litigation, or any investigation or proceeding by an
governmental agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of
<PAGE>
22
Section 11(f) of the 1993 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 5, each person, if any, who controls an Initial Purchaser or Holder
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as such Initial Purchaser or Holder
(in its capacity as a Holder), and each director of the Company, each officer of
the Company who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company.
The parties hereto agree that any underwriting discount or commission or
reimbursement of fees paid to any Initial Purchaser pursuant to the Purchase
Agreement shall not be deemed to be a benefit received by any Initial Purchaser
in connection with the offering of the Exchange Securities or Registrable
Securities in such offering.
(f) In connection with any underwriter Offering of Registrable Notes
permitted by this Agreement, the Company will also indemnify the underwriters,
if any, and each Person, if any, also controls any of them within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act to the same extent as
provided in this Section 5 with respect to the indemnification of the Holders,
if requested in connection with any Registration Statement.
6. Miscellaneous. (a) Rule 144 and Rule 144A. For so long as the
Company is subject to the reporting requirements of Section 13 or 15 of the 1934
Act, the Company covenants that it will file the reports required to be filed by
it under Section 13(a) or 15(d) of the 1934 Act and the rules and regulations
adopted by the SEC thereunder, that if it ceases to be so required to file such
reports, it will upon the request of any Holder of Registrable Notes (i) make
publicly available such information as is necessary to permit sales pursuant to
Rule 144 under the 1933 Act, (ii) deliver such information to a prospective
purchaser as is necessary to permit sales pursuant to Rule 144A under the 1933
Act and it will take such further action as any Holder of Registrable Notes may
reasonably request, and (iii) take such further action that is reasonable in the
circumstances, in each case, to the extent required from time to time to enable
such Holder to sell its Registrable Notes without registration under the 1933
Act within the limitation of the exemptions provided by (x) Rule 144 under the
1933 Act, as such Rule may be amended from time to time, (y) Rule 144A under the
1933 Act, as such Rule may be amended from time to time, or (z) any similar
rules or regulations hereafter adopted by the SEC. Upon the request of any
Holder of Registrable Notes, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
(b) No Inconsistent Agreements. The Company has not entered into nor
will the Company on or after the date of this Agreement enter into any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Notes in this Agreement or otherwise conflicts with the provisions hereof. The
rights granted to the Holders hereunder do
<PAGE>
23
not in any way conflict with and are not inconsistent with the rights granted to
the holders of the Company's other issued and outstanding securities under any
such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Notes affected by such amendment, modification, supplement, waiver
or departure; provided, however, that no amendment, modification, supplement or
waiver or consent to any departure from the provisions of Section 5 hereof shall
be effective as against any Holder of Registrable Notes unless consented to in
writing by such Holder.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telecopier, or any courier guaranteeing overnight delivery (i)
if to a Holder (other than an Initial Purchaser), at the most current address
set forth on the records of the Registrar under the Indenture, (ii) if to an
Initial Purchaser, at the most current address given by such Initial Purchaser
to the Company by means of a notice given in accordance with the provisions of
this Section 6(d), which address initially is the address set forth in the
Purchase Agreement; and (iii) if to the Company, initially at the Company's
address set forth in the Purchase Agreement and thereafter at such other
address, notice of which is given in accordance with the provisions of this
Section 6(d).
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when receipt is acknowledged, if telecopied; and on the next business day if
timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications shall
be concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Securities in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Registrable Notes, in
any manner, whether by operation of law or otherwise, such Registrable Notes
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Notes, such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and
<PAGE>
24
provisions of this Agreement, including the restrictions on resale set forth in
this Agreement and, if applicable, the Purchase Agreement, and such Person shall
be entitled to receive the benefits hereof.
(f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE>
25
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
E&S HOLDINGS CORPORATION,
a Delaware corporation
By:______________________________
Name:
Title:
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
NATIONSBANC CAPITAL MARKETS, INC.
BA SECURITIES, INC.
BT SECURITIES CORPORATION
By: MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: ____________________________
Authorized Signatory
By: NATIONSBANC CAPITAL MARKETS, INC.
By: ____________________________
Authorized Signatory
For themselves and the other
Initial Purchasers named above.
<PAGE>
EXHIBIT 10.1
$650,000,000
CREDIT AGREEMENT
Dated as of September 30, 1996
among
E&S HOLDINGS CORPORATION,
as the Borrower,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Swing Line Lender,
as Fronting Lender and
as Administrative Agent,
MERRILL LYNCH CAPITAL CORPORATION,
as Documentation Agent,
NATIONSBANK, N.A. (SOUTH),
as Syndication Agent,
and
THE FINANCIAL INSTITUTIONS PARTIES HERETO,
as Lenders.
Arranged By
BA SECURITIES, INC.
MERRILL LYNCH & CO.
NATIONSBANC CAPITAL MARKETS, INC.
<PAGE>
TABLE OF CONTENTS
(continued)
SECTION PAGE
(c) The Tranche C Term Credit . . . . . . . . . . . . . . . . . 39
(d) The Tranche D Term Credit . . . . . . . . . . . . . . . . . 39
(e) The Revolving Credit. . . . . . . . . . . . . . . . . . . . 39
(f) The Swing Line Credit . . . . . . . . . . . . . . . . . . . 39
2.10. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(a) Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(b) Payment Dates . . . . . . . . . . . . . . . . . . . . . . . 39
(c) Default Rate. . . . . . . . . . . . . . . . . . . . . . . . 40
(d) Maximum Rate. . . . . . . . . . . . . . . . . . . . . . . . 40
2.11. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(a) Arrangement, Agency Fees; etc.. . . . . . . . . . . . . . . 40
(b) Commitment Fees . . . . . . . . . . . . . . . . . . . . . . 40
2.12. Computation of Fees and Interest . . . . . . . . . . . . . . . . 40
2.13. Payments by the Borrower . . . . . . . . . . . . . . . . . . . . 41
2.14. Payments by the Lenders to the Administrative Agent. . . . . . . 41
2.15. Sharing of Payments, etc.. . . . . . . . . . . . . . . . . . . . 42
ARTICLE III
LETTERS OF CREDIT AND ACCEPTANCES
3.1. Letter of Credit and Acceptance Subfacilities. . . . . . . . . . 42
3.2. Issuance, Amendment and Renewal of Letters of Credit . . . . . . 44
3.3. Creation of Acceptances. . . . . . . . . . . . . . . . . . . . . 46
3.4. Letter of Credit/Banker's Acceptance Participations, Drawings
and Reimbursements. . . . . . . . . . . . . . . . . . . . . 47
3.5. Repayment of Participations. . . . . . . . . . . . . . . . . . . 49
3.6. Role of the Fronting Lender. . . . . . . . . . . . . . . . . . . 49
3.7. Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . 50
3.8. Letter of Credit and Acceptance Fees . . . . . . . . . . . . . . 51
3.9. The Borrower's Guaranty of Special Facility Obligations of its
Restricted Subsidiaries . . . . . . . . . . . . . . . . . . 52
3.10. No Waiver With Respect to Acceptances. . . . . . . . . . . . . . 53
3.11. Uniform Customs and Practice . . . . . . . . . . . . . . . . . . 53
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.1. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.2. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
4.3. Increased Costs and Reduction of Return. . . . . . . . . . . . . 56
4.4. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . 57
<PAGE>
TABLE OF CONTENTS
(continued)
SECTION PAGE
4.5. Inability to Determine Rates . . . . . . . . . . . . . . . . . . 58
4.6. Notice from Lenders. . . . . . . . . . . . . . . . . . . . . . . 58
4.7. Change of Lending Office . . . . . . . . . . . . . . . . . . . . 58
4.8. Notice of Certain Costs. . . . . . . . . . . . . . . . . . . . . 58
4.9. Replacement of Lenders . . . . . . . . . . . . . . . . . . . . . 58
4.10. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE V
CONDITIONS PRECEDENT
5.1. Conditions of Initial Credit Extensions. . . . . . . . . . . . . 59
(a) Credit Agreement. . . . . . . . . . . . . . . . . . . . . . 59
(b) Resolutions; Incumbency . . . . . . . . . . . . . . . . . . 60
(c) Organization Documents; Good Standing . . . . . . . . . . . 60
(d) Legal Opinions. . . . . . . . . . . . . . . . . . . . . . . 60
(e) Payment of Fees . . . . . . . . . . . . . . . . . . . . . . 60
(f) Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . 60
(g) Pledge Agreement. . . . . . . . . . . . . . . . . . . . . . 61
(h) Consummation of Recapitalization. . . . . . . . . . . . . . 61
(i) Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . 61
(j) Other Indebtedness. . . . . . . . . . . . . . . . . . . . . 61
(k) Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(l) Issuance of Preferred Stock . . . . . . . . . . . . . . . . 61
(m) Subordinated Debt . . . . . . . . . . . . . . . . . . . . . 61
(n) Availability of Revolving Commitments . . . . . . . . . . . 62
(o) Insurance Certificate . . . . . . . . . . . . . . . . . . . 62
(p) Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 62
(q) Certificate . . . . . . . . . . . . . . . . . . . . . . . . 62
5.2. Conditions to All Credit Extensions. . . . . . . . . . . . . . . 63
(a) Notice of Credit Extension. . . . . . . . . . . . . . . . . 63
(b) Continuation of Representations and Warranties. . . . . . . 63
(c) No Existing Default . . . . . . . . . . . . . . . . . . . . 63
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1. Corporate Existence and Power. . . . . . . . . . . . . . . . . . 63
6.2. Corporation Authorization; No Contravention; Binding Effect. . . 64
6.3. Governmental Authorization . . . . . . . . . . . . . . . . . . . 64
6.4. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.5. ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . 65
<PAGE>
TABLE OF CONTENTS
(continued)
SECTION PAGE
6.6. Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . 65
6.7. Title to Properties. . . . . . . . . . . . . . . . . . . . . . . 65
6.8. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.9. Financial Condition. . . . . . . . . . . . . . . . . . . . . . . 66
6.10. Trademarks, Copyrights, Patents and Licenses, etc. . . . . . . . 66
6.11. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.12. Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . 66
6.13. Compliance with Environmental Laws . . . . . . . . . . . . . . . 67
ARTICLE VII
AFFIRMATIVE COVENANTS
7.1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . 67
7.2. Certificates; Other Information. . . . . . . . . . . . . . . . . 68
7.3. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
7.4. Preservation of Corporate Existence, etc.. . . . . . . . . . . . 69
7.5. Maintenance of Property. . . . . . . . . . . . . . . . . . . . . 69
7.6. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
7.7. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . 70
7.8. Compliance with Statues, etc.. . . . . . . . . . . . . . . . . . 70
7.9. Inspection of Property and Books and Records . . . . . . . . . . 70
7.10. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . 70
7.11. Future Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . 70
7.12. Transactions with Affiliates . . . . . . . . . . . . . . . . . . 71
7.13. Change in Business . . . . . . . . . . . . . . . . . . . . . . . 71
7.14. End of the Fiscal Year . . . . . . . . . . . . . . . . . . . . . 71
ARTICLE VIII
NEGATIVE COVENANTS
8.1. Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . . 72
8.2. Consolidations and Mergers; Sales of Assets. . . . . . . . . . . 74
8.3. Loans, Acquisitions and Investments. . . . . . . . . . . . . . . 74
8.4. Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . 76
8.5. Restricted Payments. . . . . . . . . . . . . . . . . . . . . . . 77
8.6. Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . 79
8.7. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . 81
8.8. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
ARTICLE IX
<PAGE>
TABLE OF CONTENTS
(continued)
SECTION PAGE
EVENTS OF DEFAULT
9.1. Event of Default . . . . . . . . . . . . . . . . . . . . . . . . 81
(a) Non-Payment . . . . . . . . . . . . . . . . . . . . . . . . 82
(b) Representation or Warranty. . . . . . . . . . . . . . . . . 82
(c) Specific Defaults . . . . . . . . . . . . . . . . . . . . . 82
(d) Other Defaults. . . . . . . . . . . . . . . . . . . . . . . 82
(e) Cross-Default . . . . . . . . . . . . . . . . . . . . . . . 82
(f) Insolvency; Voluntary Proceedings . . . . . . . . . . . . . 82
(g) Involuntary Proceedings . . . . . . . . . . . . . . . . . . 83
(h) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
(i) Judgments . . . . . . . . . . . . . . . . . . . . . . . . . 83
(j) Change of Control . . . . . . . . . . . . . . . . . . . . . 83
(k) Collateral. . . . . . . . . . . . . . . . . . . . . . . . . 83
9.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
9.3. Rights Not Exclusive . . . . . . . . . . . . . . . . . . . . . . 84
ARTICLE X
THE AGENTS
10.1. Appointment and Authorization; "Administrative Agent". . . . . . 84
10.2. Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . 85
10.3. Limitation on Liability of Agents and Agent-Related Persons. . . 85
10.4. Reliance by Administrative Agent . . . . . . . . . . . . . . . . 85
10.5. Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . 86
10.6. Credit Decision. . . . . . . . . . . . . . . . . . . . . . . . . 86
10.7. Indemnification of Agents and Agent-Related Persons. . . . . . . 87
10.8. Agents in Individual Capacity. . . . . . . . . . . . . . . . . . 87
10.9. Successor Administrative Agent . . . . . . . . . . . . . . . . . 87
10.10. Withholding Tax. . . . . . . . . . . . . . . . . . . . . . . . . 88
10.11. Collateral Matters . . . . . . . . . . . . . . . . . . . . . . . 88
10.12. Copies, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 89
ARTICLE XI
MISCELLANEOUS
11.1. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . 89
11.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
11.3. No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . 91
11.4. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . 91
11.5. Borrower Indemnification . . . . . . . . . . . . . . . . . . . . 92
<PAGE>
TABLE OF CONTENTS
(continued)
SECTION PAGE
11.6. Marshalling; Payments Set Aside. . . . . . . . . . . . . . . . . 92
11.7. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 93
11.8. Assignments, Participations, etc.. . . . . . . . . . . . . . . . 93
11.9. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . 95
11.10. Set-off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
11.11. Notification of Addresses, Lending Offices, etc. . . . . . . . . 96
11.12. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 96
11.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 96
11.14. No Third Parties Benefited . . . . . . . . . . . . . . . . . . . 96
11.15. Governing Law and Jurisdiction . . . . . . . . . . . . . . . . . 96
11.16. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . 97
11.17. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 97
<PAGE>
1
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of September 30, 1996, among E&S HOLDINGS
CORPORATION, a Delaware corporation (the "Borrower"), the several financial
institutions from time to time party to this Agreement (collectively, the
"Lenders", and, individually, a "Lender") and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as swing line lender, as fronting lender and as
administrative agent for the Lenders, together with MERRILL LYNCH CAPITAL
CORPORATION, as documentation agent for the Lenders, NATIONSBANK, N.A. (SOUTH),
as syndication agent for the Lenders, the several financial institutions
specifically identified as co-agents on the signature pages hereof (the
"Co-Agents") and the several financial institutions specifically identified as
lead managers on the signature pages hereof (the "Lead Managers").
W I T N E S S E T H:
WHEREAS, the Borrower and Strata Associates L.P., a newly formed
Delaware limited partnership ("Holdings") organized at the direction of KKR
(such capitalized term, and other capitalized terms used in these recitals, to
have the meanings set forth in Section 1.1) and Abarco, N.V., a Netherlands
Antilles corporation ("Abarco"), are parties to the Recapitalization and Stock
Purchase Agreement dated as of August 15, 1996 (the "Recapitalization and Stock
Purchase Agreement");
WHEREAS, in accordance with the terms of the Recapitalization and Stock
Purchase Agreement, the Borrower shall, among other things, (a) repay
Indebtedness of the Borrower and its Subsidiaries identified on Schedule 5.1(j)
(the "Refinancing") in an aggregate amount of approximately $367,000,000, (b)
redeem a portion of the shares of Common Stock, par value $0.01 per share, of
the Borrower (the "Common Stock") held by Abarco for consideration comprised of
certain notes receivable having an aggregate principal amount outstanding of
approximately $58,000,000, all the capital stock of E&S Realco, Inc., a Delaware
corporation, and cash of approximately $522,500,000 (the "Redemption") and (c)
cause the repurchase of all the shares of the common stock of Spalding & Evenflo
Companies, Inc., a Delaware corporation ("S&E"), by S&E not owned by the
Borrower for consideration of approximately $28,500,000 (the "Repurchase", and,
together with the Refinancing and the Redemption, the "Recapitalization");
WHEREAS, in order to (a) fund the Refinancing, (b) finance the
Repurchase, (c) provide a portion of the financing for the Redemption, (d) pay
costs and expenses related to the Recapitalization and the transactions
contemplated thereby and hereby and (e) provide financing for the working
capital and other general corporate purposes of the Borrower and its
<PAGE>
2
Subsidiaries following the consummation of the Recapitalization, the Borrower
has requested that the Lenders make available to the Borrower:
(i) a Tranche A Term Commitment pursuant to which Tranche A
Term Loans in an aggregate principal amount of up to $175,000,000 may
be borrowed in a single borrowing to occur on the Closing Date;
(ii) a Tranche B Term Commitment pursuant to which Tranche B
Term Loans in an aggregate principal amount of up to $87,500,000 may be
borrowed in a single borrowing to occur on the Closing Date;
(iii) a Tranche C Term Commitment pursuant to which Tranche C
Term Loans in an aggregate principal amount of up to $87,500,000 may be
borrowed in a single borrowing to occur on the Closing Date;
(iv) a Tranche D Term Commitment pursuant to which Tranche D
Term Loans in an aggregate principal amount of up to $50,000,000 may be
borrowed in a single borrowing to occur on the Closing Date; and
(v) a Revolving Commitment pursuant to which (A) Revolving
Loans may be borrowed from time to time from and after the Closing Date
to the Revolving Commitment Termination Date and (B) as subfacilities
of the Revolving Commitment, (1) a Swing Line Facility and (2) a
Special Facility pursuant to which letters of credit may be issued
and/or banker's acceptances may be created from time to time from and
after the Closing Date to the Revolving Commitment Termination Date;
provided that in no event shall (x) the aggregate amount of all
Revolving Loans, Swing Line Loans and Special Facility Obligations
exceed $250,000,000 at any one time and (y) the aggregate amount of all
Revolving Loans, Swing Line Loans and Special Facility Obligations used
for the purposes described in clauses (b), (c) and (d) above exceed
$40,000,000;
WHEREAS, all Obligations hereunder and under the other Loan Documents
will be guaranteed by S&E and each of the other Domestic Subsidiaries that are
Material Subsidiaries; and
WHEREAS, all Obligations hereunder and under the other Loan Documents
will be secured by a pledge of all issued and outstanding capital stock of S&E
and each of the other direct Domestic Subsidiaries of the Borrower that are
Material Subsidiaries;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties hereto hereby agree as follows:
<PAGE>
3
ARTICLE I
DEFINITIONS
1.1. Certain Defined Terms. The following terms have the following
meanings:
"Abarco" has the meaning specified in the first recital to this
Agreement.
"Acceptance" means an acceptance created by the Fronting Lender under
the Special Facility Commitment in accordance with Article III, at the request
of, and for the account of, the Borrower or any of its Restricted Subsidiaries,
including all acceptances deemed to be created hereunder pursuant to Section
3.1(c).
"Acceptance Obligations" means the sum of (a) the aggregate face amount
of all unmatured Acceptances plus (b) the aggregate face amount of all
unreimbursed matured Acceptances, including all outstanding Special Facility
Borrowings in respect of matured Acceptances.
"Acceptance Reference Rate" means, relative to any term for any
Acceptance, the rate per annum equal to the rate agreed to from time to time
between the Borrower and the Fronting Lender.
"Account Party" means the Borrower or any of its Restricted
Subsidiaries for the account of which a Letter of Credit is Issued or an
Acceptance is created in accordance with Article III hereof.
"Acquisition" means any transaction or series of related transactions
for the purpose of or resulting, directly or indirectly, in (a) the acquisition
of all or substantially all of the assets of a Person, or of any business or
division of a Person, (b) the acquisition of in excess of 50% of the capital
stock, partnership interests, membership interests or equity of any Person, or
otherwise causing any Person to become a Subsidiary, (c) a merger or
consolidation or any other combination with another Person (other than with a
Person that is a Restricted Subsidiary), provided that the Borrower or one of
its Restricted Subsidiaries is the surviving entity or (d) an Unrestricted
Subsidiary becoming a Restricted Subsidiary.
"Administrative Agent" means BofA in its capacity as administrative
agent for the Lenders hereunder and under the other Loan Documents, together
with any successor administrative agent appointed in accordance with Section
10.9.
<PAGE>
4
"Administrative Agent's Payment Office" means the address for payments
set forth on Schedule 11.2 or such other address as the Administrative Agent may
from time to time specify in writing.
"Affiliate" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by or is under common control
with, such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power (a) to vote 10%
or more of the securities having ordinary voting power for the election of
directors of such other Person or (b) to direct or cause the direction of the
management and policies of the other Person, whether through the ownership of
voting securities, membership interests, by contract or otherwise.
"Agent-Related Persons" means BofA and any successor administrative
agent appointed in accordance with Section 10.9, together with their respective
Affiliates (including, in the case of BofA, BA Securities, Inc., in its role as
a Co-Arranger of the Facilities), the Documentation Agent, together with its
Affiliates (including Merrill Lynch & Co., in its role as a Co-Arranger of the
Facilities), the Syndication Agent, together with its Affiliates (including
NationsBanc Capital Markets, Inc., in its role as a Co-Arranger of the
Facilities), and the officers, directors, employees and agents of each of the
foregoing Persons and Affiliates.
"Agents" means, collectively, the Administrative Agent, the
Documentation Agent and the Syndication Agent.
"Agreement" means this Credit Agreement.
"Applicable Margin" means, with respect to the Revolving Loans, the
Tranche A Term Loans or the Commitment Fee, as of any date, the rate per annum
determined pursuant to the following pricing grid (expressed in basis points),
subject to the provisions of this definition set forth below:
<PAGE>
5
Pricing Grid
<TABLE>
<CAPTION>
=============================================================================================================================
Ratio of Consolidated
Total Debt to
Consolidated EBITDA Eurodollar Rate Margin Base Rate Margin Commitment Fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
X LESS THAN 5.5 225.0 125.0 42.5
- -----------------------------------------------------------------------------------------------------------------------------
X LESS THAN= 5.5, but GREATER THAN 5.0 200.0 100.0 37.5
- -----------------------------------------------------------------------------------------------------------------------------
X LESS THAN= 5.0, but GREATER THAN 4.5 162.5 62.5 37.5
- -----------------------------------------------------------------------------------------------------------------------------
X LESS THAN= 4.5, but GREATER THAN 4.0 137.5 37.5 35.0
- -----------------------------------------------------------------------------------------------------------------------------
X LESS THAN= 4.0, but GREATER THAN 3.5 112.5 12.5 30.0
- -----------------------------------------------------------------------------------------------------------------------------
X LESS THAN= 3.5, but GREATER THAN 3.0 87.5 0.0 25.0
- -----------------------------------------------------------------------------------------------------------------------------
X LESS THAN= 3.0 62.5 0.0 20.0
=============================================================================================================================
</TABLE>
The Applicable Margin, at any time from and including the Closing Date
until the date which is six months after the Closing Date, for (a) the Tranche A
Term Loans and the Revolving Loans shall be 1.25% as to Base Rate Loans at such
time and 2.25% as to Eurodollar Loans at such time and (b) the Commitment Fee
shall be 0.50% at such time.
The Applicable Margin, at all times, for Tranche B Term Loans shall be
1.75% for Base Rate Loans and 2.75% for Eurodollar Loans.
The Applicable Margin, at all times, for Tranche C Term Loans shall be
2.25% for Base Rate Loans and 3.25% for Eurodollar Loans.
The Applicable Margin, at all times, for Tranche D Term Loans shall be
2.75% for Base Rate Loans and 3.75% for Eurodollar Loans.
The Applicable Margin, at any time from and after the date which is six
months after the Closing Date, for Tranche A Term Loans, Revolving Loans and the
Commitment Fee, shall be determined pursuant to the Pricing Grid above at such
time. At all times that the Applicable Margin is determined by reference to the
Pricing Grid, "X" refers to the ratio of Consolidated Total Debt to Consolidated
EBITDA, which ratio shall be determined based upon the Compliance Certificate
delivered pursuant to clause (b) of Section 7.2 and shall remain in effect until
such time as the next Compliance Certificate shall be delivered (and, at such
time, the Applicable Margin shall change based on such next Compliance
Certificate); provided, however, that, if (i) any such Compliance Certificate is
not delivered to the Administrative Agent on or prior to the date required
pursuant to clause (b) of Section 7.2 and (ii) such Compliance Certificate
indicates a ratio of Consolidated Total Debt to Consolidated EBITDA that would
result in an Applicable Margin which is greater than the Applicable Margin then
in effect, then (A) such greater Applicable Margin shall be deemed to be in
effect for all purposes of this Agreement from the date such Compliance
Certificate was required to be delivered to the Administrative Agent pursuant to
clause (b) of Section 7.2 and (B) in furtherance of the other
<PAGE>
6
terms of this proviso, if the Borrower shall have made any payment in respect of
interest or fees during the period from the date such Compliance Certificate was
required to be delivered to the actual date of delivery of such Compliance
Certificate, then the Borrower shall pay in the form of a supplemental payment
of interest and/or fees, an amount which equals the difference between the
amount of interest and/or fees that would otherwise have been paid determined as
if such Compliance Certificate was delivered on the date such Compliance
Certificate was required to be delivered and the amount of such interest and/or
fees so paid, which supplemental payment of interest and/or fees shall be due
and payable on the actual date of delivery of such Compliance Certificate.
"Assignment and Acceptance" has the meaning specified in Section
11.8(a).
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C.ss.101, et seq.).
"Base Rate" means, for any day, the higher of: (a) 0.50% per annum
above the latest Federal Funds Rate; and (b) the rate of interest in effect for
such day as publicly announced from time to time by BofA in San Francisco,
California, as its "reference rate." (The "reference rate" is a rate set by BofA
based upon various factors including BofA's costs and desired return, general
economic conditions and other factors, and is used as a reference point for
pricing some loans, which may be priced at, above or below such announced rate.)
Any change in the reference rate announced by BofA shall take effect at the
opening of business on the day specified in the public announcement of such
change.
"Base Rate Loan" means a Loan or Special Facility Borrowing that bears
interest based on the Base Rate.
"BofA" means Bank of America National Trust and Savings Association, a
national banking association.
"Borrower" has the meaning specified in the preamble.
"Borrowing" means a borrowing hereunder consisting of Loans of the same
Type made to the Borrower on the same day by the Lenders under Article II, and,
in the case of Eurodollar Rate Loans, having the same Interest Period.
"Borrowing Date" means any date on which a Borrowing occurs under
Section 2.3.
"Business Day" means (a) any day other than a Saturday, Sunday or other
day on which commercial lenders in New York City, Chicago, Illinois or San
Francisco, California are authorized or required by law to close and (b) if the
applicable Business Day relates to any Eurodollar Loan, a Business Day described
in the preceding clause (a) on which dealings are also carried on in the
applicable offshore dollar interbank market.
<PAGE>
7
"Capital Adequacy Regulation" means any guideline, request or directive
of any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any Lender or of any corporation controlling a Lender.
"Capital Expenditures" means, for any period, the aggregate of all
expenditures (whether paid in cash or accrued as liabilities and including in
all events all amounts expended or capitalized under Capital Leases, but
excluding any amount representing capitalized interest) by the Borrower and its
Restricted Subsidiaries during such period that, in conformity with GAAP, are or
are required to be included as additions during such period to property, plant
or equipment reflected in the consolidated balance sheet of the Borrower and its
Restricted Subsidiaries, provided that the term "Capital Expenditures" shall not
include (a) expenditures made in connection with the replacement, substitution
or restoration of assets (i) to the extent financed from insurance proceeds paid
on account of the loss of or damage to the assets being replaced or restored or
(ii) with awards of compensation arising from the taking by eminent domain or
condemnation of the assets being replaced, (b) the purchase price of equipment
that is purchased simultaneously with the trade-in of existing equipment to the
extent that the gross amount of such purchase price is reduced by the credit
granted by the seller of such equipment for the equipment being traded in at
such time, (c) the purchase of plant, property or equipment made within one year
of the sale of any asset to the extent purchased with the proceeds of such sale
and (d) the portion of the purchase price in connection with any Acquisition
that would otherwise be included as additions to property, plant or equipment.
"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, or is required to be, accounted for as a capital lease
on the balance sheet of that Person.
"capital stock" means, with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock of, or ownership interests in, such Person, including if such
Person is a partnership, partnership interests (whether general or limited) and
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,
such partnership.
"Capitalized Lease Liabilities" means all obligations under Capital
Leases of the Borrower or any of its Restricted Subsidiaries, in each case taken
at the amount thereof accounted as a capital lease obligation in accordance with
GAAP.
"Cash Equivalents" means:
(a) securities issued or unconditionally guaranteed by the United
States government or any agency or instrumentality thereof, in each case having
maturities of not more than 24 months from the date of acquisition thereof;
<PAGE>
8
(b) securities issued by any state of the United States of America or
any political subdivision of any such state or any public instrumentality
thereof or any political subdivision of any such state or any public
instrumentality thereof having maturities of not more than 24 months from the
date of acquisition thereof and, at the time of acquisition, having an
investment grade rating generally obtainable from either Rating Agency (or, if
at any time neither Rating Agency shall be rating such obligations, then from
another nationally recognized rating agency);
(c) commercial paper issued by any Lender or any holding company owning
any Lender;
(d) commercial paper maturing no more than 12 months after the date of
creation thereof and, at the time of acquisition, having a rating of at least
A-2 or P-2 from either Rating Agency (or, if at any time neither Rating Agency
shall be rating such obligations, then from another nationally recognized rating
agency);
(e) domestic and eurodollar certificates of deposit or banker's
acceptances maturing no more than two years after the date of acquisition
thereof issued by any Lender or any other banks having combined capital and
surplus of not less than $250,000,000 (or in the case of foreign banks, the
Dollar equivalent thereof);
(f) repurchase agreements with a term of not more than 30 days for
underlying securities of the type described in clauses (a), (b) and (e) above
entered into with any bank meeting the qualifications specified in clause (e)
above or securities dealers of recognized national standing;
(g) shares of investment companies that are registered under the
Investment Company Act of 1940 and invest solely in one or more of the types of
securities described in clauses (a) through (f) above; and
(h) short-term, liquid investments made by a Foreign Subsidiary in the
ordinary course of managing its cash consistent with past practice.
"CERCLA" has the meaning specified in the definition of "Environmental
Laws."
"Change of Control" means, and shall be deemed to have occurred if: (a)
at any time Continuing Directors shall not constitute a majority of the Board of
Directors of the Borrower; (b) KKR, its successors and its Affiliates and
management of the Borrower shall cease to own in the aggregate, directly or
indirectly, beneficially and of record, a majority of the outstanding Voting
Stock of the Borrower (other than as the result of (i) one or more public
offerings of common stock of the Borrower or (ii) a widely distributed private
placement of common stock of the Borrower that does not provide any special
director designation or special election rights or other special corporate
governance rights to the holders of such shares, in each case whether by the
Borrower or another Person); or (c) any Person or "group" (within the meaning of
Section 13(d) or 14(d) of the Exchange Act) shall at any time have acquired
direct or indirect beneficial ownership of a percentage of the outstanding
Voting Stock of the Borrower that exceeds in the aggregate the percentage of
such Voting Stock then
<PAGE>
9
beneficially owned, directly or indirectly, by KKR, its successors and its
Affiliates and management of the Borrower.
"Closing Date" means the date on which Credit Extensions are first made
hereunder.
"Co-Agents" has the meaning specified in the preamble.
"Co-Arrangers" means, collectively, BA Securities, Inc., Merrill Lynch
& Co., and NationsBanc Capital Markets, Inc.
"Code" means the Internal Revenue Code of 1986, and regulations
promulgated thereunder.
"Commitment" means, (a) as to each Lender, the obligation of such
Lender to make Loans and, in the case of Revolving Lenders, participate in
Special Facility Obligations and make Special Facility Advances; (b) the
obligation of the Swing Line Lender to make Swing Line Loans; and (c) the
obligation of the Fronting Lender to issue Letters of Credit and create
Acceptances; collectively as to all Lenders, the Swing Line Lender and the
Fronting Lender, the "Commitments".
"Commitment Fee" means the fee set forth in Section 2.11(b).
"Common Stock" has the meaning specified in the second recital to this
Agreement.
"Compliance Certificate" means a certificate substantially in the form
of Exhibit C or such other form as shall be approved by the Administrative Agent
and the Borrower.
"Computerized Request" has the meaning specified in Section 3.2(h).
"Confidential Information" has the meaning specified in Section 11.9.
"Confidential Memorandum" means the Confidential Information Memorandum
dated September, 1996, describing the E&S Holdings Corporation $650,000,000
senior secured credit facilities.
"Consolidated EBITDA" means, with respect to the Borrower for any
period, the sum for such period of (a) Consolidated Net Income plus (b) to the
extent deducted in arriving at such Consolidated Net Income, the sum, without
duplication, of (i) Consolidated Interest Expense and non-cash interest expense,
(ii) taxes computed on the basis of income, (iii) depreciation expense, (iv)
amortization expense, including amortization of deferred financing fees, (v) any
expenses or charges resulting from the Recapitalization or from any equity
offering or incurrence of Indebtedness, (vi) any expenses incurred prior to the
Recapitalization resulting from the Spalding and Evenflo Management Stock
Ownership Plan, (vii) any expenses paid by the Borrower or any of its Restricted
Subsidiaries to, or for the benefit of, Abarco and its Affiliates prior to the
Recapitalization, (viii) the amount of any restructuring charge or reserve, (ix)
non-cash charges and (x) non-recurring charges plus (c) amounts
<PAGE>
10
designated as "Special Promotional Expenses" in such period minus (d) to the
extent included in such Consolidated Net Income, the sum, without duplication,
of (i) non-recurring gains and (ii) non-cash gains, in each case as determined
on a consolidated basis for the Borrower and its Restricted Subsidiaries in
accordance with GAAP, plus (e) to the extent not otherwise included in
Consolidated EBITDA, (i) with respect to any such period that includes the two
consecutive Fiscal Quarters ending on or about September 30, 1996, $2,300,000,
or (ii) with respect to any such period that includes the Fiscal Quarter ending
on or about September 30, 1996 (but not any prior Fiscal Quarter), $1,500,000
(it being acknowledged and understood that the amounts set forth in this clause
(e) represent the reasonably estimated contribution to Consolidated EBITDA of
the Etonic (and related) business lines).
"Consolidated Fixed Charges" means, with respect to the Borrower for
any period, the sum for such period of (a) Consolidated Interest Expense, (b)
dividends or other distributions made by the Borrower in cash and (c) scheduled
principal payments on the Facilities and on all other Consolidated Total Debt,
less prepayments thereof made prior to such period.
"Consolidated Interest Expense" means, with respect to the Borrower for
any period, cash interest expense (including that attributable to Capital Leases
in accordance with GAAP), net of cash interest income, of the Borrower and its
Restricted Subsidiaries on a consolidated basis with respect to all outstanding
Indebtedness of the Borrower and its Restricted Subsidiaries, including all
commissions, discounts and other fees and charges owed with respect to letters
of credit and banker's acceptance financing and net costs under Swap Contracts
(other than currency swap agreements, currency future or option contracts and
other similar agreements), but excluding, however, amortization of deferred
financing costs and any other amounts of non-cash interest, all as calculated on
a consolidated basis in accordance with GAAP; provided, however, that
Consolidated Interest Expense for the Test Periods ending on or about March 31,
1997 and June 30, 1997 shall be determined by (a) in the case of the Test Period
ending on or about March 31, 1997, multiplying Consolidated Interest Expense for
the period (x) commencing on the first day of the Fiscal Quarter ending on or
about December 31, 1996 and (y) ending on the last day of such Test Period, by 2
and (b) in the case of the Test Period ending on or about June 30, 1997,
multiplying Consolidated Interest Expense for the period (x) commencing on the
first day of the Fiscal Quarter ending on or about December 31, 1996 and (y)
ending on the last day of such Test Period, by 4/3.
"Consolidated Net Income" means, with respect to the Borrower for any
period, the aggregate of the Net Income of the Borrower and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided, however, that (i) any net after-tax extraordinary gains or
losses (less all fees and expenses relating thereto) shall be excluded, (ii) any
net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions other than in the ordinary course of business
shall be excluded, (iii) the Net Income for such period of any Person that is
not a Subsidiary of the Borrower, or is an Unrestricted Subsidiary, or that is
accounted for by the equity method of accounting, shall be included only to the
extent of dividends or distributions or other payments paid in cash (or to the
extent converted into cash) to the Borrower or a wholly-owned Restricted
Subsidiary (except for directors' qualifying shares) in respect of such period,
(iv) the Net Income of any Person acquired in a pooling of interests transaction
shall be excluded for
<PAGE>
11
any period prior to the date of such acquisition, (v) the Net Income for such
period 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 its Net Income is not at the date of determination permitted
without any prior governmental approval (which has not been obtained) or,
directly or indirectly, by the 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, unless
such restriction with respect to the payment of dividends or in similar
distributions has been legally waived, and (vi) any net currency loss (gain)
shall be excluded.
"Consolidated Total Debt" means, with respect to the Borrower at any
time, the sum of all amounts comprising items (a), (c) (to the extent in respect
of drawn but unreimbursed letters of credit or matured but unreimbursed banker's
acceptances), and (d) of the definition of Indebtedness contained in this
Agreement for the Borrower and its Restricted Subsidiaries at such time,
determined on a consolidated basis in accordance with GAAP; provided, however,
that Consolidated Total Debt shall not include Indebtedness in respect of Swing
Line Loans (and Revolving Loans which replace such Swing Line Loans pursuant to
Section 2.5(a)(i)) the proceeds of which are used to satisfy reimbursement
obligations arising from drawings under documentary Letters of Credit for the
period from the date on which such Loan was made until the date the Acceptances
intended to refinance such financing are scheduled to be created (irrespective
of whether such Acceptances are in fact created).
"Consolidated Working Capital" means, with respect to the Borrower, at
any date, the excess of (a) the sum of all amounts (other than cash and cash
equivalents) that would, in conformity with GAAP, be set forth opposite the
caption "total current assets" (or any like caption) on a consolidated balance
sheet of the Borrower and its Restricted Subsidiaries at such date over (b) the
sum of all amounts that would, in conformity with GAAP, be set forth opposite
the caption "total current liabilities" (or any like caption) on a consolidated
balance sheet of the borrower and its Restricted Subsidiaries on such date, but
excluding the current portion of any Funded Debt.
"Contingent Obligation" means, as to any Person, any direct or indirect
liability of that Person, whether or not contingent, with or without recourse,
guaranteeing or intended to guarantee any Indebtedness (the "primary
obligations") of another Person (the "primary obligor") in any manner, including
any obligation of that Person (a) to purchase, repurchase or otherwise acquire
such primary obligations or any security therefor, (b) to advance or provide
funds for the payment or discharge of any such primary obligation or to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet item, level of income or
financial condition of the primary obligor, (c) to purchase property, securities
or services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation or (d) otherwise to assure or hold harmless the holder of any such
primary obligation against loss in respect thereof. The amount of any Contingent
Obligation shall be deemed equal to the stated or determinable amount of the
primary obligation in respect of which such Contingent Obligation is made (or,
if less, the maximum stated or determinable amount of such Contingent
Obligation) or, if not stated or if indeterminable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to
perform thereunder), as determined by
<PAGE>
12
such Person in good faith. Notwithstanding the foregoing, the term "Contingent
Obligation" shall not include (a) endorsements of instruments for deposit or
collection in the ordinary course of business, (b) guarantees made by a Person
of the obligations of a Restricted Subsidiary of such Person that do not
constitute Indebtedness of such Restricted Subsidiary and are incurred in the
ordinary course of business of such Restricted Subsidiary and (c) obligations
arising from agreements providing for indemnification or adjustment of purchase
price (or from guarantees supporting any obligations pursuant to any such
agreements) incurred in connection with the disposition of any business or
assets or Restricted Subsidiary.
"Continuing Director" means, at any date, an individual (a) who is a
member of the Board of Directors of the Borrower, as the case may be, on the
Closing Date, (b) who, as at such date, has been a member of such Board of
Directors for at least the 12 preceding months (or, for the period comprising
the first 12 months after the Closing Date, has been a member of such Board of
Directors at least since the Closing Date), or (c) who has been nominated to be
a member of such Board of Directors, directly or indirectly, by KKR or Persons
nominated by KKR or has been nominated to be a member of such Board of Directors
by a majority of the other Continuing Directors then in office.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which it or any of its property is bound.
"Conversion/Continuation Date" means any date on which, under Section
2.4, the Borrower (a) converts Loans of one Type to another Type or (b)
continues as Loans of the same Type, but with a new Interest Period, Loans
having Interest Periods expiring on such date.
"Credit Extension" means and includes (a) the making (but not
conversion or continuation) of any Loan (other than Revolving Loans which
replace Swing Line Loans pursuant to Section 2.5(a)(i)) hereunder, (b) the
Issuance of any Letter of Credit hereunder and (c) the creation of any
Acceptance hereunder.
"Credit Extension Date" means any Borrowing Date, any date on which a
Letter of Credit is Issued under Section 3.2 or any date on which an Acceptance
is created under Section 3.3.
"Cumulative Borrower's Excess Cash Flow" means, at any time after
delivery to the Administrative Agent of the audited financial statements
referred to in clause (a) of Section 7.1 in respect of the 1997 Fiscal Year and
the Compliance Certificate relating thereto, the sum of, for each of the 1997
Fiscal Year and each Fiscal Year then elapsed (and in each case for which the
audited financial statements referred to in clause (a) of Section 7.1 and the
Compliance Certificate relating thereto have been delivered to the
Administrative Agent), 50% of Excess Cash Flow, if any, for each such Fiscal
Year.
<PAGE>
13
"Cumulative Consolidated Net Income Available to Common Stockholders"
means, at any time, Consolidated Net Income less cash dividends paid with
respect to preferred stock (including the Preferred Stock) for the period (taken
as one accounting period) commencing on the Closing Date and ending on the last
day of the Fiscal Quarter then last ended for which financial statements and the
Compliance Certificate relating thereto have been delivered to the
Administrative Agent pursuant to Sections 7.1 and 7.2.
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"Defaulting Lender" means any Lender with respect to which a Lender
Default is in effect.
"Disposition" means the sale, conveyance, issuance or other disposition
of any property, business or assets by the Borrower or any Restricted Subsidiary
(including receivables and capital stock of or owned by the Borrower or such
Restricted Subsidiary, and in all cases whether now owned or hereafter
acquired), other than (a) the issuance of capital stock of the Borrower, (b)
sales, conveyances or other dispositions in the ordinary course of business
(including sales, conveyances or other dispositions of inventory in the ordinary
course) and (c) sales of accounts receivable and capital stock owned by any
Domestic Subsidiary to S&E Finance, effected on not more than one occasion
during any Fiscal Year of the Borrower, and the consideration for which consists
solely of a promissory note of S&E Finance payable to such Domestic Subsidiary,
provided that (i) the transferor thereof shall repurchase all such accounts
receivable and capital stock from S&E Finance not later than five Business Days
following the date of the original transfer thereof, the consideration for which
shall consist solely of the creation of an intercompany liability on the books
of the repurchasing transferor that is promptly set off by S&E Finance against
its obligations under the promissory note issued by it to such repurchasing
transferor, (ii) no such transfer shall be effected if a Default or an Event of
Default shall have occurred and be continuing and (iii) no such transfer shall
be effected unless, giving effect to any liability or obligation incurred in
connection therewith, S&E Finance shall be solvent immediately before and after
giving effect to the acquisition of such accounts receivable and capital stock.
For purposes of the immediately preceding sentence, S&E Finance shall be solvent
if (A) each of the fair value and the present fair saleable value of S&E
Finance's assets is greater than its debts and other liabilities (including
contingent, unmatured and unliquidated debts and liabilities) and the amount
required to pay such debts and liabilities as such debts and liabilities become
absolute and mature, (B) S&E Finance is able and expects to be able to pay its
debts and other liabilities (including contingent, unmatured and unliquidated
debts and liabilities) as they mature and (C) S&E Finance has sufficient capital
to carry on its business as conducted and as proposed to be conducted.
"Documentation Agent" means Merrill Lynch Capital Corporation, in its
capacity as documentation agent for the Lenders hereunder and under the other
Loan Documents.
"Dollars", "dollars" and "$" each mean lawful money of the United
States.
"Domestic Subsidiary" means any Restricted Subsidiary that is not a
Foreign Subsidiary.
<PAGE>
14
"Eligible Assignee" means and includes each Lender (and any Affiliate
thereof), any commercial bank, any financial institution, any fund that is
regularly engaged in making, purchasing or investing in loans or any Person that
would satisfy the requirements of an "accredited investor" (as defined in SEC
Regulation D, but excluding a natural person), in each case which is not a
direct competitor of the Borrower or engaged in the same or similar business as
the Borrower or any of its respective Restricted Subsidiaries and is not an
Affiliate of any such competitors of the Borrower or any of its respective
Restricted Subsidiaries.
"Environmental Laws" means any and all present and future laws,
statutes, ordinances, rules, regulations, requirements, restrictions, permits,
orders, and determinations of any governmental authority that have the force and
effect of law, pertaining to pollution (including hazardous, toxic or dangerous
substances), natural resources or the environment, whether federal, state, or
local, including environmental response laws such as the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986, and as the same may be
further amended (hereinafter collectively called "CERCLA").
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Borrower within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means any of the following if such event or occurrence
could, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect: (a) the failure to make a required contribution to a
Pension Plan if such failure is sufficient to give rise to a Lien under Section
302(f) of ERISA; (b) a withdrawal by the Borrower or any ERISA Affiliate from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which it was
a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a
cessation of operations which is treated as such a withdrawal under Section
4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any
ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer
Plan is in reorganization; (d) the filing of a notice of intent to terminate,
the treatment of a Plan amendment as a termination under Section 4041 or 4041A
of ERISA or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multiemployer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title IV of
ERISA other than PBGC premiums due but not delinquent under Section 4007 of
ERISA, upon the Borrower or any ERISA Affiliate.
"Etonic Credit Agreement" means the Credit Agreement, dated as of July
26, 1996, among EWW Corporation, the lenders party thereto and Citibank, N.A.,
as agent for such lenders.
"Eurodollar Loan" means a Loan that bears interest based on the
Eurodollar Rate.
<PAGE>
15
"Eurodollar Rate" means, with respect to each day during each Interest
Period pertaining to an Eurodollar Loan, the rate of interest per annum
determined on the basis of the rate for deposits in Dollars for a period equal
to such Interest Period commencing on the first day of such Interest Period
appearing on Page 3750 of the Telerate screen as of 11:00 a.m., London time, two
Business Days prior to the beginning of such Interest Period. In the event that
such rate does not appear on Page 3750 of the Telerate Service (or otherwise on
such service), "Eurodollar Rate" for the purposes of this paragraph shall be
determined by reference to such other publicly available service for displaying
eurodollar rates as may be agreed upon by the Administrative Agent and the
Borrower or, in the absence of such agreement, "Eurodollar Rate" for the
purposes of this paragraph shall instead be the rate per annum equal to the
arithmetic average of the respective rates notified to the Administrative Agent
by each of the Reference Lenders as the rate at which such Reference Lender is
offered Dollar deposits at or about 11:00 a.m., London time, two Business Days
prior to the beginning of such Interest Period, in the interbank eurodollar
market where the eurodollar and foreign currency and exchange operations in
respect of its Eurodollar Loans are then being conducted for delivery.
"Event of Default" means any of the events or circumstances specified
in Section 9.1.
"EWW Lisco" means EWW Lisco, Inc., a Delaware corporation and
wholly-owned Restricted Subsidiary.
"Excess Cash Flow" means, for any Fiscal Year, an amount equal to the
excess of (a) the sum, without duplication, of (i) Consolidated Net Income for
such Fiscal Year, (ii) an amount equal to the amount of all non-cash charges to
the extent deducted in arriving at such Consolidated Net Income, (iii) the
aggregate amount of any currency gain with respect to the Borrower and its
Restricted Subsidiaries for such Fiscal Year (to the extent not prohibited from
being repatriated to the United States) and (iv) decreases in Consolidated
Working Capital for such Fiscal Year over (b) the sum, without duplication, of
(i) an amount equal to the amount of all non-cash credits included in arriving
at such Consolidated Net Income, (ii) the aggregate amount actually paid by the
Borrower and its Restricted Subsidiaries in cash during such Fiscal Year on
account of Capital Expenditures (excluding the principal amount of Indebtedness
incurred in connection with such Capital Expenditures, whether incurred in such
Fiscal Year or in a subsequent Fiscal Year), (iii) the aggregate amount of all
prepayments of Revolving Loans and Swing Line Loans made during such Fiscal Year
to the extent accompanying reductions of the Revolving Commitments, (iv) the
aggregate amount of all principal payments of Indebtedness of the Borrower or
its Restricted Subsidiaries (including any Term Loans and the principal
component of payments in respect of Capitalized Lease Obligations but excluding
Revolving Loans and Swing Line Loans and Term Loans prepaid pursuant to Section
2.8(b)) made during such Fiscal Year (other than in respect of any revolving
credit facility to the extent there is not an equivalent permanent reduction in
commitments thereunder), (v) increases in Consolidated Working Capital for such
Fiscal Year, (vi) an amount equal to the aggregate net non-cash gain on
Dispositions by the Borrower and its Restricted Subsidiaries during such Fiscal
Year (other than sales in the ordinary course of business) to the extent
included in arriving at such Consolidated Net Income, (vii) the amount of cash
payments by the Borrower and its Restricted Subsidiaries during such Fiscal Year
in respect of long-term liabilities of the Borrower and its Restricted
Subsidiaries other than
<PAGE>
16
Indebtedness, (viii) the amount of Investments made during such Fiscal Year in
cash pursuant to clause (d), (h), (i) or (j) of Section 8.3 to the extent that
such Investments were financed with internally generated cash flow of the
Borrower and its Restricted Subsidiaries, (ix) the amount of dividends paid
during such Fiscal Year pursuant to clause (f) of Section 8.5, (x) the aggregate
amount of expenditures actually made by the Borrower and its Restricted
Subsidiaries in cash during such Fiscal Year (including expenditures for the
payment of financing fees) to the extent that such expenditures are not expensed
during such Fiscal Year, (xi) the aggregate amount of any currency loss with
respect to the Borrower and its Restricted Subsidiaries for such Fiscal Year and
(xii) the aggregate amount, if any, paid by the Borrower in cash during such
Fiscal Year in connection with the working capital adjustment set forth in
Section 4.04(b) of the Recapitalization and Stock Purchase Agreement as in
effect on the Closing Date; provided, however, that Excess Cash Flow for any
Fiscal Year shall not be deemed to be less than zero.
"Exchange Act" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"Existing Credit Agreement" means the Credit Agreement dated as of
October 13, 1994, among S&E, the lenders party thereto and Citibank, N.A., as
administrative agent for such lenders.
"Facilities" means the credit facilities hereunder, i.e., the facility
to provide Revolving Loans, Acceptances and Letters of Credit, the facility to
provide Tranche A Term Loans, the facility to provide Tranche B Term Loans, the
facility to provide Tranche C Term Loans and the facility to provide Tranche D
Term Loans.
"Federal Funds Rate" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Administrative Agent of the rates for the
last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New
York City time) on that day by each of three leading brokers of Federal funds
transactions selected by the Administrative Agent.
"Fee Letter" has the meaning specified in Section 2.11(a).
"Fiscal Quarter" means any quarter of a Fiscal Year.
"Fiscal Year" has the meaning specified in Section 7.14.
"Fiscal Year End" has the meaning specified in Section 7.14.
"Foreign Subsidiary" means any Subsidiary of the Borrower (a) which is
organized under the laws of any jurisdiction outside of the United States of
America, (b) which conducts the major portion
<PAGE>
17
of its business outside of the United States of America and (c) all or
substantially all of the property and assets of which are located outside of the
United States of America.
"FRB" means the Board of Governors of the Federal Reserve System, and
any Governmental Authority succeeding to any of its principal functions.
"Fronting Lender" means BofA in its capacity as the Fronting Lender
which shall Issue Letters of Credit and create Acceptances at the request of,
and for the account of, the Borrower and its Restricted Subsidiaries, together
with any replacement Fronting Lender appointed in accordance with Section
10.1(b) or Section 10.9.
"Funded Debt" means all Indebtedness for borrowed money of the Borrower
and its Restricted Subsidiaries that matures more than one year from the date of
its creation or matures within one year from such date and is renewable or
extendable, at the option of the Borrower or one of its Restricted Subsidiaries,
to a date more than one year from such date or arises under a revolving credit
or similar agreement that obligates the lender or lenders thereunder to extend
credit during a period of more than one year from such date, including all
amounts of Funded Debt required to be paid or prepaid within one year from the
date of its creation and, in the case of the Borrower, Indebtedness in respect
of the Loans.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time; it being understood and agreed
that determinations in accordance with GAAP for purposes of Article VIII,
including defined terms as used therein, are subject (to the extent provided
therein) to the immediately succeeding sentence. Except as otherwise
specifically provided herein, all computations determining compliance with
Article VIII, including definitions used therein, shall utilize accounting
principles and policies in effect at the time of the preparation of, and in
conformity with those used to prepare, the historical financial statements of
the Borrower described in Section 6.9. At any time the computations determining
compliance with Article VIII utilize accounting principles different from those
utilized in the financial statements furnished to the Lenders pursuant to
Section 7.1 such financial statements shall be accompanied by reconciliation
work-sheets.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
including any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guaranteed Obligations" has the meaning specified in clause (a) of
Section 3.9.
"Guarantors" means, collectively, at any time, the guarantors parties
at such time to the Guaranty.
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18
"Guaranty" means the Guaranty to be duly executed and delivered by S&E,
each of the Trademark Holding Companies, S&E Finance and each other Material
Subsidiary set forth on Schedule A hereto pursuant to this Agreement,
substantially in the form of Exhibit E.
"Hazardous Materials" means any substance that is defined or listed as
a hazardous, toxic or dangerous substance under any present or future
Environmental Law or that is otherwise regulated or prohibited or subject to
investigation or remediation under any present or future Environmental Law
because of its hazardous, toxic, or dangerous properties, including (a) any
substance that is a "hazardous substance" under CERCLA and (b) petroleum wastes
or products.
"Holdings" has the meaning specified in the first recital to this
Agreement.
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services that in
accordance with GAAP would be shown on the liability side of the balance sheet
of such Person; (c) obligations incurred in connection with banker's acceptances
and the face amount of all letters of credit issued for the account of such
Person and, without duplication, all drafts drawn thereunder; (d) all
Capitalized Lease Liabilities; (e) all Indebtedness referred to in clauses (a)
through (d) above secured by any Lien upon or in property owned by such Person,
even though such Person has not assumed or become liable for the payment of such
Indebtedness; (f) all monetary obligations of such Person under Swap Contracts;
and (g) without duplication, all Contingent Obligations of such Person; provided
that Indebtedness shall not include trade payables and accrued expenses, in each
case arising in the ordinary course of business.
"Indemnified Liabilities" has the meaning specified in Section 11.5(a).
"Indemnified Person" has the meaning specified in Section 11.5(a).
"Independent Auditor" has the meaning specified in clause (a) of
Section 7.1.
"Insolvency Proceeding" means, with respect to any Person, (a) any
case, action or proceeding with respect to such Person before any court or other
Governmental Authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, rehabilitation, dissolution, winding-up or relief of
debtors or (b) any general assignment for the benefit of creditors, composition,
marshalling of assets for creditors or other, similar arrangement in respect of
its creditors generally or any substantial portion of its creditors, undertaken
under U.S. Federal, state or foreign law, including the Bankruptcy Code.
"Interest Payment Date" means, as to any Eurodollar Loan, the last day
of each Interest Period applicable to such Loan and, as to any Base Rate Loan,
the last Business Day of each calendar quarter; provided, however, that if any
Interest Period exceeds three months, each date that falls at three-month
intervals after the beginning of such Interest Period until the end of such
Interest Period is also an Interest Payment Date.
<PAGE>
19
"Interest Period" means, as to any Eurodollar Loan, the period
commencing on the Borrowing Date of such Loan or on the Conversion/Continuation
Date on which the Loan is converted into or continued as an Eurodollar Loan, and
ending on the date one, two, three or six months thereafter (or ending 9 or 12
months thereafter if available to all Lenders making such Loans as determined by
such Lenders in good faith based on prevailing market conditions) as selected by
the Borrower in its Notice of Borrowing or Notice of Conversion/Continuation;
provided that:
(i) the Borrower shall not be permitted to select Interest Periods to
be in effect at any one time which have expiration dates occurring on more than
20 different dates;
(ii) if any Interest Period would otherwise end on a day that is not a
Business Day, that Interest Period shall be extended to the following Business
Day unless the result of such extension would be to carry such Interest Period
into another calendar month, in which event such Interest Period shall end on
the preceding Business Day;
(iii) 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 end on the last
Business Day of the calendar month at the end of such Interest Period;
(iv) no Interest Period for any Term Loan shall extend beyond the
Tranche A Term Maturity Date, Tranche B Term Maturity Date, Tranche C Term
Maturity Date or Tranche D Term Maturity Date, as applicable, and no Interest
Period for any Revolving Loan shall extend beyond the Revolving Commitment
Termination Date; and
(v) no Interest Period applicable to a Term Loan or portion thereof
shall extend beyond any date upon which is due any scheduled principal payment
in respect of the Term Loans, unless the aggregate principal amount of Term
Loans represented by Base Rate Loans or by Eurodollar Loans having Interest
Periods that will expire on or before such date equals or exceeds the amount of
such principal payment.
"Investments" has the meaning specified in Section 8.3.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"Issue" means, with respect to any Letter of Credit, to issue or to
extend the expiry of, or to renew or increase the amount of, such Letter of
Credit; and the terms "Issued," "Issuing" and "Issuance" have corresponding
meanings.
"KKR" means Kohlberg Kravis Roberts & Co., L.P.
"L/C Obligations" means, at any time, the sum of (a) the aggregate
undrawn amount of all Letters of Credit then outstanding plus (b) the aggregate
amount of all unreimbursed drawings under
<PAGE>
20
all Letters of Credit, including all outstanding Special Facility Borrowings in
respect of drawn Letters of Credit.
"Lead Managers" has the meaning specified in the preamble.
"Legal Requirements" means all applicable laws, rules, orders and
regulations made by any governmental body or regulatory authority having
jurisdiction over the Borrower or a Restricted Subsidiary.
"Lender" and "Lenders" have the meaning specified in the preamble,
including each financial institution identified on Schedule 2.1 and each
permitted successor or assign thereof. References to the "Lenders" shall include
BofA, including in its capacity as Swing Line Lender and Fronting Lender but not
in its capacity as Administrative Agent; for purposes of classification only, to
the extent that BofA may have any rights or obligations in addition to those of
the Lenders due to its status as Swing Line Lender, Fronting Lender or
Administrative Agent, its status as such will be specifically referenced.
"Lender Default" means (a) the refusal (which has not been retracted)
of a Lender to make available its portion of any Borrowing or to fund its
portion of any unreimbursed payment under Section 3.4 or (b) a Lender having
notified the Administrative Agent and/or the Borrower that it does not intend to
comply with its obligations under Section 2.1 or under Section 3.4, in the case
of either clause (a) or clause (b) above, 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.
"Lending Office" means, as to any Lender, the office or offices of such
Lender specified as its "Lending Office" or "Domestic Lending Office" or
"Offshore Lending Office," as the case may be, on Schedule 11.2, or such other
office or offices as such Lender may from time to time notify the Borrower and
the Administrative Agent.
"Letters of Credit" means any standby or documentary letter of credit
Issued by the Fronting Lender pursuant to Article III, at the request of, and
for the account of, an Account Party, including all letters of credit deemed to
be issued hereunder pursuant to Sections 3.1(c) and (d).
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, charge, lien (statutory or other), escrow or similar encumbrance
of any kind, or any other type of similar preferential arrangement (including
any agreement to give any of the foregoing, any conditional sale or other title
retention agreement or any lease in the nature thereof).
"Lisco" means Lisco, Inc., a Delaware corporation and wholly-owned
Restricted Subsidiary.
"Lisco Subsidiaries" means, collectively, Lisco Sports, Inc., Lisco
Feeding, Inc. and Lisco Furniture, Inc., each a Delaware corporation and
wholly-owned Restricted Subsidiary.
<PAGE>
21
"Loan" means an extension of credit to or for the account of the
Borrower under Article II, and may be a Base Rate Loan or a Eurodollar Loan
(each, a "Type" of Loan).
"Loan Documents" means this Agreement, any Notes, the Guaranty, the
Pledge Agreement and the Fee Letter.
"Majority Lenders" means, at any time, Non-Defaulting Lenders having or
holding (a) at least 51% of the sum of (i) the aggregate principal amount of the
Term Loans (excluding Term Loans held by Defaulting Lenders) outstanding at such
time and (ii) the aggregate Revolving Commitments at such time (excluding
Revolving Commitments of Defaulting Lenders) or (b) if the Revolving Commitments
shall have been terminated or expire or for purposes of acceleration pursuant to
clause (b) of Section 9.2, at least 51% of the aggregate principal amount of the
Loans and Special Facility Obligations outstanding at such time (excluding Loans
and Special Facility Obligations held by Defaulting Lenders).
"Majority Tranche A Term and Revolving Lenders" means, at any time,
Non-Defaulting Lenders having or holding at least 51% of the sum of (a) the
aggregate principal amount of all Tranche A Term Loans (excluding Tranche A Term
Loans held by Defaulting Lenders) outstanding at such time and (b) the aggregate
Revolving Commitments at such time (excluding Revolving Commitments of
Defaulting Lenders) or, if the Revolving Commitments shall have been terminated
or expire, the aggregate principal amount of the Revolving Loans and Special
Facility Obligations (excluding Revolving Loans and Special Facility Obligations
held by Defaulting Lenders) outstanding at such time.
"Majority Tranche B, C and D Term Lenders" means, at any time,
Non-Defaulting Lenders holding at least 51% of the aggregate principal amount of
the Tranche B Term Loans, the Tranche C Term Loans and the Tranche D Term Loans
taken as a whole (excluding the Tranche B Term Loans, Tranche C Term Loans and
Tranche D Term Loans held by Defaulting Lenders) outstanding at such time.
"Material Adverse Change" means any change in the business, assets,
operations, properties or financial condition of the Borrower and its Restricted
Subsidiaries taken as a whole that would materially adversely affect the ability
of the Borrower and the other Obligors taken as a whole to perform their
obligations under this Agreement and the other Loan Documents taken as a whole.
"Material Adverse Effect" means a circumstance or condition affecting
the business, assets, operations, properties or financial condition of the
Borrower and its Restricted Subsidiaries taken as a whole that would materially
adversely affect (a) the ability of the Borrower and the other Obligors taken as
a whole to perform their obligations under this Agreement and the other Loan
Documents taken as a whole or (b) the rights and remedies of the Administrative
Agent and the Lenders under this Agreement and the other Loan Documents taken as
a whole.
"Material Subsidiary" means, at any time, S&E Finance and each
Restricted Subsidiary having at such time either (a) net sales (on a
consolidated basis, including each of its Subsidiaries that
<PAGE>
22
constitute Restricted Subsidiaries, but excluding revenues received by any
Restricted Subsidiary from the Borrower or any other Restricted Subsidiary) for
the applicable Test Period in excess of 5% (or, in the case of Foreign
Subsidiaries for purposes of Section 7.11 only, 10%) of the net sales of the
Borrower and its Restricted Subsidiaries for such Test Period or (b) total
assets (on a consolidated basis, including each of its Subsidiaries that
constitute Restricted Subsidiaries), as of the last day of the preceding Fiscal
Quarter, constituting in excess of 5% (or, in the case of Foreign Subsidiaries
for purposes of Section 7.11 only, 10%) of the total assets of the Borrower and
its Restricted Subsidiaries as of such day, in each case, based upon the
Borrower's most recent annual or quarterly financial statements delivered to the
Administrative Agent under Section 7.1 in accordance with GAAP (it being
acknowledged and understood that, in the event the determination of whether a
Restricted Subsidiary is a Material Subsidiary is to be made on or about the
date such Restricted Subsidiary was created or acquired, such determination
shall be made on a pro forma basis as if such Restricted Subsidiary were a
Restricted Subsidiary at the commencement of such Test Period for the purposes
of clause (a) above and on the last day of such Fiscal Quarter for the purposes
of clause (b) above).
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan," within the meaning
of Section 4001(a)(3) of ERISA, with respect to which the Borrower or any ERISA
Affiliate may have any liability.
"NAIC" means the National Association of Insurance Commissioners or any
successor thereto with similar authority.
"Net Disposition Proceeds" means, as to any Disposition by a Person
(other than a Disposition permitted pursuant to clause (a), (b) or (c) of
Section 8.2), proceeds in cash as and when received by such Person, net of (a)
the costs and expenses relating to such Disposition, (b) the amount of all taxes
paid or reasonably estimated to be payable by such Person in connection
therewith, but Net Disposition Proceeds shall include the excess, if any, of the
estimated taxes payable in connection with such Disposition over the actual
amount of taxes paid, immediately after the payment of such taxes, (c) amounts
required to be applied to repay principal, interest and prepayment premiums and
penalties on Indebtedness secured by a Lien on the asset which is the subject of
such Disposition, and (d) the amount of any reasonable reserve established in
accordance with GAAP against any liabilities (other than any taxes deducted
pursuant to clause (b) above) associated with the assets sold or disposed of and
retained by the Borrower or any of its Restricted Subsidiaries (provided that
the amount of any subsequent reduction of such reserve (other than in connection
with a payment in respect of any such liability) shall be deemed to be Net
Disposition Proceeds realized on the date of such reduction).
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with GAAP
before any reduction in respect of preferred stock dividends.
<PAGE>
23
"Net Issuance Proceeds" means, as to any issuance of indebtedness for
borrowed money or incurrence of Capitalized Lease Liabilities by any Person,
cash proceeds received by such Person in connection therewith, net of costs and
expenses paid or incurred in connection therewith.
"Non-Defaulting Lender" means and includes each Lender other than a
"Defaulting Lender".
"Non-U.S. Lender" has the meaning specified in Section 4.1(d).
"Non-U.S. Participant" means a Participant that is not incorporated or
organized in or under the laws of the United States of America or a state
thereof.
"Note" means a promissory note, if any, executed by the Borrower in
favor of a Lender pursuant to Section 2.2(b), in substantially the form of
Exhibit I, and also means all promissory notes accepted from time to time in
substitution therefor or renewal thereof.
"Notice of Borrowing" means a notice in substantially the form of
Exhibit A.
"Notice of Conversion/Continuation" means a notice in substantially the
form of Exhibit B.
"Notice of L/C Issuance/Amendment" means a notice in substantially the
form of Exhibit D.
"Obligations" means, at any time, all monetary obligations of any type
or description owing at such time by the Borrower and any other Obligor to any
Lender, including the Fronting Lender, the Administrative Agent or any
Indemnified Person under this Agreement, any Letter of Credit, any Acceptance,
any other Loan Document or any Swap Contract, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising.
"Obligor" means the Borrower, each Guarantor and each Account Party.
"Organization Documents" means, for any corporation, the certificate or
articles of incorporation, the bylaws, any certificate of determination or
instrument relating to the rights of preferred shareholders of such corporation.
"Originating Lender" has the meaning specified in clause (e) of Section
11.8.
"Other Taxes" means any present or future stamp, court or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery,
performance, enforcement or registration of, or otherwise with respect to, this
Agreement or any other Loan Document.
"Participant" has the meaning specified in clause (e) of Section 11.8.
<PAGE>
24
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA (other than a Multiemployer Plan) with
respect to which the Borrower or any ERISA Affiliate may have any liability.
"Permitted Acquisition" has the meaning specified in clause (h) of
Section 8.3.
"Permitted Liens" has the meaning specified in Section 8.1.
"Person" means an individual, a partnership, a corporation, a limited
liability company, a business trust, a joint stock company, a trust, an
unincorporated association, a joint venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Borrower sponsors or maintains or to which the Borrower makes,
is making or is obligated to make contributions and includes any Pension Plan.
"Pledge Agreement" means the Pledge Agreement to be duly executed and
delivered by the Borrower, substantially in the form of Exhibit F.
"Preferred Stock" means (a) the 1,000,000 shares of the 12-1/2% Senior
Preferred Stock, par value $.01 per share, of the Borrower, having a liquidation
value of $100.00 per share, issued on the Closing Date, (b) 500,000 shares of
such 12-1/2% Senior Preferred Stock to be issued promptly following the
consummation of the Recapitalization and (c) shares of such 12-1/2% Senior
Preferred Stock issued as dividends to the holders of the shares described in
the preceding clauses (a) and (b). "Preferred Stock" shall include preferred
stock of the Borrower with substantially identical terms to such 12-1/2% Senior
Preferred Stock which are exchanged for such 12-1/2% Senior Preferred Stock
pursuant to an effective registration statement under the Securities Act of
1933.
"Pro Forma Basis" means, with respect to financial statements required
to be delivered pursuant to a provision hereof in connection with a proposed
Subject Transaction (or, for purposes of clause (c) of Section 8.6, Subject
Transactions that have been consummated), on a pro forma basis for the period
specified in such provision based on assumptions believed by the Borrower in
good faith to be reasonable for such period, after giving effect to such Subject
Transaction (and all other Subject Transactions made after the last day of such
period) as if such Subject Transaction (and all other such Subject
Transactions), together with all transactions related thereto (including
Indebtedness assumed or incurred or that would be assumed or incurred in
connection with such Subject Transactions), had been consummated on the first
day of such period.
"Pro Rata Share" means, as to any Lender at any time, its Revolving
Loan Percentage, Tranche A Term Percentage, Tranche B Term Percentage, Tranche C
Term Percentage or Tranche D Term
<PAGE>
25
Percentage, as applicable, with the term Revolving Loan Percentage being
applicable to the facility to provide Revolving Loans and the Swing Line Loan
Facility and Special Facility thereunder.
"Rating Agency" means S&P or Moody's; collectively, the "Rating
Agencies".
"Recapitalization" has the meaning specified in the second recital to
this Agreement.
"Recapitalization and Stock Purchase Agreement" has the meaning
specified in the first recital to this Agreement.
"Redemption" has the meaning specified in the second recital to this
Agreement.
"Reference Lenders" means BofA and Nationsbank, N.A.
"Refinancing" has the meaning specified in the second recital to this
Agreement.
"Register" has the meaning specified in Section 11.8(c).
"Reimbursement Date" has the meaning specified in Section 3.4(b).
"Replaced Lender" has the meaning specified in Section 4.9.
"Replacement Lender" has the meaning specified in Section 4.9.
"Repurchase" has the meaning specified in the second recital to this
Agreement.
"Requirement of Law" means, as to any Person, any law, treaty, rule or
regulation or determination of an arbitrator or of a Governmental Authority, in
each case applicable to or binding upon the Person or any of its property or to
which the Person or any of its property is subject.
"Responsible Officer" means, with respect to any Person, its chief
executive officer, its president or any vice president, managing director,
treasurer, controller or other officer thereof having substantially the same
authority and responsibility; or, with respect to compliance with financial
covenants, the chief financial officer, the treasurer or the controller of the
Borrower, or any other officer having substantially the same authority and
responsibility.
"Restricted Subsidiary" means each Subsidiary of the Borrower which is
not an Unrestricted Subsidiary.
"Revolving Borrowing" means a Borrowing consisting of Revolving Loans
of the same Type made to the Borrower on the same day by the Lenders under
Section 2.1(e), and in the case of Eurodollar Loans, having the same Interest
Period.
<PAGE>
26
"Revolving Commitment" has the meaning specified in Section 2.1(e);
collectively, for all Revolving Lenders, the "Revolving Commitments".
"Revolving Commitment Termination Date" means the earlier to occur of:
(a) the Business Day immediately preceding September 30, 2003; and
(b) the date on which the Revolving Commitments terminate in accordance
with the provisions of this Agreement.
"Revolving Lender" means any financial institution specified as such in
Part E of Schedule 2.1, and each permitted successor or assign thereof.
"Revolving Loan" and "Revolving Loans" have the respective meanings
specified in Section 2.1(e).
"Revolving Loan Percentage" means, as to any Revolving Lender, the
percentage which (a) the amount of such Revolving Lender's Revolving Commitment
(or, after termination of the Revolving Commitments, the outstanding principal
amount of such Revolving Lender's Revolving Loans) is of (b) the aggregate
amount of all Revolving Commitments (or, after termination of the Revolving
Commitments, the outstanding principal amount of all Revolving Loans).
"S&E" has the meaning specified in the second recital to this
Agreement.
"S&E Finance" means S&E Finance Co., Inc., a Delaware corporation and
wholly-owned Restricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group.
"SEC" means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.
"Senior Subordinated Indenture" means the Indenture, dated September
30, 1996, between the Borrower and Marine Midland Bank, as trustee.
"Senior Subordinated Notes" means, collectively, the 10-3/8% Senior
Subordinated Notes due 2006 of the Borrower issued pursuant to the Senior
Subordinated Indenture, including senior subordinated notes of the Borrower with
substantially identical terms to such 10-3/8% Senior Subordinated Notes which
are exchanged for such 10-3/8% Senior Subordinated Notes pursuant to an
effective registration statement under the Securities Act of 1933.
"Special Facility" means the facility hereunder to Issue Letters of
Credit and create Acceptances.
<PAGE>
27
"Special Facility Advance" means each Revolving Lender's participation
in any Special Facility Borrowing in accordance with its Pro Rata Share.
"Special Facility Borrowing" means an extension of credit resulting
from a drawing under any Letter of Credit or the maturity of an Acceptance, as
the case may be, which shall not have been reimbursed with the proceeds of a
Borrowing of Swing Line Loans.
"Special Facility Commitment" means the maximum aggregate principal
amount of Special Facility Obligations that may be created by the Fronting
Lender in accordance with Section 3.1 hereof and outstanding at any time and
from time to time, which aggregate outstanding principal amount shall not exceed
$180,000,000 at any one time.
"Special Facility Obligation" means the sum of (a) L/C Obligations and
(b) Acceptance Obligations; less the aggregate amount on deposit with the
Administrative Agent as cash collateral for the Borrower's obligations under
Article III in respect of the Obligations described in clauses (a) and (b)
above.
"Special Promotional Expenses" means certain promotional, advertising,
endorsement or related expenses designated by the Borrower as Special
Promotional Expenses in an aggregate amount not to exceed (a) $10,000,000 in any
Fiscal Quarter during the period from the Closing Date to September 30, 1999 and
(b) $25,000,000 in the aggregate during such period.
"Subject Transaction" means each of the following: (a) an Investment
that would constitute an Acquisition or that would result in the creation or
capitalization of a new Restricted Subsidiary (including the designation of any
Unrestricted Subsidiary as a Restricted Subsidiary) and (b) a dividend made in
cash or on any capital stock of the Borrower pursuant to clause (f) of Section
8.5.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which more than 50% of the voting stock, membership interests or other equity
interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
Subsidiary of the Borrower.
"Supermajority Tranche A Term and Revolving Lenders" means, at any
time, Non-Defaulting Lenders having or holding at least 66 2/3% of the sum of
(a) the aggregate principal amount of all Tranche A Term Loans (excluding
Tranche A Term Loans held by Defaulting Lenders) outstanding at such time and
(b) the aggregate Revolving Commitments at such time (excluding Revolving
Commitments of Defaulting Lenders) or, if the Revolving Commitments shall have
been terminated or expire, the aggregate principal amount of the Revolving Loans
and Special Facility Obligations (excluding Revolving Loans and Special Facility
Obligations held by Defaulting Lenders) outstanding at such time.
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"Supermajority Tranche B, C and D Term Lenders" means, at any time,
Non-Defaulting Lenders holding at least 66 2/3% of the aggregate principal
amount of the Tranche B Term Loans, the Tranche C Term Loans and the Tranche D
Term Loans taken as a whole (excluding the Tranche B Term Loans, Tranche C Term
Loans and Tranche D Term Loans held by Defaulting Lenders) outstanding at such
time.
"Swap Contract" means any agreement relating to any transaction that is
a rate swap, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap or option, bond, note or bill option,
interest rate option, forward foreign exchange transaction, cap, collar or floor
transaction, currency swap, cross-currency rate swap, swap option, currency
option or any other, similar transaction (including any option to enter into any
of the foregoing) or any combination of the foregoing, and, unless the context
otherwise clearly requires, any master agreement relating to or governing any or
all of the foregoing.
"Swing Line Commitment" means the commitment of the Swing Line Lender
to make Loans from time to time pursuant to Section 2.1(f) in an aggregate
amount not to exceed on any date the amount of $30,000,000, as the same shall be
reduced as a result of a reduction in the Swing Line Commitment pursuant to
Section 2.6; provided that the Swing Line Commitment is a part of the combined
Revolving Commitments, rather than a separate, independent commitment.
"Swing Line Facility" means the facility hereunder to provide Swing
Line Loans.
"Swing Line Lender" means BofA, its successors and assigns.
"Swing Line Loan" has the meaning specified in Section 2.1(f).
"Swing Line Loan Participation Certificate" means a participation
certificate substantially in the form of Exhibit K.
"Syndication Agent" means NationsBank, N.A. (South), in its capacity as
syndication agent for the Lenders hereunder and under the other Loan Documents.
"Taxes" means any and all present or future taxes, levies, assessments,
imposts, duties, deductions, fees, withholdings or similar charges, and all
liabilities with respect thereto, excluding, in the case of each Lender and the
Administrative Agent, respectively, taxes imposed on any Lender or the
Administrative Agent as a result of a present or former connection between such
Lender or the Administrative Agent and the jurisdiction of the Governmental
Authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from such
Lender or the Administrative Agent having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement).
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"Term Commitments" means, collectively, (a) the Tranche A Term
Commitment, (b) the Tranche B Term Commitment, (c) the Tranche C Term Commitment
and (d) the Tranche D Term Commitment.
"Term Loan" means a Tranche A Term Loan, a Tranche B Term Loan, a
Tranche C Term Loan or a Tranche D Term Loan; collectively, the "Term Loans".
"Test Period" means, for any determination under this Agreement at any
time, the four consecutive Fiscal Quarters of the Borrower then last ended.
"Total Percentage" means, as to any Lender, the percentage which (a)
the sum of (i) the aggregate principal amount of all Term Loans held by such
Lender and (ii) the amount of such Lender's Revolving Commitment (or, after
termination or expiration of the Revolving Commitments, the outstanding
principal amount of such Lender's Revolving Loans and Special Facility
Obligations) is of (b) the sum of (i) the aggregate principal amount of all Term
Loans and (ii) the aggregate amount of all Revolving Commitments (or, after
termination or expiration of the Revolving Commitments, the outstanding
principal amount of all Revolving Loans and Special Facility Obligations).
"Trademark Holding Subsidiaries" means, collectively, Lisco, the Lisco
Subsidiaries and EWW Lisco.
"Trademarks" means, collectively, trademarks, service marks, trade
names, logos, trade dress and trademark and service mark applications,
registrations and recordings, including all rights relating thereto arising
under common law.
"Tranche A Term Commitment" means the obligation of the Tranche A Term
Lenders to make Tranche A Term Loans in an aggregate principal amount equal to
$175,000,000, and the "Tranche A Term Commitment" of any Tranche A Lender means
such Lender's Commitment set forth opposite its name in Part A of Schedule 2.1.
"Tranche A Term Lender" means a financial institution identified as
such in Part A of Schedule 2.1, and each permitted successor or assign thereof.
"Tranche A Term Loan" has the meaning specified in Section 2.1(a).
"Tranche A Term Maturity Date" means September 30, 2003.
"Tranche A Term Percentage" means, as to any Tranche A Term Lender, (a)
until the funding of the Tranche A Term Loans, the percentage which (i) such
Lender's Tranche A Term Commitment is of (ii) all Tranche A Term Commitments,
and thereafter (b) the percentage which (i) the principal amount of such
Lender's Tranche A Term Loan is of (ii) the aggregate principal amount of all
Tranche A Term Loans.
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"Tranche B Term Commitment" means the obligation of the Tranche B Term
Lenders to make Tranche B Term Loans in an aggregate principal amount equal to
$87,500,000, and the "Tranche B Term Commitment" of any Tranche B Lender means
such Lender's Commitment set forth opposite its name in Part B of Schedule 2.1.
"Tranche B Term Lender" means a financial institution identified as
such in Part B of Schedule 2.1, and each permitted successor or assign thereof.
"Tranche B Term Loan" has the meaning specified in Section 2.1(b).
"Tranche B Term Maturity Date" means September 30, 2004.
"Tranche B Term Percentage" means, as to any Tranche B Term Lender, (a)
until the funding of the Tranche B Term Loans, the percentage which (i) such
Lender's Tranche B Term Commitment is of (ii) all Tranche B Term Commitments,
and thereafter (b) the percentage which (i) the principal amount of such
Lender's Tranche B Term Loan is of (ii) the aggregate principal amount of all
Tranche B Term Loans.
"Tranche C Term Commitment" means the obligation of the Tranche C Term
Lenders to make Tranche C Term Loans in an aggregate principal amount equal to
$87,500,000, and the "Tranche C Term Commitment" of any Tranche C Lender means
such Lender's Commitment set forth opposite its name in Part C of Schedule 2.1.
"Tranche C Term Lender" means a financial institution identified as
such in Part C of Schedule 2.1, and each permitted successor or assign thereof.
"Tranche C Term Loan" has the meaning specified in Section 2.1(c).
"Tranche C Term Maturity Date" means September 30, 2005.
"Tranche C Term Percentage" means, as to any Tranche C Term Lender, (a)
until the funding of the Tranche C Term Loans, the percentage which (i) such
Lender's Tranche C Term Commitment is of (ii) all Tranche C Term Commitments,
and thereafter (b) the percentage which (i) the principal amount of such
Lender's Tranche C Term Loan is of (ii) the aggregate principal amount of the
Tranche C Term Loans.
"Tranche D Term Commitment" means the obligation of the Tranche D Term
Lenders to make Tranche D Term Loans in an aggregate principal amount equal to
$50,000,000, and the "Tranche D Term Commitment" of any Tranche D Lender means
such Lender's Commitment set forth opposite its name in Part D of Schedule 2.1.
"Tranche D Term Lender" means a financial institution identified as
such in Part D of Schedule 2.1, and each permitted successor or assign thereof.
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"Tranche D Term Loan" has the meaning specified in Section 2.1(d).
"Tranche D Term Maturity Date" means March 30, 2006.
"Tranche D Term Percentage" means, as to any Tranche D Term Lender, (a)
until the funding of the Tranche D Term Loans, the percentage which (i) such
Lender's Tranche D Term Commitment is of (ii) all Tranche D Term Commitments,
and thereafter (b) the percentage which (i) the principal amount of such
Lender's Tranche D Term Loan is of (ii) the aggregate principal amount of all
Tranche D Term Loans.
"Transferee" has the meaning specified in Section 11.8(f).
"Type" has the meaning specified in the definition of "Loan".
"UCP" has the meaning specified in Section 3.11.
"Unfunded Pension Liability" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Plan pursuant to Section 412 of the Code for the applicable plan year.
"United States" and "U.S." each means the United States of America.
"Unrestricted Subsidiary" means each Subsidiary (a) first created or
acquired by the Borrower or a Restricted Subsidiary after the Closing Date to
the extent the acquisition price therefor (by capital contribution, purchase
price, etc.) is funded by the Borrower in accordance with clause (i) of Section
8.3 and such Subsidiary is designated by the Borrower as an Unrestricted
Subsidiary in a written notice delivered to the Administrative Agent prior to or
reasonably promptly after such creation or acquisition or (b) first created or
acquired after the Closing Date by another Unrestricted Subsidiary created or
acquired in accordance with the provisions of this definition, provided that the
provisions of clause (i) of Section 8.3 are not breached in connection with such
creation or acquisition and that such Subsidiary and the Borrower enter into a
tax sharing agreement in form and substance reasonably satisfactory to the
Administrative Agent, it being understood and agreed that (i) a Restricted
Subsidiary cannot be owned in whole or in part by an Unrestricted Subsidiary,
(ii) an Unrestricted Subsidiary cannot be designated as a Restricted Subsidiary
except with prior written notice to the Administrative Agent and as otherwise
provided in clause (h) of Section 8.3 and (iii) in order to be permitted to be
created or acquired or to continue to exist, no recourse whatsoever may be had
to the Borrower or any of its Restricted Subsidiaries or any of their respective
properties in respect of any obligations or liabilities (contingent or
otherwise) of such Unrestricted Subsidiary except to the extent the aggregate
maximum amount of such recourse constitutes an Investment made and permitted
pursuant to clause (i) of Section 8.3.
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"Voting Stock" means, with respect to any Person, shares of such
Person's capital stock having the right to vote for the election of directors of
such Person under ordinary circumstances.
1.2. Other Interpretive Provisions. (a) The meanings of defined terms
are equally applicable to the singular and plural forms of the defined terms.
(b) The words "hereof," "herein," "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.
(ii) The term "including" is not limiting and means "including without
limitation."
(iii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including"; the
words "to" and "until" each mean "to but excluding", and the word "through"
means "to and including."
(iv) The term "property" includes any kind of property or
asset, real, personal or mixed, tangible or intangible.
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments, supplements and other modifications
thereto, but only to the extent such amendments and other modifications are not
prohibited by the terms of any Loan Document and (ii) references to any statute
or regulation are to be construed as including all statutory and regulatory
provisions consolidating, amending, replacing, supplementing or interpreting the
statute or regulation.
(e) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement.
(f) (i) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agents, the Borrower
and the other parties, and are the products of all parties.
(ii) No Agent and no Lender has any fiduciary relationship
with or duty to the Borrower or any of its Subsidiaries arising out of or in
connection with this Agreement or any of the other Loan Documents, and the
relationship between the Agents and Lenders, on one hand, and the Borrower, on
the other hand, in connection herewith or therewith is solely that of debtor and
creditor.
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(iii) No joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions contemplated hereby
among the Lenders or among the Borrower and the Lenders.
1.3. Accounting Principles. Unless the context otherwise clearly
requires, all accounting terms not expressly defined herein shall be construed,
and all financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.
ARTICLE II
THE CREDITS
2.1. Amounts and Terms of Commitments. (a) The Tranche A Term Credit.
Each Tranche A Term Lender severally agrees, on the terms and conditions set
forth herein, to make a single loan to the Borrower (each such loan, a "Tranche
A Term Loan") on the Closing Date in a principal amount not to exceed such
Tranche A Term Lender's Tranche A Term Percentage of the Tranche A Term
Commitment. Amounts borrowed as Tranche A Term Loans which are repaid or prepaid
by the Borrower may not be reborrowed.
(b) The Tranche B Term Credit. Each Tranche B Term Lender severally
agrees, on the terms and conditions set forth herein, to make a single loan to
the Borrower (each such loan, a "Tranche B Term Loan") on the Closing Date in a
principal amount not to exceed such Tranche B Term Lender's Tranche B Term
Percentage of the Tranche B Term Commitment. Amounts borrowed as Tranche B Term
Loans which are repaid or prepaid by the Borrower may not be reborrowed.
(c) The Tranche C Term Credit. Each Tranche C Term Lender severally
agrees, on the terms and conditions set forth herein, to make a single loan to
the Borrower (each such loan, a "Tranche C Term Loan") on the Closing Date in a
principal amount not to exceed such Tranche C Term Lender's Tranche C Term
Percentage of the Tranche C Term Commitment. Amounts borrowed as Tranche C Term
Loans which are repaid or prepaid by the Borrower may not be reborrowed.
(d) The Tranche D Term Credit. Each Tranche D Term Lender severally
agrees, on the terms and conditions set forth herein, to make a single loan to
the Borrower (each such loan, a "Tranche D Term Loan") on the Closing Date in a
principal amount not to exceed such Tranche D Term Lender's Tranche D Term
Percentage of the Tranche D Term Commitment. Amounts borrowed as Tranche D Term
Loans which are repaid or prepaid by the Borrower may not be reborrowed.
(e) The Revolving Credit. Each Revolving Lender severally agrees, on
the terms and conditions set forth herein, to make loans to the Borrower (each
such loan, a "Revolving Loan"; collectively, the "Revolving Loans") from time to
time on any Business Day during the period from the Closing Date to the
Revolving Commitment Termination Date in an aggregate amount not to exceed at
any time outstanding the amount specified for such Revolving Lender on Schedule
2.1 (such
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amount, as the same may be reduced under Section 2.6, or as a result of one or
more assignments under Section 11.8, such Revolving Lender's "Revolving
Commitment"); provided, however, that, after giving effect to any Borrowing of
Revolving Loans, the aggregate principal amount of all outstanding Revolving
Loans plus all outstanding Swing Line Loans plus all outstanding Special
Facility Obligations shall not at any time exceed the combined Revolving
Commitments. Within the limits of each Lender's Revolving Commitment, and
subject to the other terms and conditions hereof, the Borrower may borrow under
this Section 2.1(e), prepay under Section 2.7 and reborrow from time to time
under this Section 2.1(e).
(f) Swing Line Commitment. The Swing Line Lender agrees, on the terms
and conditions set forth herein, to make one or more loans to the Borrower (each
such loan, a "Swing Line Loan") from time to time on any Business Day during the
period from the Closing Date to the Revolving Commitment Termination Date, in an
aggregate amount not to exceed the Swing Line Commitment; provided, however,
that, after giving effect to any Borrowing of Swing Line Loans, the aggregate
principal amount of all outstanding Revolving Loans and Swing Line Loans plus
all outstanding Special Facility Obligations shall not at any time exceed the
combined Revolving Commitments. Within the limits of the Swing Line Lender's
Swing Line Commitment, and subject to the other terms and conditions hereof, the
Borrower may borrow Swing Line Loans under this Section 2.1(f), prepay Swing
Line Loans under Section 2.6 and reborrow Swing Line Loans under this Section
2.1(f).
2.2. Loan Accounts. (a) The Loans and Special Facility Advances made by
each Lender and the Letters of Credit Issued and the Acceptances created by the
Fronting Lender shall be evidenced by one or more loan accounts or records
maintained by such Lender or Fronting Lender, as the case may be, in the
ordinary course of business. The loan accounts or records maintained by the
Administrative Agent, the Fronting Lender and each Lender shall be conclusive
absent clearly demonstrable error of the amount of the Loans made and Special
Facility Obligations extended by the Lenders to or for the account of the
Borrower and the interest and payments thereon. Any failure so to record or any
error in doing so shall not, however, limit or otherwise affect the obligation
of the Borrower hereunder to pay any amount owing with respect to the Loans and
Special Facility Obligations.
(b) Upon the request of any Lender made through the Administrative
Agent, solely to facilitate the pledge or assignment of its Loans to any Federal
Reserve Bank pursuant to Section 11.8(g), the Loans made by such Lender may be
evidenced by one or more Notes, instead of or in addition to loan accounts. Each
such Lender is irrevocably authorized by the Borrower to endorse on the
schedules annexed to its Note(s) the date, amount and maturity of each Loan
made, continued or converted by it and the amount of each payment of principal
made by the Borrower with respect thereto. Each such Lender's record shall be
conclusive absent clearly demonstrable error; provided, however, that the
failure of a Lender to make, or an error in making, a notation thereon with
respect to any Loan shall not limit or otherwise affect the obligations of the
Borrower hereunder or under any such Note to such Lender.
2.3. Procedure for Borrowing. (a) Each Borrowing shall be made upon the
Borrower's irrevocable written or telephonic notice delivered to the
Administrative Agent (and to the Swing Line
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35
Lender if a Swing Line Loan is requested) (if in writing) in the form of a
Notice of Borrowing (any such notice to be received by the Administrative Agent
(and by the Swing Line Lender if a Swing Line Loan is requested) not later than
(i) 11:00 a.m. (New York City time) three Business Days prior to the requested
Borrowing Date (if telephonic, promptly confirmed thereafter in writing in the
form of a Notice of Borrowing), in the case of Eurodollar Loans and (ii) 11:00
a.m. (New York City time) (or 1:00 p.m. (New York City time) in the case of
Swing Line Loans) on the requested Borrowing Date (if telephonic, confirmed
thereafter in writing in the form of a Notice of Borrowing), in the case of Base
Rate Loans, specifying:
(A) the amount of the Borrowing, which shall (1) in the case
of Term Loans, be in an aggregate minimum amount of $10,000,000 for Eurodollar
Loans and $5,000,000 for Base Rate Loans or, in each case, any multiple of
$500,000 in excess thereof, (2) in the case of Revolving Loans, be in an
aggregate minimum amount of $500,000 for both Eurodollar Loans and Base Rate
Loans or any multiple of $100,000 in excess thereof and (3) in the case of Swing
Line Loans (except for Swing Line Loans made in accordance with Section 3.4), be
in an aggregate minimum amount of $500,000 of Base Rate Loans or any multiple of
$100,000 in excess thereof;
(B) the requested Borrowing Date, which shall be a Business
Day;
(C) the Type of Loans comprising the Borrowing (provided, that
all Swing Line Loans shall be Base Rate Loans); and
(D) the duration of the Interest Period applicable to
Eurodollar Loans included in such notice. If the Notice of Borrowing fails to
specify the duration of the Interest Period for any Borrowing comprised of
Eurodollar Loans, such Interest Period shall be one month.
(b) If Loans other than Swing Line Loans are requested, the
Administrative Agent will promptly notify each Lender of its receipt of any
Notice of Borrowing and of the amount of such Lender's Pro Rata Share of that
Borrowing.
(c) (i) In the case of Term Loans or Revolving Loans, each Lender will
make the amount of its Pro Rata Share of each Borrowing available to the
Administrative Agent for the account of the Borrower at the Administrative
Agent's Payment Office by 1:00 p.m. (New York City time) on the Borrowing Date
requested by the Borrower in funds immediately available to the Administrative
Agent. The proceeds of all such Loans will then be made available to the
Borrower by the Administrative Agent at such office by crediting the account of
the Borrower on the books of BofA (or any successor to BofA as Administrative
Agent) with the aggregate of the amounts made available to the Administrative
Agent by the Lenders or by wire transfer in accordance with written instructions
provided to the Administrative Agent by the Borrower, in each case in like funds
as received by the Administrative Agent.
(ii) In the case of Swing Line Loans, the Swing Line Lender
will make available to the Borrower at its account at the Swing Line Lender, not
later than 2:00 p.m. (New York City time)
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36
on the requested Borrowing Date, in immediately available funds, the proceeds of
the Swing Line Loan being made on such date.
(d) Without in any way limiting the obligation of the Borrower to
confirm in writing any notice it may give hereunder by telephone, the
Administrative Agent (and the Swing Line Lender) may act prior to receipt of
written confirmation without liability upon the basis of such telephonic notice
believed by the Administrative Agent (and the Swing Line Lender) in good faith
to be from a Responsible Officer of the Borrower (or a designee of such
Responsible Officer). In each such case the Borrower hereby waives the right to
dispute the Administrative Agent's (and the Swing Line Lender's) record of the
terms of any such telephonic notice.
2.4. Conversion and Continuation Elections. (a) The Borrower may, upon
irrevocable telephonic notice to the Administrative Agent (promptly confirmed
thereafter in writing) in accordance with Section 2.4(b):
(i) elect, as of any Business Day, in the case of Base Rate
Loans, or as of the last day of the applicable Interest Period, in the case of
Eurodollar Loans, to convert any such Loans (or any part thereof in an amount
not less than $10,000,000 in the case of conversions relating to Term Loans to
Eurodollar Loans or $5,000,000 in the case of conversions of Term Loans to Base
Rate Loans and $500,000 in the case of conversions of Revolving Loans to
Eurodollar Loans or Base Rate Loans, or in each case that is in an integral
multiple of $100,000 in excess thereof) into Loans of any other Type; or
(ii) elect, as of the last day of the applicable Interest
Period, to continue any Loans having Interest Periods expiring on such day (or
any part thereof in an amount not less than (x) in the case of continuations of
Term Loans, $10,000,000 for Eurodollar Loans and $5,000,000 for Base Rate Loans
or, in each case, any multiple of $500,000 in excess thereof or (y) in the case
of continuations of Revolving Loans, $500,000 for both Eurodollar Loans and Base
Rate Loans or, in each case, any multiple of $100,000 in excess thereof).
(b) The Borrower shall deliver a Notice of Conversion/Continuation to
be received by the Administrative Agent not later than 11:00 a.m. (New York City
time) (i) at least three Business Days in advance of the Conversion/Continuation
Date, if the Loans are to be converted into or continued as Eurodollar Loans and
(ii) on the Conversion/Continuation Date, if the Loans are to be converted into
Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be converted or
continued;
(C) the Type of Loans resulting from the proposed conversion
or continuation; and
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(D) other than in the case of conversions into Base Rate
Loans, the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to
Eurodollar Loans, the Borrower has failed to select timely a new Interest Period
to be applicable to such Eurodollar Loans, the Borrower shall be deemed to have
elected to convert such Eurodollar Loans into Eurodollar Loans having an
Interest Period of one month effective as of the expiration date of such
Interest Period.
(d) The Administrative Agent will promptly notify each Lender of its
receipt of a Notice of Conversion/Continuation, or, if no timely notice is
provided by the Borrower, the Administrative Agent will promptly notify each
Lender of the details of any automatic conversion. All conversions and
continuations shall be made ratably according to the respective outstanding
principal amounts of the Loans with respect to which the notice was given held
by each Lender.
(e) If any Event of Default or payment Default is in existence at the
time of any proposed continuation of, or conversion into, any Eurodollar Loans
and the Administrative Agent has, or the Majority Lenders have, determined in
its or their sole discretion not to permit such continuation or conversion and
have notified the Borrower telephonically or in writing thereof, the Borrower
may not elect to have a Loan converted into or continued as an Eurodollar Loan
and any outstanding Eurodollar Loans shall be automatically converted on the
last day of the current Interest Period applicable thereto into Base Rate Loans.
(f) Without in any way limiting the obligation of the Borrower to
confirm in writing any notice it may give hereunder by telephone, the
Administrative Agent may act prior to receipt of written confirmation without
liability upon the basis of such telephonic notice believed by the
Administrative Agent in good faith to be from a Responsible Officer of the
Borrower (or a designee of such Responsible Officer). In each such case the
Borrower hereby waives the right to dispute the Administrative Agent's record of
the terms of any such telephonic notice.
(g) No Swing Line Loans may be converted to Eurodollar Loans.
2.5. Special Provisions for Swing Line Loans.
(a) Lenders to Make Revolving Loans.
(i) The Swing Line Lender, at any time in its
discretion, upon written request to the Lenders through the Administrative Agent
(with a copy to the Borrower), may require each Lender (including the Swing Line
Lender) to make a Revolving Loan, subject to the provisions of Section 2.1(e),
in an amount equal to such Lender's Pro Rata Share of the outstanding Swing Line
Loans. The Swing Line Lender shall deliver such request to the Administrative
Agent prior to 12:00 noon (New York City time) on the Business Day immediately
preceding the date (which shall be a Business Day) on which such Revolving Loans
are to be made. Promptly upon receipt of any such request, the Administrative
Agent shall give notice thereof to the Lenders. Each Lender shall make
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available its Pro Rata Share of such Revolving Loans to the Administrative Agent
by 12:00 noon (New York City time) on the requested date for such Revolving
Loans. The Administrative Agent shall apply the proceeds of such Revolving Loans
to prepay the Swing Line Loans of the Swing Line Lender; provided, however, that
the Administrative Agent shall be obligated to make the proceeds of such
Revolving Loans available only to the extent received by it from the Lenders.
All Revolving Loans made pursuant to this Section 2.5(a) shall be Base Rate
Loans.
(ii) In the event the Administrative Agent advances
proceeds of any Revolving Loan to the Swing Line Lender and one or more of the
Lenders (other than the Swing Line Lender) fail to fund all or any portion of
such Revolving Loan immediately upon receipt of notice from the Administrative
Agent, then (A) such Lender shall pay directly to the Administrative Agent the
amount thereof by no later than 1:00 p.m. (New York City time) on such date and
interest shall accrue on such Revolving Lender's obligation to make such
payment, from such date until three days thereafter, at a rate per annum equal
to the Federal Funds Rate in effect from time to time during such period, and
after the expiration of such three day period, at the Base Rate, and (B) if not
paid by such Lender, the Swing Line Lender will repay directly to the
Administrative Agent such amount as will equal the amount such other Lender(s)
failed to fund, together with interest at a rate per annum equal to the Federal
Funds Rate in effect from time to time during the period in which such Lender
failed to make such payments, whereupon the Swing Line Loans will be reinstated
pro rata.
(b) Participations in Swing Line Loans.
(i) If, at any time prior to the making of Revolving
Loans pursuant to Section 2.5 hereof, any Event of Default described in clause
(f) or (g) of Section 9.1 shall have occurred, each Lender, on the date such
Revolving Loan was to have been made or, if no request for Revolving Loans had
been made pursuant to Section 2.5(a)(i), promptly upon request by the Swing Line
Lender delivered to the Administrative Agent, shall purchase an undivided
participation interest in all outstanding Swing Line Loans in an amount equal to
its Pro Rata Share times the outstanding amount of such Swing Line Loans. Each
Lender (other than the Swing Line Lender) will transfer immediately to the
Administrative Agent for credit to the Swing Line Lender, in immediately
available funds, the amount of its participation. The Swing Line Lender will
deliver to such other Lender, promptly following receipt of such funds, a Swing
Line Loan Participation Certificate, dated the date of receipt of such funds and
in the amount of such Lender's participation if requested to do so by such other
Lender.
(ii) Upon (and only upon) receipt by the Administrative
Agent for the account of the Swing Line Lender of immediately available funds
from the Borrower (i) as payment for a Swing Line Loan with respect to which any
Revolving Lender has paid the Administrative Agent for the account of the Swing
Line Lender for such Revolving Lender's participation in such Swing Line Loan
pursuant to Section 2.5(b)(i) or (ii) in payment of interest thereon, the
Administrative Agent will pay to each Revolving Lender which is not a Defaulting
Lender, in the same funds as those received by the Administrative Agent for the
account of the Swing Line Lender, the amount of such Revolving Lender's
Revolving Loan Percentage of such funds, and the Swing Line Lender shall receive
the
<PAGE>
39
amount of the Revolving Loan Percentage of such funds of any Revolving Lender
that did not so pay the Administrative Agent for the account of the Swing Line
Lender.
(c) Acknowledged Privity. The Borrower expressly agrees that,
in respect of each Lender's funded participation interest in any Swing Line
Loan, such Lender shall be deemed to be in privity of contract with the Borrower
and have the same rights and remedies against the Borrower under the Loan
Documents as if such funded participation interest in such Swing Line Loan were
a Revolving Loan.
(d) Obligation to Participate in Swing Line Loans Absolute.
Each Revolving Lender's obligation in accordance with this Agreement to make
Revolving Loans or purchase participation interests in Swing Line Loans, as
contemplated by Section 2.5(b)(i), as a result of the making of a Swing Line
Loan, shall be absolute and unconditional and without recourse to the Swing Line
Lender and shall not be affected by any circumstance, including (i) any set-off,
counterclaim, recoupment, defense or other right which such Revolving Lender may
have against the Swing Line Lender, the Borrower or any other Person for any
reason whatsoever; (ii) the occurrence or continuance of a Default, an Event of
Default or a Material Adverse Effect; or (iii) any other circumstance, happening
or event whatsoever, whether or not similar to any of the foregoing.
2.6. Voluntary Termination or Reduction of Revolving Swing Line and/or
Special Facility Commitments. The Borrower may, upon not less than three
Business Days' prior written notice to the Administrative Agent, terminate the
Revolving Commitments and/or the Swing Line Commitment and/or the Special
Facility Commitment, or permanently reduce the Revolving Commitments and/or the
Swing Line Commitment and/or the Special Facility Commitment by an aggregate
minimum amount of $1,000,000 or any multiple of $100,000 in excess thereof;
unless, after giving effect thereto and to any prepayments of Loans made on the
effective date thereof, the then-outstanding principal amount of the Revolving
Loans, Swing Line Loans and Special Facility Obligations would exceed,
respectively, the amount of the Revolving Commitments, the Swing Line Commitment
and the Special Facility Commitment then in effect. Once reduced in accordance
with this Section, the Revolving Commitments and/or the Swing Line Commitment
and/or the Special Facility Commitment may not be increased. Any reduction of
the Revolving Commitments and/or the Fronting Lender's Special Facility
Commitment shall be applied to each Lender according to its Revolving Loan
Percentage. All accrued commitment fees to but not including the effective date
of any termination in full of all Revolving Commitments and/or the Swing Line
Commitment and/or the Special Facility Commitment shall be paid on the effective
date of such termination.
2.7. Optional Prepayments. Subject to Section 4.4, the Borrower may, at
any time or from time to time, upon prior irrevocable written notice to the
Administrative Agent by 11:00 a.m. (New York City time) one Business Day in
advance (or, in the case of Swing Line Loans, the same Business Day), prepay
Revolving Loans, Term Loans, Swing Line Loans or Special Facility Obligations,
in whole or in part, in minimum amounts of $500,000 or any multiple of $100,000
in excess thereof. Such notice of prepayment shall specify the date and amount
of such prepayment, the Type(s) of Loans or types of Special Facility
Obligations to be prepaid and whether the Loans are
<PAGE>
40
Tranche A Term Loans, Tranche B Term Loans, Tranche C Term Loans, Tranche D Term
Loans or Revolving Loans; provided that, at the Borrower's option, exercised in
a writing to the Administrative Agent at least one Business Day before any such
prepayment is to be distributed, such prepayment shall not be applied to any
Loan of a Defaulting Lender, but shall be re-allocated ratably to the Loans of
the Non-Defaulting Lenders. The Administrative Agent will promptly notify each
Lender of its receipt of any such notice, and of such Lender's Pro Rata Share of
such prepayment. If such notice is given by the Borrower, the Borrower shall
make such prepayment and the payment amount specified in such notice shall be
due and payable on the date specified therein, together with accrued interest to
each such date on the amount prepaid and any amounts required pursuant to
Section 4.4. Optional prepayments of Term Loans shall be applied to the
installments of the Term Loans in the amount and in the order the Borrower shall
direct.
2.8. Mandatory Prepayments of Loans. (a) Asset Dispositions. If
theiBorrower or any Restricted Subsidiary shall at any time make a Disposition
(other than a Disposition permitted pursuant to clause (a), (b) or (c) of
Section 8.2), then (i) the Borrower or such Restricted Subsidiary may, within
360 days after the receipt by the Borrower or such Restricted Subsidiary of the
Net Disposition Proceeds of such Disposition, (A) reinvest up to 100% of such
Net Disposition Proceeds in the businesses described in Section 7.13 (including,
subject to the provisions of clause (h) of Section 8.3, making Acquisitions in
such businesses), unless at the time of such reinvestment an Event of Default or
payment Default has occurred and is then continuing (except in the case where
the Borrower or such Restricted Subsidiary is subject to a definitive agreement
that has been duly and fully executed at a time when no Event of Default or
payment Default existed and pursuant to which it is obligated to use such Net
Disposition Proceeds for a purpose permitted by this Section 2.8(a)), (B) prepay
the Term Loans within such 360-day period in an amount equal to such Net
Disposition Proceeds (or a portion thereof) or (C) retain the amount of such Net
Disposition Proceeds not so applied pending such application and (ii) to the
extent such Net Disposition Proceeds are not so applied during such 360-day
period, the Borrower shall prepay the Term Loans on the Business Day immediately
succeeding the last day of such 360-day period in an aggregate amount equal to
the portion of such Net Disposition Proceeds not so applied.
(b) Excess Cash Flow. For each Fiscal Year on the last day of which the
ratio of Consolidated Total Debt as at such date to Consolidated EBITDA for such
Fiscal Year is more than 4.0 to 1.0, the Borrower shall, not later than the day
on which financial statements for such Fiscal Year are required to be delivered
pursuant to clause (a) of Section 7.1, prepay Term Loans in an amount equal to
fifty percent (50%) of Excess Cash Flow, if any, for such Fiscal Year; provided
that the first Fiscal Year in respect of which such amount shall be required to
be so applied shall be the Fiscal Year ending September 30, 1997.
(c) Indebtedness Issuance. If the Borrower shall issue Indebtedness
under clause (h) of Section 8.4 or, subject to the written consent of the
Majority Lenders, issue indebtedness for borrowed money or incur Capitalized
Lease Liabilities not otherwise permitted to be issued or incurred pursuant to
Section 8.4, the Borrower shall promptly upon, and in no event later than five
Business Days after,
<PAGE>
41
receipt by the Borrower of Net Issuance Proceeds of such issuance or incurrence,
prepay the Term Loans in an aggregate amount equal to the amount of such Net
Issuance Proceeds.
(d) Application of Proceeds. Any prepayment made pursuant to clauses
(a)(ii), (c) and, subject to the proviso to this sentence, (b) shall be
allocated among the Term Loans as follows: (i) first, to the next two scheduled
and unpaid principal installments of the Tranche A Term Loans (and any Tranche B
Term Loan, Tranche C Term Loan and Tranche D Term Loan installments payable on
or before such installment payment dates) in direct order of maturities, and
(ii) second, to the remaining installments of the Term Loans pro rata, except
that, so long as any Tranche A Term Loans are outstanding, (A) with respect to
the amount of any such prepayment that is allocated to the then outstanding
Tranche B Term Loans, Tranche C Term Loans or Tranche D Term Loans, the Borrower
will, prior to prepaying any such Loans, give the Administrative Agent
telephonic notice (promptly confirmed in writing) requesting that the
Administrative Agent provide notice of such prepayment to each Tranche B Lender,
Tranche C Lender and Tranche D Lender, (B) each Tranche B Term Lender, Tranche C
Term Lender and Tranche D Term Lender will have the right to refuse any such
prepayment by giving written notice of such refusal to the Borrower within seven
Business Days after such Lender's receipt of notice from the Administrative
Agent of such prepayment (and the Borrower shall not prepay any such Tranche B
Term Loans, Tranche C Term Loans or Tranche D Term Loans until such seventh
Business Day or such time as the Borrower receives written notice from such
Lender that it consents to such prepayment, whichever is earlier), (C) 50% of
any prepayment so refused shall be applied to prepay the Tranche A Term Loans in
the manner described in clause (i) above and (D) the remainder of any prepayment
so refused may be retained by the Borrower; provided, however, that any
prepayment made pursuant to clause (b) may be applied, at the Borrower's
election, to scheduled and unpaid principal installments of the Term Loans pro
rata in direct order of maturities, subject to the exception (and clauses (A)
through (E) thereof) set forth above in this Section 2.8(d).
(e) General. Any prepayments pursuant to this Section 2.8 shall be
applied to Types of Loans as the Borrower shall direct (and in the absence of
any such direction, shall be applied first to any Base Rate Loans then
outstanding and then to Eurodollar Loans with the shortest Interest Periods
remaining). The Borrower shall pay, together with each prepayment under this
Section 2.8, accrued interest on the amount of Eurodollar Loans prepaid and any
amounts required pursuant to Section 4.4. At the Borrower's option, exercised in
a writing to the Administrative Agent at least one Business Day before any such
prepayment is to be distributed, prepayments pursuant to this Section 2.8 shall
not be applied to any Loan of a Defaulting Lender, but shall be reallocated
ratably to the Loans of the Non- Defaulting Lenders.
(f) Interest Periods. In lieu of making any payment pursuant to this
Section 2.8 in respect of any Eurodollar Loan other than on the last day of the
Interest Period therefor, so long as no Default or Event of Default shall have
occurred and be continuing, the Borrower at its option may deposit with the
Administrative Agent an amount equal to the amount of the Eurodollar Loan to be
prepaid and such Eurodollar Loan shall be repaid on the last day of the Interest
Period therefor in the required amount (it being understood and agreed that such
deposit need not be made with respect to Eurodollar
<PAGE>
42
Loans having Interest Periods that end within three months of the date of such
prepayment). Such deposit shall be held by the Administrative Agent in a
corporate time deposit account established on terms reasonably satisfactory to
the Administrative Agent, earning interest at the then-customary rate for
accounts of such type. Such deposit shall cash collateralize the Obligations,
provided that the Borrower may at any time direct that such deposit be applied
to make the applicable payment required pursuant to this Section 2.8, subject to
the provisions of Section 4.4.
(g) Telephonic Notice. Without in any way limiting the obligation of
the Borrower to confirm in writing any notice it may give hereunder by
telephone, the Administrative Agent may act prior to receipt of written
confirmation without liability upon the basis of such telephonic notice believed
by the Administrative Agent in good faith to be from a Responsible Officer of
the Borrower (or a designee of such Responsible Officer). In each such case the
Borrower hereby waives the right to dispute the Administrative Agent's record of
the terms of any such telephonic notice.
2.9. Repayment. (a) The Tranche A Term Credit. The Borrower shall repay the
Tranche A Term Loans on the dates and in the amounts set forth below:
<TABLE>
<CAPTION>
Number of Months
From Closing Date Amount
----------------- ------
<S> <C> <C>
24 $ 15,000,000
36 $ 25,000,000
48 $ 25,000,000
60 $ 30,000,000
72 $ 30,000,000
84 (7 years)(Tranche A Term Maturity Date) $ 50,000,000
------------
Total: $175,000,000
</TABLE>
(b) The Tranche B Term Credit. The Borrower shall repay the Tranche B Term
Loans on the dates and in the amounts set forth below:
<TABLE>
<CAPTION>
Number of Months
From Closing Date Amount
----------------- ------
<S> <C> <C>
24 $1,000,000
36 $1,000,000
48 $1,000,000
60 $1,000,000
72 $1,000,000
84 $1,000,000
96 (8 years)(Tranche B Term Maturity Date) $81,500,000
-----------
Total: $87,500,000
</TABLE>
<PAGE>
43
(c) The Tranche C Term Credit. The Borrower shall repay the Tranche C Term
Loans on the dates and in the amounts set forth below:
<TABLE>
<CAPTION>
Number of Months
From Closing Date Amount
----------------- ------
<S> <C> <C>
24 $1,000,000
36 $1,000,000
48 $1,000,000
60 $1,000,000
72 $1,000,000
84 $1,000,000
96 $1,000,000
108 (9 years)(Tranche C Term Maturity Date) $80,500,000
-----------
Total: $87,500,000
</TABLE>
(d) The Tranche D Term Credit. The Borrower shall repay the Tranche D Term
Loans on the dates and in the amounts set forth below:
<TABLE>
<CAPTION>
Number of Months
From Closing Date Amount
----------------- ------
24 $500,000
<S> <C> <C>
36 $500,000
48 $500,000
60 $500,000
72 $500,000
84 $500,000
96 $500,000
108 $500,000
114 (9-1/2 years)(Tranche D Term Maturity) $46,000,000
-----------
Total: $50,000,000
</TABLE>
(e) The Revolving Credit. The Borrower shall repay to the Revolving Lenders
on the Revolving Commitment Termination Date the aggregate principal amount of
Revolving Loans outstanding on such date.
(f) The Swing Line Credit. The Borrower shall repay to the Swing Line
Lender on the Revolving Commitment Termination Date the aggregate principal
amount of Swing Line Loans outstanding on such date.
2.10. Interest. (a) Rate. Each Loan shall bear interest on the
outstanding principal amount thereof from the applicable Borrowing Date at a
rate per annum equal to the Eurodollar Rate or the Base Rate, as the case may be
(and subject to the Borrower's right to convert to other Types of Loans under
Section 2.4), plus the Applicable Margin.
<PAGE>
44
(b) Payment Dates. Interest on each Loan (except for Swing Line Loans
made as a result of a drawing under a documentary Letter of Credit and in
contemplation of refinancing such Swing Line Loans with the proceeds of
Acceptances) shall be paid in arrears on each Interest Payment Date. Interest
shall also be paid on the date of any prepayment of Eurodollar Loans under
Section 2.7 or 2.8 for the portion of the Loans so prepaid and upon payment
(including prepayment) in full thereof and, at and after maturity (whether by
acceleration or otherwise) of a Loan, interest shall be paid on demand of the
Administrative Agent at the request or with the consent of the Majority Lenders.
(c) Default Rate. Notwithstanding clause (a) of this Section, if any
amount of principal of or interest on any Loan is not paid in full when due
(whether at stated maturity, by acceleration, demand or otherwise), the Borrower
agrees to pay interest on such unpaid principal or interest, from the date such
amount becomes due until the date such amount is paid in full, and after as well
as before any entry of judgment thereon to the extent permitted by law, payable
on demand, at a fluctuating rate per annum equal to the Base Rate plus the
Applicable Margin plus 2%.
(d) Maximum Rate. Anything herein to the contrary notwithstanding, the
obligations of the Borrower to any Lender hereunder shall be subject to the
limitation that payments of interest shall not be required for any period for
which interest is computed hereunder, to the extent (but only to the extent)
that contracting for or receiving such payment by such Lender would be contrary
to the provisions of any law applicable to such Lender limiting the highest rate
of interest that may be lawfully contracted for, charged or received by such
Lender, and in such event the Borrower shall pay such Lender interest at the
highest rate permitted by applicable law.
2.11. Fees. (a) Arrangement, Agency Fees; etc. The Borrower shall pay
an arrangement fee to each Co-Arranger for such Co-Arranger's account, a
commitment fee to each Agent for such Agent's account and from time to time an
administrative agency fee to the Administrative Agent for the Administrative
Agent's account, in each case, as required by the letter agreement (the "Fee
Letter") among the Borrower, the Co-Arrangers and the Agents dated August 6,
1996, as amended as of September 3, 1996.
(b) Commitment Fees. The Borrower shall pay to the Administrative Agent
for the account of each Revolving Lender a commitment fee on the average daily
unused portion of such Lender's Revolving Commitment, computed and payable on a
quarterly basis in arrears on the last Business Day of each calendar quarter
based upon the daily utilization for that quarter, at a rate per annum equal to
the Applicable Margin for commitment fees. Such commitment fee shall accrue from
the Closing Date to the Revolving Commitment Termination Date, with the final
payment to be made in any event on the Revolving Commitment Termination Date.
The commitment fees provided in this clause shall accrue at all times after the
above-mentioned commencement date, including at any time during which one or
more conditions in Article V are not met.
2.12. Computation of Fees and Interest. (a) All computations of
interest for Eurodollar Loans and Base Rate Loans (calculated at the Federal
Funds Rate) shall be made on the basis of a 360-day year and actual days
elapsed. All other computations (including for interest on Base Rate
<PAGE>
45
Loans (calculated at other than the Federal Funds Rate), commitment fees and the
fees set forth in Section 3.8)) shall be made on the basis of a year of 365 or
366 days, as the case may be, and actual days elapsed. Interest and fees shall
accrue during each period during which interest or such fees are computed from
(and including) the first day thereof to (but excluding) the last day thereof.
(b) Each determination of an interest rate by the Administrative Agent
shall be conclusive and binding on the Borrower and the Lenders in the absence
of clearly demonstrable error. The Administrative Agent will, at the request of
the Borrower or any Lender, deliver to the Borrower or such Lender, as the case
may be, a statement showing the quotations used by the Administrative Agent in
determining any interest rate and the resulting interest rate.
2.13. Payments by the Borrower. (a) All payments to be made by the
Borrower shall be made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by the Borrower shall be made
to the Administrative Agent for the account of the Lenders at the Administrative
Agent's Payment Office, and shall be made in dollars and in immediately
available funds, no later than 12:00 noon (New York City time) on the date
specified herein. The Administrative Agent will promptly distribute to each
Lender its Pro Rata Share (or other applicable share as expressly provided
herein) of such payment in like funds as received. Any payment received by the
Administrative Agent later than 3:00 p.m. (New York City time) shall be deemed
to have been received on the following Business Day and any applicable interest
or fee shall continue to accrue.
(b) Subject to the provisions set forth in the definition of "Interest
Period" herein, whenever any payment is due on a day other than a Business Day,
such payment shall be made on the following Business Day, and such extension of
time shall in such case be included in the computation of interest or fees, as
the case may be.
(c) Unless the Administrative Agent receives written notice from the
Borrower prior to the date on which any payment is due to the Lenders that the
Borrower will not make such payment in full as and when required, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date in immediately available funds and the
Administrative Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Lender on such due date an amount equal to the
amount then due such Lender. If and to the extent the Borrower has not made such
payment in full to the Administrative Agent, each Lender shall repay to the
Administrative Agent on demand such amount distributed to such Lender, together
with interest thereon at the Federal Funds Rate for each day from the date such
amount is distributed to such Lender until the date repaid.
2.14. Payments by the Lenders to the Administrative Agent. (a) Unless
the Administrative Agent receives written notice from a Lender prior to the
Closing Date or, with respect to any Borrowing after the Closing Date, at least
one Business Day prior to the date of such Borrowing, that such Lender will not
make available as and when required hereunder to the Administrative Agent for
the account of the Borrower the amount of that Lender's Pro Rata Share of the
Borrowing, the Administrative Agent may assume that each Lender has made such
amount available to the
<PAGE>
46
Administrative Agent in immediately available funds on the Borrowing Date and
the Administrative Agent may (but shall not be so required), in reliance upon
such assumption, make available to the Borrower on such date a corresponding
amount. If and to the extent any Lender shall not have made its full amount
available to the Administrative Agent in immediately available funds and the
Administrative Agent in such circumstances has made available to the Borrower
such amount, that Lender shall on the Business Day following such Borrowing Date
make such amount available to the Administrative Agent, together with interest
at the Federal Funds Rate for each day during such period. A notice of the
Administrative Agent submitted to any Lender with respect to amounts owing under
this clause (a) shall be conclusive, absent clearly demonstrable error. If such
amount is so made available, such payment to the Administrative Agent shall
constitute such Lender's Loan on the date of Borrowing for all purposes of this
Agreement. If such amount is not made available to the Administrative Agent on
the Business Day following the Borrowing Date, the Administrative Agent will
notify the Borrower of such failure to fund and, upon demand by the
Administrative Agent, the Borrower shall immediately pay such amount to the
Administrative Agent for the Administrative Agent's account, together with
interest thereon for each day elapsed since the date of such Borrowing, at a
rate per annum equal to the interest rate applicable at the time to the Loans
comprising such Borrowing.
(b) The failure of any Lender to make any Loan on any Borrowing Date
shall not relieve any other Lender of any obligation hereunder to make a Loan on
such Borrowing Date, but no Lender shall be responsible for the failure of any
other Lender to make the Loan to be made by such other Lender on any Borrowing
Date.
2.15. Sharing of Payments, etc. If, other than as expressly provided
elsewhere herein, any Lender shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off or otherwise) in excess of its ratable share (or other share
contemplated hereunder) of such Loans, such Lender shall immediately (a) notify
the Administrative Agent of such fact and (b) purchase from the other Lenders
such participations in the Loans made by them as shall be necessary to cause
such purchasing Lender to share the excess payment pro rata with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from the purchasing Lender, such purchase shall to that
extent be rescinded and each other Lender shall repay to the purchasing Lender
the purchase price paid therefor, together with an amount equal to such paying
Lender's ratable share (according to the proportion of (i) the amount of such
paying Lender's required repayment to (ii) the total amount so recovered from
the purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender may, to
the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off, but subject to Section 11.10) with respect to
such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation. The Administrative Agent will keep
records (which shall be conclusive and binding in the absence of clearly
demonstrable error) of participations purchased under this Section and will in
each case notify the Lenders following any such purchases or repayments.
<PAGE>
47
ARTICLE III
LETTERS OF CREDIT AND ACCEPTANCES
3.1. Letter of Credit and Acceptance Subfacilities. (a) On the terms
and conditions set forth herein (i) the Fronting Lender agrees (A) from time to
time on any Business Day during the period from the Closing Date to the
Revolving Commitment Termination Date to issue Letters of Credit, or create
Acceptances, or both, at the request of and for the account of the Borrower and
its Restricted Subsidiaries, as Account Parties, and to amend or renew Letters
of Credit previously issued by it, in accordance with Sections 3.2(c) and
3.2(d), and (B) to honor drafts duly drawn under the Letters of Credit and (ii)
the Revolving Lenders severally agree irrevocably to participate in Letters of
Credit Issued and Acceptances created for the account of Account Parties;
provided that the Fronting Lender shall not be obligated to Issue or create, and
no Revolving Lender shall be obligated to participate in, any Letter of Credit
or Acceptance, as the case may be, if as of the date of Issuance of such Letter
of Credit (an "Issuance Date") or the creation of such Acceptance (a "Creation
Date"), and after giving effect to such Issuance or creation, (1) the aggregate
amount of all Special Facility Obligations plus the aggregate outstanding
principal amount of all Revolving Loans plus the aggregate outstanding principal
amount of all outstanding Swing Line Loans exceeds the combined Revolving
Commitments, (2) the participation of any Revolving Lender in the aggregate
amount of all Special Facility Obligations plus the aggregate outstanding
principal amount of such Revolving Lender's Revolving Loans plus the aggregate
principal amount of such Revolving Lender's participations in all outstanding
Swing Line Loans exceeds such Revolving Lender's Revolving Commitment or (3) the
aggregate amount of all Special Facility Obligations exceeds the Special
Facility Commitment. Within the foregoing limits, and subject to the other terms
and conditions hereof, the Borrower's ability to obtain Letters of Credit or
Acceptances shall be fully revolving, and, accordingly, the Borrower may, during
the foregoing period, obtain Letters of Credit to replace Letters of Credit
which have expired or which have been drawn upon and reimbursed or Acceptances
which have matured and have been reimbursed.
(b) The Fronting Lender is under no obligation to Issue any Letter of
Credit or create any Acceptance if:
(i) the Fronting Lender has received written notice from the
Administrative Agent or the Borrower, on or prior to the Business Day prior to
the requested date of Issuance of such Letter of Credit or the creation of such
Letter of Acceptance, stating that a Default or Event of Default has occurred
and is continuing, unless and until such time as the Fronting Lender shall have
received a written notice of (x) rescission of such notice from the party or
parties originally delivering such notice or (y) the waiver of such Default or
Event of Default in accordance with the provisions of Section 11.1;
(ii) the expiry date of any requested Letter of Credit is (A)
more than one year after the date of Issuance or (B) after the Revolving
Commitment Termination Date;
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48
(iii) the maturity date of any requested Acceptance is (A)
less than 30 days or more than 180 days after the date of creation or (B) after
the Revolving Commitment Termination Date;
(iv) any requested Letter of Credit does not provide for
drafts, or is not otherwise in form and substance reasonably acceptable to the
Fronting Lender;
(v) any requested Acceptance is not in form and substance
reasonably acceptable to the Fronting Lender;
(vi) a Lender Default known to the Fronting Lender exists,
unless the Fronting Lender has entered into arrangements reasonably satisfactory
to it and the Borrower to eliminate the Fronting Lender's risk with respect to
the participation in Letters of Credit or Acceptances by Defaulting Lenders,
including cash collateralizing such Defaulting Lender's Pro Rata Share of
Special Facility Obligations; or
(vii) the Fronting Lender reasonably determines that for any
reason adequate and reasonable means do not exist for determining the Acceptance
Reference Rate.
(c) Each Letter of Credit and Acceptance (as each such term is defined
in the Existing Credit Agreement) outstanding or unmatured, as the case may be,
under the Existing Credit Agreement on the Closing Date that was issued by BofA
in its capacity as a Fronting Bank (as defined in the Existing Credit Agreement)
thereunder shall be deemed to have been issued or created, as the case may be,
by the Fronting Lender hereunder on the Closing Date (each such Letter of Credit
and Acceptance is set forth on Schedule B hereto).
(d) Each Letter of Credit (as such term is defined in each of the
Existing Credit Agreement and the Etonic Credit Agreement) outstanding under the
Existing Credit Agreement or the Etonic Credit Agreement on the Closing Date
that was issued by Citibank, N.A. as a Fronting Bank (as defined in the Existing
Credit Agreement) or as the Issuing Bank (as defined in the Etonic Credit
Agreement) under either such credit agreement shall be deemed to have been
issued hereunder on the Closing Date and Citibank, N.A. shall be deemed to be a
Fronting Lender hereunder solely with respect to such Letters of Credit (each
such Letter of Credit is set forth on Schedule C hereto); provided, however,
that (i) no such Letter of Credit may be amended to extend the expiry date
thereof or increase the amount available to be drawn thereunder or renewed by
Citibank, N.A. and (ii) Citibank, N.A. shall exercise its right not to renew
each Letter of Credit containing a provision for such Letter of Credit to
automatically renew on an evergreen basis (and Citibank, N.A. shall provide the
notice(s) relating thereto that are required under such Letter of Credit).
3.2. Issuance, Amendment and Renewal of Letters of Credit. (a) Each
Letter of Credit shall be issued upon the irrevocable submission by the Borrower
of a Notice of L/C Issuance/Amendment to the Fronting Lender (with a copy sent
by the Borrower to the Administrative Agent) at least three Business Days (or
such shorter time as the Fronting Lender may agree in a particular instance in
its sole discretion) prior to the proposed date of Issuance. Each such Notice of
L/C Issuance/Amendment
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49
shall be by facsimile, confirmed immediately in an original writing, and shall
specify in form and detail reasonably satisfactory to the Fronting Lender: (i)
the proposed date of issuance of the Letter of Credit (which shall be a Business
Day); (ii) the face amount of the Letter of Credit; (iii) the expiry date of the
Letter of Credit; (iv) the name and address of the beneficiary thereof; (v) the
documents to be presented by the beneficiary of the Letter of Credit in case of
any drawing thereunder; (vi) the full text of any certificate to be presented by
the beneficiary in case of any drawing thereunder; and (vii) such other matters
as the Fronting Lender may reasonably require.
(b) At least one Business Day prior to the Issuance of any Letter of
Credit, the Fronting Lender will confirm with the Administrative Agent (by
telephone or in writing) the availability of the Revolving Commitments with
respect to such Issuance. Unless the Fronting Lender has received notice from
the Administrative Agent on or before the Business Day immediately preceding the
date the Fronting Lender is to issue a requested Letter of Credit (A) directing
the Fronting Lender not to issue such Letter of Credit because such issuance is
not then permitted under Section 3.1(a) as a result of the limitations set forth
in clauses (1) and (2) thereof or clause (i) of Section 3.1(b) or (B) that one
or more conditions specified in Article V are not then satisfied, then, subject
to the terms and conditions hereof, the Fronting Lender shall, on the requested
date, issue a Letter of Credit for the account of the Borrower in accordance
with the Fronting Lender's usual and customary business practices.
(c) From time to time while a Letter of Credit is outstanding and prior
to the Revolving Commitment Termination Date, the Fronting Lender will, upon the
written request of the Borrower received by the Fronting Lender (with a copy
sent by the Borrower to the Administrative Agent) at least three Business Days
(or such shorter time as the Fronting Lender may agree in a particular instance
in its sole discretion) prior to the proposed date of amendment, amend any
Letter of Credit issued by it. Each such request for amendment of a Letter of
Credit shall be made by facsimile, confirmed immediately in an original writing,
made in the form of a Notice of L/C Issuance/Amendment and shall specify in form
and detail reasonably satisfactory to the Fronting Lender: (i) the Letter of
Credit to be amended; (ii) the proposed date of amendment of the Letter of
Credit (which shall be a Business Day); (iii) the nature of the proposed
amendment; and (iv) such other matters as the Fronting Lender may reasonably
require. The Fronting Lender shall be under no obligation to amend any Letter of
Credit if (A) the Fronting Lender would have no obligation at such time to issue
such Letter of Credit in its amended form under the terms of this Agreement or
(B) the beneficiary of any such Letter of Credit does not accept the proposed
amendment to the Letter of Credit. The Administrative Agent will promptly notify
the Revolving Lenders of the receipt by it of any Notice of L/C
Issuance/Amendment.
(d) The Fronting Lender and the Revolving Lenders agree that, while a
standby Letter of Credit is outstanding and prior to the Revolving Commitment
Termination Date, at the option of the Borrower and upon the written request of
the Borrower received by the Fronting Lender (with a copy sent by the Borrower
to the Administrative Agent) at least three Business Days (or such shorter time
as the Fronting Lender may agree in a particular instance in its sole
discretion) prior to the proposed date of notification of renewal, the Fronting
Lender shall be entitled to authorize the automatic renewal
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50
of any standby Letter of Credit issued by it to the Borrower. Each such request
for renewal of a standby Letter of Credit shall be made by facsimile, confirmed
immediately in an original writing, in the form of a Notice of L/C
Issuance/Amendment, and shall specify in form and detail reasonably satisfactory
to the Fronting Lender: (i) the standby Letter of Credit to be renewed; (ii) the
proposed date of notification of renewal of the standby Letter of Credit (which
shall be a Business Day); (iii) the revised expiry date of the standby Letter of
Credit; and (iv) such other matters as the Fronting Lender may reasonably
require. The Fronting Lender shall be under no obligation so to renew, and shall
not so renew any standby Letter of Credit if (A) the Fronting Lender would have
no obligation at such time to issue or amend such standby Letter of Credit in
its renewed form under the terms of this Agreement or (B) the beneficiary of any
such standby Letter of Credit does not accept the proposed renewal of the
standby Letter of Credit. If any outstanding standby Letter of Credit shall
provide that it shall be automatically renewed unless the beneficiary thereof
receives notice from the Fronting Lender that such standby Letter of Credit
shall not be renewed, and if at the time of renewal the Fronting Lender would be
entitled to authorize the automatic renewal of such standby Letter of Credit in
accordance with this Section 3.2(d) upon the request of the Borrower but the
Fronting Lender shall not have received any Notice of L/C Issuance/Amendment
from the Borrower with respect to such renewal or other written direction by the
Borrower with respect thereto, the Fronting Lender shall nonetheless be
permitted to allow such standby Letter of Credit to renew, and the Borrower and
the Revolving Lenders hereby authorize such renewal, and, accordingly, the
Fronting Lender shall be deemed to have received a Notice of L/C
Issuance/Amendment from the Borrower requesting such renewal.
(e) The Fronting Lender shall deliver any notices of termination or
other communications to any Letter of Credit beneficiary or transferee, and take
any other action as necessary or appropriate, at any time and from time to time,
in order to cause the expiry date of such Letter of Credit to be a date not
later than the Revolving Commitment Termination Date.
(f) This Agreement shall control in the event of any conflict with any
Letter of Credit related document (other than any Letter of Credit).
(g) The Fronting Lender will also deliver to the Administrative Agent,
concurrently or promptly following its delivery of a Letter of Credit, or
amendment to or renewal of a Letter of Credit, to an advising lender or a
beneficiary, a true and complete copy of each such Letter of Credit or amendment
to or renewal of a Letter of Credit.
(h) Notwithstanding anything to the contrary in this Article III, the
Borrower and each other Account Party may make a request by using software
provided to them by the Fronting Lender when requesting that the Fronting Lender
Issue a Letter of Credit (a "Computerized Request") in lieu of making such
request in the form of a Notice of L/C Issuance/Amendment.
(i) Without in any way limiting the obligation of the Borrower to
confirm in writing any notice it may give hereunder by telephone, the
Administrative Agent (and the Fronting Lender) may act prior to receipt of
written confirmation without liability upon the basis of such telephonic notice
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51
believed by the Administrative Agent (and the Fronting Lender) in good faith to
be from a Responsible Officer of the Borrower (or a designee of such Responsible
Officer). In each such case the Borrower hereby waives the right to dispute the
Administrative Agent's (and the Fronting Lender's) record of the terms of any
such telephonic notice.
3.3. Creation of Acceptances. (a) All drafts presented by the Borrower
to the Fronting Lender for acceptance by the Fronting Lender as Acceptances
pursuant to this Agreement shall be properly executed and drawn by the Borrower.
To facilitate the acceptance of Acceptances hereunder, the Borrower shall from
time to time as required by the Fronting Lender provide to the Fronting Lender
an appropriate number of executed drafts drawn in blank by the Borrower in the
form prescribed by the Fronting Lender. The Borrower may, at its option, execute
any draft so presented by the facsimile signature or signatures of any one or
more designated signing officers of the Borrower, and the Fronting Lender is
hereby authorized to accept or pay, as the case may be, any draft of the
Borrower which purports to bear such facsimile signature or signatures
notwithstanding that any such individual has ceased to be a designated signing
officer of the Borrower and any such draft or Acceptance shall be as valid as if
such individual were a designated signing officer of the Borrower at the date of
issue of such Acceptance. Any such draft or Acceptance may be dealt with by the
Fronting Lender for all intents and purposes and shall bind the Borrower as if
duly signed in the signing officer's own handwriting and issued by the Borrower.
Without limiting the effect of the indemnity provided under Section 11.5 but in
addition to such provision, the Borrower will and hereby does undertake to hold
the Fronting Lender harmless against, and to indemnify, and the Borrower hereby
does agree to indemnify, the Fronting Lender from, all losses, costs, damages
and expenses arising out of the payment or negotiation of any such draft or
Acceptance on which a facsimile signature has been wrongly affixed, except to
the extent caused by the gross negligence or willful misconduct of the Fronting
Lender. The Fronting Lender shall not be liable for its failure to accept an
Acceptance as required hereunder if the cause of such failure is, in whole or in
part, due to the failure of the Borrower to provide executed drafts to the
Fronting Lender on a timely basis. Without creating any obligation to effect
such a purchase, Acceptances may be purchased by the Fronting Lender and may be
held by it for its own account until maturity or sold by it at any time prior
thereto in any relevant market therefor in the United States or elsewhere, in
the Fronting Lender's sole discretion.
(b) On the terms and conditions set forth herein (including Section
5.2), Acceptances shall be created by the Fronting Lender on a pre-arranged
monthly date mutually agreed upon by the Borrower, the Fronting Lender and the
Administrative Agent if a Swing Line Loan was made as a result of a drawing
under a documentary Letter of Credit and in contemplation of refinancing such
Swing Line Loan with the proceeds of such Acceptances. The aggregate face amount
of such Acceptances shall be an amount that when discounted at the then
prevailing Acceptance Reference Rate to a present value will exactly repay the
principal amount of such Swing Line Loan and all accrued but unpaid interest
thereon.
(c) This Agreement shall control in the event of any conflict with any
Acceptance related document (other than any Acceptance).
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52
(d) The Fronting Lender will also deliver to the Administrative Agent,
concurrently or promptly following its creation of an Acceptance, a true and
complete copy of each such Acceptance.
(e) Any executed drafts to be used as Acceptances which are delivered
by the Borrower to the Fronting Lender shall be held in safekeeping with the
same degree of care as if they were the negotiable instruments of the Fronting
Lender.
3.4. Letter of Credit/Banker's Acceptance Participations, Drawings and
Reimbursements. (a) Immediately upon (i) the Issuance of any Letter of Credit by
the Fronting Lender for an Account Party in accordance with Sections 3.1 and 3.2
or (ii) the creation of any Acceptance by the Fronting Lender for an Account
Party in accordance with Sections 3.1 and 3.3, each Revolving Lender shall be
deemed to, and hereby irrevocably and unconditionally agrees to, purchase from
the Fronting Lender a participation in the Special Facility Obligations in
respect of such Letter of Credit or Acceptance, including all interest and other
Obligations of the Account Party with respect thereto (other than fronting fees
and charges payable to the Fronting Lender in its capacity as such with respect
to Letters of Credit and Acceptances) and any security therefor and guaranty
pertaining thereto in an amount equal to the product of (x) the Revolving Loan
Percentage of such Revolving Lender times (y) the maximum amount of the Special
Facility Obligations in respect thereof. For purposes of Sections 2.1(e) and
3.1, each Issuance of a Letter of Credit and each creation of an Acceptance
shall be deemed to utilize the Revolving Commitment of each Revolving Lender by
an amount equal to the amount of such participation.
(b) In the event of any request for a drawing under a Letter of Credit
by the beneficiary or transferee thereof, the Fronting Lender will promptly
notify the Borrower. The Borrower agrees to reimburse the Fronting Lender, prior
to 1:00 p.m. (New York City time), on each date that any amount is paid by the
Fronting Lender under any Letter of Credit or Acceptance (each such date, an
"Reimbursement Date"), in an amount equal to the amount so paid by the Fronting
Lender. In the event the Borrower fails to reimburse the Fronting Lender by 1:00
p.m. (New York City time) on a Reimbursement Date for
(i) the full amount of any drawing under any Letter of Credit
(together with the fee, costs and charges described in Section 3.8(c) relating
thereto), the Fronting Lender will promptly notify the Administrative Agent and
the Administrative Agent will promptly notify the Swing Line Lender thereof, and
the Borrower shall be deemed to have requested that a Swing Line Loan be made by
the Swing Line Lender on such Reimbursement Date in the amount of such drawing
(and such fees, costs and charges) subject to the amount of the unutilized
portion of the Swing Line Commitment and the conditions set forth in Section
5.2; or
(ii) the face amount of any matured Acceptance, the Fronting
Lender will promptly notify the Administrative Agent and the Administrative
Agent will promptly notify the Swing Line Lender thereof, and the Borrower shall
be deemed to have requested that a Swing Line Loan in the face amount of the
matured Acceptances be made by the Swing Line Lender on such Reimbursement
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53
Date under such matured Acceptances subject to the amount of the unutilized
portion of the Swing Line Commitment and the conditions set forth in Section
5.2.
Any notice given by the Fronting Lender or the Administrative Agent pursuant to
this Section 3.4(b) may be oral if immediately confirmed in writing (including
by facsimile); provided that the lack of such an immediate confirmation shall
not affect the conclusiveness or binding effect of such notice.
(c) The Swing Line Lender shall upon any notice pursuant to clause (i)
or (ii) of Section 3.4(b) make available to the Administrative Agent for the
account of the Fronting Lender an amount in immediately available funds equal to
the amount of the Swing Line Loan requested.
(d) With respect to any unreimbursed drawing under a Letter of Credit
or matured Acceptance because of the Borrower's failure to satisfy the
conditions set forth in Section 5.2 or because the Swing Line Commitment does
not have sufficient availability, the Borrower shall be deemed to have incurred
from the Fronting Lender a Special Facility Borrowing in the amount of such
drawing or matured Acceptance, which Special Facility Borrowing shall be due and
payable on demand (together with interest) and shall bear interest at a rate per
annum equal to the Base Rate plus the Applicable Margin plus 2% per annum, and
each Revolving Lender shall make available to the Administrative Agent for the
account of the Fronting Lender an amount in immediately available funds equal to
its Revolving Loan Percentage of the amount of such drawing or the face amount
of such matured Acceptance, in the case of each Revolving Lender, whereupon the
participating Revolving Lenders shall each be deemed to have made payment in
respect of its participation in such Special Facility Borrowing and such payment
shall constitute a Special Facility Advance from such Lender in satisfaction of
its participation obligation under this Section 3.4. If any Revolving Lender so
notified fails to make available to the Administrative Agent for the account of
the Fronting Lender the amount of such Lender's Pro Rata Share of the amount of
such drawing or the face amount of such Acceptance, as the case may be, by no
later than 1:00 p.m. (New York City time) on the applicable Reimbursement Date,
then interest shall accrue on such Revolving Lender's obligation to make such
payment, from such Reimbursement Date until three days after such date, at a
rate per annum equal to the Federal Funds Rate in effect from time to time
during such period, and after the expiration of such three day period, at the
Base Rate.
(e) The Swing Line Lender's obligation in accordance with this
Agreement to make Swing Line Loans, as contemplated by this Section 3.4, as a
result of a drawing under a Letter of Credit, and each Revolving Lender's
obligation in accordance with this Agreement to make Special Facility Advances,
as contemplated by this Section 3.4, as a result of a drawing under a Letter of
Credit or the maturity of an Acceptance, shall in each case be absolute and
unconditional and without recourse to the Fronting Lender and shall not be
affected by any circumstance, including (i) any set-off, counterclaim,
recoupment, defense or other right which such Revolving Lender or the Swing Line
Lender may have against the Fronting Lender, the Borrower or any other Person
for any reason whatsoever; (ii) the occurrence or continuance of a Default, an
Event of Default or a Material Adverse Effect; or (iii) any other circumstance,
happening or event whatsoever, whether or not similar to any of
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54
the foregoing; provided, however, that the Swing Line Lender's obligation to
make Swing Line Loans under this Section 3.4 is subject to the conditions set
forth in Section 5.2.
3.5. Repayment of Participations. (a) Upon (and only upon) receipt by
the Administrative Agent for the account of the Fronting Lender of immediately
available funds from the Borrower (i) in reimbursement of any payment made by
the Fronting Lender under a Letter of Credit with respect to which any Revolving
Lender has paid the Administrative Agent for the account of the Fronting Lender
for such Revolving Lender's participation in a drawing of a Letter of Credit as
a result of the making of a Special Facility Advance or the maturity of an
Acceptance pursuant to Section 3.4 or (ii) in payment of interest thereon, the
Administrative Agent will pay to each Revolving Lender which is not a Defaulting
Lender, in the same funds as those received by the Administrative Agent for the
account of the Fronting Lender, the amount of such Revolving Lender's Revolving
Loan Percentage of such funds, and the Fronting Lender shall receive the amount
of the Revolving Loan Percentage of such funds of any Revolving Lender that did
not so pay the Administrative Agent for the account of the Fronting Lender.
(b) If the Administrative Agent or the Fronting Lender is required at
any time to return to the Borrower or to a trustee, receiver, liquidator,
custodian or any official in any Insolvency Proceeding, any portion of the
payments made by the Borrower to the Administrative Agent for the account of the
Fronting Lender pursuant to Section 3.5(a) in reimbursement of a payment made
under a drawing of a Letter of Credit or the maturity of an Acceptance, as the
case may be, or interest or fee thereon, each Revolving Lender shall, on demand
of the Administrative Agent, forthwith forward to the Administrative Agent or
the Fronting Lender the amount of its Revolving Loan Percentage of any amounts
so returned by the Administrative Agent or the Fronting Lender plus interest
thereon from the date such demand is made to the date such amounts are returned
by such Revolving Lender to the Administrative Agent or the Fronting Lender, at
a rate per annum equal to the Federal Funds Rate in effect from time to time for
the first three days, and at the Base Rate thereafter.
3.6. Role of the Fronting Lender. (a) The Swing Line Lender, each
Revolving Lender and the Borrower agree that, in paying any drawing under a
Letter of Credit, the Fronting Lender shall not have any responsibility to
obtain any document (other than any sight draft and certificates expressly
required by the Letter of Credit) or to ascertain or inquire as to the validity
or accuracy of any such document or the authority of the Person executing or
delivering any such document.
(b) No Agent-Related Person nor any of the respective correspondents,
participants or assignees of the Fronting Lender shall be liable to any
Revolving Lender for: (i) any action taken or omitted in connection herewith at
the request or with the approval of the Revolving Lenders or the Majority
Tranche A Term and Revolving Lenders; (ii) any action taken or omitted in the
absence of gross negligence or willful misconduct; or (iii) the due execution,
effectiveness, validity or enforceability of any Letter of Credit or document
relating to any Letter of Credit.
(c) The Borrower hereby assumes all risks of the acts or omissions of
any beneficiary or transferee with respect to its use of any Letter of Credit;
provided, however, that this assumption is not
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55
intended to, and shall not, preclude the Borrower's pursuing such rights and
remedies as it may have against the beneficiary or transferee at law or under
any other agreement. No Agent-Related Person, nor any of the respective
correspondents, participants or assignees of the Fronting Lender, shall be
liable or responsible for any of the matters described in clauses (a) through
(g) of Section 3.7; provided, however, anything in such clauses to the contrary
notwithstanding, that the Borrower may have a claim against the Fronting Lender,
and the Fronting Lender may be liable to the Borrower, to the extent, but only
to the extent, of any direct, as opposed to consequential or exemplary, damages
suffered by the Borrower which the Borrower proves were caused by the Fronting
Lender's willful misconduct or gross negligence or the Fronting Lender's willful
failure to pay under any Letter of Credit after the presentation to it by the
beneficiary of a sight draft and certificate(s) strictly complying with the
terms and conditions of a Letter of Credit. In furtherance and not in limitation
of the foregoing, (i) the Fronting Lender may accept documents that appear on
their face to be in order, without responsibility for further investigation, and
(ii) the Fronting Lender shall not be responsible for the validity or
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign a 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.
3.7. Obligations Absolute. The obligations of the Borrower under this
Agreement to reimburse (or if the Borrower is not the Account Party with respect
thereto, either to reimburse or to cause such Account Party to reimburse) the
Fronting Lender for a drawing under a Letter of Credit or the maturity of an
Acceptance, and to repay (or if the Borrower is not the Account Party with
respect thereto, either to pay or to cause such Account Party to pay) any
Special Facility Borrowing and any Swing Line Loan or Revolving Loan made in
connection with a drawing under a Letter of Credit or the maturity of an
Acceptance, and the obligation of the Swing Line Lender or each Revolving
Lender, as the case may be, to reimburse the Fronting Lender for any drawing on
a Letter of Credit or maturity of an Acceptance, shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including the following:
(a) any lack of validity or enforceability of this Agreement, any Loan
Document, any Letter of Credit, any Acceptance or of any reimbursement agreement
or other agreement between the Fronting Lender and an Account Party;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the obligations of the Borrower in respect of any
Letter of Credit, any Acceptance or any other amendment or waiver of or any
consent to departure from the provisions of this Agreement or any other Loan
Document;
(c) the existence of any claim, set-off, defense or other right that
the Borrower may have at any time against any beneficiary or any transferee of
any Letter of Credit (or any Person for whom any such beneficiary or any such
transferee may be acting), the Administrative Agent, the Fronting Lender, the
Swing Line Lender, any Lender or any other Person, whether in connection with
this Agreement, any Letter of Credit, any Acceptance, the transactions
contemplated hereby or by the other
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56
Loan Documents or any unrelated transaction (including an underlying transaction
between the Borrower and the beneficiary named in any such Letter of Credit);
(d) any draft, demand, certificate or other document presented under or
in connection with any Letter of Credit or Acceptance, as the case may be,
proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; or any loss or
delay in the transmission or otherwise of any document required in order to make
a drawing under any Letter of Credit;
(e) any payment by the Fronting Lender acting in good faith under any
Letter of Credit against presentation of a draft or certificate that does not
strictly comply with the terms of any Letter of Credit; or any payment made by
the Fronting Lender under any Letter of Credit or Acceptance to any Person
reasonably believed by it to be a trustee in bankruptcy, debtor-in-possession,
assignee for the benefit of creditors, liquidator, receiver or other
representative of or successor to any beneficiary or any transferee of any
Letter of Credit or Acceptance, as the case may be, including any arising in
connection with any Insolvency Proceeding;
(f) any exchange, release or non-perfection of any collateral, or any
release or amendment or waiver of or consent to departure from any guarantee or
other obligation, for all or any of the obligations of the Borrower in respect
of any Letter of Credit or Acceptance; or
(g) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including any other circumstance that might
otherwise constitute a defense available to, or a discharge of, the Borrower or
a guarantor;
provided that, and notwithstanding any provision of this Section 3.7 to the
contrary, neither the Borrower, the Swing Line Lender nor any Revolving Lender
shall be obligated to reimburse the Fronting Lender for any wrongful payment
made by the Fronting Lender under any Letter of Credit as a result of acts or
omissions constituting willful misconduct or gross negligence on the part of the
Fronting Lender.
3.8. Letter of Credit and Acceptance Fees. (a) The Borrower shall pay
to the Administrative Agent for the account of each of the Revolving Lenders a
letter of credit and banker's acceptance fee with respect to the Letters of
Credit and Acceptances at a rate per annum equal to the Applicable Margin for
Revolving Loans comprised of Eurodollar Loans minus 0.125%, calculated on the
average daily sum of (i) the maximum amount available to be drawn under
outstanding Letters of Credit and (ii) the aggregate face amount of outstanding
unmatured Acceptances, payable on a quarterly basis in arrears on each Interest
Payment Date for Base Rate Loans based upon Letters of Credit and Acceptances
outstanding for that quarter as calculated by the Administrative Agent. Such
letter of credit and banker's acceptance fees shall be due and payable quarterly
in arrears on each Interest Payment Date for Base Rate Loans during which
Letters of Credit and/or Acceptances are outstanding, commencing on the first
such quarterly date to occur after the Closing Date, through the Revolving
Commitment Termination Date (or such later date upon which the outstanding
Letters of Credit shall expire and/or Acceptances mature), with the final
payment to be made on the Revolving Commitment Termination Date (or such later
expiration or maturity date).
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(b) The Borrower shall pay to the Fronting Lender a fronting fee for
each Letter of Credit Issued by the Fronting Lender equal to 0.125% of the face
amount of such Letter of Credit. Such fronting fee shall be due and payable on
each date of Issuance of a Letter of Credit.
(c) The Borrower shall pay to the Fronting Lender from time to time
promptly after demand the normal issuance, presentation, amendment and other
processing fees, and other standard costs and charges, of the Fronting Lender
relating to Letters of Credit and Acceptances as from time to time in effect.
3.9. The Borrower's Guaranty of Special Facility Obligations of its
Restricted Subsidiaries. The Borrower agrees as follows in respect of Special
Facility Obligations:
(a) The Borrower hereby unconditionally and irrevocably guarantees to
the Revolving Lenders, the Fronting Lender and their respective successors,
endorsees, transferees and assigns, the prompt payment and complete performance
when due (whether at the stated maturity, by acceleration or otherwise) of all
indebtedness, obligations and liabilities of its Restricted Subsidiaries to the
Revolving Lenders or the Fronting Lender, whether direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter incurred under,
or arising out of, or in connection with, the Special Facility Obligations,
whether such indebtedness, obligations and liabilities constitute principal,
interest, fees or expenses, or reimbursement obligations with respect to any of
the foregoing, and the Borrower further agrees to pay any and all expenses which
may be paid or incurred by the Administrative Agent or any Revolving Lender or
the Fronting Lender in collecting any or all of such Special Facility
Obligations or enforcing any rights under this Agreement or any documents or
agreements executed in connection with or relating to such Special Facility
Obligations (collectively, the "Guaranteed Obligations").
(b) The guaranty contained in this Section 3.9 shall be construed as a
continuing, absolute and unconditional guaranty of payment without regard to (i)
the validity, regularity or enforceability of this Agreement, any other Loan
Document, any of the Guaranteed Obligations, or any other collateral security
therefor or guaranty thereof or right of offset with respect thereto at any time
or from time to time held by the Administrative Agent or any Revolving Lender or
the Fronting Lender, (ii) any defense, setoff or counterclaim (other than a
defense of payment or performance) which may at any time be available to or be
asserted by the Borrower or any of its Restricted Subsidiaries against any
Revolving Lender or the Fronting Lender, or (iii) any other circumstance
whatsoever (with or without notice to or knowledge of the Borrower or such
Restricted Subsidiary) which constitutes, or might be construed to constitute,
an equitable or legal discharge of the Borrower or such Restricted Subsidiary
for the Guaranteed Obligations or in any other instance, and the obligations and
liabilities of the Borrower under this Section 3.9, in an Insolvency Proceeding,
shall not be conditioned or contingent upon the pursuit by the Administrative
Agent, any Revolving Lender, the Fronting Lender or any other Person at any time
of any right or remedy against any of the Restricted Subsidiaries or against any
other Person which may be or become liable in respect of all or any part of such
obligations or against any collateral security or guaranty therefor or right of
offset with respect thereto.
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(c) The guaranty contained in this Section 3.9 shall continue to be
effective, or be reinstated, as the case may be, if, at any time, any payment,
or any part thereof, of any of the Guaranteed Obligations is rescinded or must
otherwise be restored or returned by any Revolving Lender or the Fronting Lender
in an Insolvency Proceeding of any of the Restricted Subsidiaries, or upon or as
a result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, such Restricted Subsidiary or any substantial
part of its property, or otherwise, all as though such payments had not been
made.
(d) The Borrower hereby expressly waives, until payment in full in cash
of all Guaranteed Obligations and termination of the Special Facility
Commitment, any rights which it may now have or hereafter acquire against any of
its Restricted Subsidiaries by way of subrogation, reimbursement, contribution
or setoff by virtue of any payment made pursuant to this Section 3.9 or
otherwise, and any claim, right or remedy which the Borrower may now have or
hereafter acquire against any of its Restricted Subsidiaries that arises from
the performance by the Borrower of its obligations under this Section 3.9,
including, without limitation, any claim, right or remedy of the Administrative
Agent, the Fronting Lender or the Revolving Lenders against any Account Party or
any security which the Administrative Agent, the Fronting Lender or the
Revolving Lenders now have or hereafter acquire, whether or not such claim,
right or remedy arises in equity, under contract, by statute, under color of law
or otherwise. If any amount shall be paid to the Borrower on account of such
subrogation, reimbursement, contribution or setoff rights, such amount shall be
held in trust for the benefit of the Administrative Agent, the Fronting Lender
and the Revolving Lenders and shall forthwith be paid to the Administrative
Agent to be credited and applied upon the obligations, whether matured or
unmatured, in accordance with the terms of this Agreement or any of the other
Loan Documents or to be held by the Administrative Agent as collateral security
for any Guaranteed Obligations.
(e) The Borrower shall remain obligated hereunder notwithstanding that,
without any reservation of rights against the Borrower and without notice to or
further assent by the Borrower, any demand for payment of any of the Guaranteed
Obligations made by any Revolving Lender or any such Fronting Lender may be
rescinded by such Person and any of the Guaranteed Obligations or the liability
of any other Person upon or for any part thereof, or any collateral security or
guaranty therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by the Administrative Agent, any
Revolving Lender or the Fronting Lender, and this Agreement and the other Loan
Documents and any other documents executed and delivered in connection herewith
relating to or evidencing any Guaranteed Obligation, may be amended, modified,
supplemented or terminated, in whole or in part, in accordance with the terms
thereof, as the Administrative Agent and the Revolving Lenders may deem
advisable from time to time, and any collateral security, guaranty or right of
offset at any time held by the Administrative Agent, any Revolving Lender or the
Fronting Lender for the payment of the Guaranteed Obligations may be sold,
exchanged, waived, surrendered or released. The Borrower waives any and all
notice of the creation, renewal, extension or accrual of any of the Guaranteed
Obligations and notice of or proof of reliance by the Administrative Agent, any
Revolving Lender or the Fronting Lender upon the guaranty in this Section 3.9,
the Guaranteed Obligations, and any of them, shall conclusively be deemed to
have been created, contracted or incurred in reliance
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upon this Section 3.9, and all dealings between such Restricted Subsidiary, the
Borrower, the Administrative Agent and the Revolving Lenders or the Fronting
Lender shall likewise be conclusively presumed to have been had or consummated
in reliance upon this Section 3.9. The Borrower waives diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon such
Restricted Subsidiary or the Borrower with respect to the Guaranteed
Obligations.
3.10. No Waiver With Respect to Acceptances. The Borrower and each of
its Restricted Subsidiaries waives any defense to payment which might otherwise
exist if for any reason an Acceptance shall be held by any Lender in its own
right at the maturity thereof.
3.11. Uniform Customs and Practice. The Uniform Customs and Practice
for Documentary Credits as published by the International Chamber of Commerce
("UCP") most recently at the time of issuance of any Letter of Credit shall
(unless otherwise expressly provided in the Letters of Credit) apply to the
Letters of Credit.
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ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.1. Taxes. (a) Any and all payments by the Borrower to each Lender or
the Administrative Agent under this Agreement and any other Loan Document shall
be made free and clear of, and without deduction or withholding for, any Taxes.
In addition, the Borrower shall pay all Other Taxes to the relevant taxing
authority or other authority in accordance with applicable law.
(b) If the Borrower shall be required by law to deduct or withhold any
Taxes or Other Taxes from or in respect of any sum payable hereunder to any
Lender or the Administrative Agent, then:
(i) the sum payable shall be increased as necessary so that,
after making all required deductions and withholdings (including deductions and
withholdings applicable to additional sums payable under this Section), such
Lender or the Administrative Agent, as the case may be, receives an amount equal
to the sum it would have received had no such deductions or withholdings been
made;
(ii) the Borrower shall make such deductions and withholdings;
and
(iii) the Borrower shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance with
applicable law.
(c) The Borrower agrees to indemnify and hold harmless each Lender and
the Administrative Agent for the full amount of (i) Taxes and (ii) Other Taxes
that are payable by such Lender or the Administrative Agent and any penalties,
interest, additions to tax, expenses or other similar liabilities arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. Payment under this indemnification shall be made
within 45 days after the date the Lender or the Administrative Agent makes
written demand therefor.
(d) Each Lender that is not incorporated or organized in or under the
laws of the United States of America or a state thereof (a "Non-U.S. Lender")
shall:
(i) deliver to the Borrower and the Administrative Agent,
prior to the first day on which the Borrower is required to make any payments
hereunder to such Lender, two copies of either United States Internal Revenue
Service Form 1001 or Form 4224 or, in the case of a Non-U.S. Lender claiming
exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of
the Code with respect to payments of "portfolio interest", a Form W-8, or any
subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender
delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not
a bank for purposes of Section 881(c) of the Code, is not a 10-percent
shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the
Borrower and is not a controlled foreign corporation related to the Borrower
(within the meaning of Section 864(d)(4) of the Code)), properly completed and
duly executed by such Non-U.S. Lender claiming complete exemption from, or a
reduced rate of, U.S. Federal withholding tax on payments by the Borrower under
this Agreement;
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(ii) deliver to the Borrower and the Administrative Agent two
further copies of any such form of certification on or before the date that any
such form or certification expires or becomes obsolete and after the occurrence
of any event requiring a change in the most recent form previously delivered by
it to the Borrower; and
(iii) obtain such extensions of time for filing and complete
such forms or certifications as may reasonably be requested by the Borrower or
the Administrative Agent;
unless in any such case any change in treaty, law or regulation has occurred
prior to the date on which any such delivery would otherwise be required that
renders any such form inapplicable or would prevent such Lender from duly
completing and delivering any such form with respect to it and such Lender so
advises the Borrower and the Administrative Agent. Each Non-U.S. Lender that
shall become a Participant pursuant to Section 11.8 or a Lender pursuant to
Section 11.8 shall, upon the effectiveness of the related transfer, be required
to provide all the forms and statements required pursuant to this Section
4.1(d), provided that in the case of a Participant such Participant shall
furnish all such required forms and statements to the Lender from which the
related participation shall have been purchased.
(e) The Borrower shall not be required to indemnify any Non-U.S. Lender
or the Administrative Agent, or to pay any additional amounts to any Non-U.S.
Lender or the Administrative Agent, in respect of U.S. Federal withholding tax
pursuant to paragraph (a) above to the extent that (i) the obligation to
withhold amounts with respect to U.S. Federal withholding tax existed on the
date such Non-U.S. Lender became a party to this Agreement (or, in the case of a
Non-U.S. Participant, on the date such Participant became a Participant
hereunder) or as of the date such Non-U.S. Lender changes its applicable Lending
Office; provided, however, that this clause (i) shall not apply to the extent
that (x) the indemnity payments or additional amounts any Lender (or
Participant) would be entitled to receive (without regard to this clause (i)) do
not exceed the indemnity payment or additional amounts that the Person making
the assignment, participation, transfer or change in Lending Office would have
been entitled to receive in the absence of such assignment, participation,
transfer or change in Lending Office, or (y) such assignment, participation,
transfer or change in Lending Office had been requested by the Borrower, (ii)
the obligation to pay such additional amounts would not have arisen but for a
failure by such Non-U.S. Lender or Non-U.S. Participant to comply with the
provisions of paragraph (d) above or (iii) any of the representations or
certifications made by a Non- U.S. Lender or Non-U.S. Participant pursuant to
paragraph (d) above are incorrect at the time a payment hereunder is made, other
than by reason of any change in treaty, law or regulation having effect after
the date such representations or certifications were made.
(f) If the Borrower determines in good faith that a reasonable basis
exists for contesting any Taxes for which indemnification has been demanded
hereunder, the relevant Lender or the Administrative Agent, as applicable, shall
cooperate with the Borrower in challenging such Taxes at the Borrower's expense
if so requested by the Borrower in writing. If any Lender or the Administrative
Agent, as applicable, receives a refund of a Tax for which a payment has been
made by the Borrower pursuant to this Agreement, which refund in the good faith
judgment of such Lender or Administrative Agent, as the case may be, is
attributable to such payment made by the Borrower,
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then the Lender or the Administrative Agent, as the case may be, shall reimburse
the Borrower for such amount as the Lender or Administrative Agent, as the case
may be, determines to be the proportion of the refund as will leave it, after
such reimbursement, in no better or worse position than it would have been in if
the payment had not been required. Neither the Lenders nor the Administrative
Agent shall be obliged to disclose information regarding its tax affairs or
computations to the Borrower in connection with this paragraph (f) or any other
provision of this Section 4.1.
(g) Promptly after the date of any payment by the Borrower of Taxes or
Other Taxes, the Borrower shall furnish to each Lender or the Administrative
Agent the original or a certified copy of a receipt evidencing payment thereof,
or other evidence of payment satisfactory to such Lender or the Administrative
Agent.
4.2. Illegality. (a) If any Lender, including the Fronting Lender,
determines that the introduction after the Closing Date of any Requirement of
Law, or any change in any Requirement of Law after the Closing Date, or in the
interpretation or administration after the Closing Date of any Requirement of
Law, has made it unlawful, or that any central bank or other Governmental
Authority has asserted that it is unlawful, for any Lender, including the
Fronting Lender, or its applicable Lending Office to make Eurodollar Loans or
create Acceptances, as the case may be, then, on written notice thereof by such
Lender to the Borrower through the Administrative Agent, any obligation of such
Lender to make Eurodollar Loans or create Acceptances, as the case may be, shall
be suspended until such Lender, including the Fronting Lender, notifies the
Administrative Agent and the Borrower that the circumstances giving rise to such
determination no longer exist, which notice each Lender, including the Fronting
Lender, agrees to give promptly upon such circumstances ceasing to exist.
(b) If a Lender, including the Fronting Lender, determines that it is
unlawful to maintain any Eurodollar Loan or Acceptance, as the case may be, the
Borrower shall, upon its receipt of written notice of such fact and demand from
such Lender (with a copy to the Administrative Agent), prepay in full such
Eurodollar Loans or Acceptances, as the case may be, of such Lender then
outstanding, together with interest accrued thereon and amounts required under
Section 4.4, either on the last day of the Interest Period thereof, if such
Lender may lawfully continue to maintain such Eurodollar Loans or Acceptances,
as the case may be, to such day, or immediately, if such Lender may not lawfully
continue to maintain such Eurodollar Loan or Acceptance, as the case may be. If
the Borrower is required to so prepay any Eurodollar Loan or Acceptance, as the
case may be, then concurrently with such prepayment, the Borrower shall borrow
from the affected Lender, in the amount of such repayment, a Base Rate Loan.
(c) Each Lender, including the Fronting Lender, hereby agrees that if
such Lender's obligation to make Eurodollar Loans or Acceptances, as the case
may be, is suspended pursuant to clause (a) or if the Borrower is required to
prepay such Lender's Eurodollar Loans or Acceptances, as the case may be,
pursuant to clause (b) then, in each case, upon the written request of the
Borrower, all Loans or Acceptances, as the case may be, of such Lender that
would, in the absence of clause (a), be made as Eurodollar Loans or created as
Acceptances, as the case may be, shall instead be made as or created as, and any
Eurodollar Loans or Acceptances, as the case may be, of such Lender that shall
have been converted into Base Rate Loans pursuant to clause (b) shall be
converted into, Loans accruing interest
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at a rate per annum equal to the Federal Funds Rate most recently determined by
the Administrative Agent plus 0.125% plus the Applicable Margin then in effect
for Eurodollar Loans of Tranche A Term Loans, Tranche B Term Loans, Tranche C
Term Loans, Tranche D Term Loans or Revolving Loans, as applicable.
4.3. Increased Costs and Reduction of Return. (a) If, due to either (i)
the introduction of or any change in or in the interpretation of any law or
regulation (including FRB Regulation D) after the Closing Date (other than
changes with respect to Taxes) or (ii) the compliance by any Lender with any
guideline or order from any central bank or other Governmental Authority after
the Closing Date (whether or not having the force of law), there shall be any
increase in the cost to such Lender of agreeing to make or making, funding or
maintaining any Eurodollar Loans or participating in Swing Line Loans or Special
Facility Obligations, or, in the case of the Fronting Lender, any increase in
the cost to the Fronting Lender of Issuing or agreeing to Issue any Letter of
Credit or creating or agreeing to create any Acceptance, or agreeing to make or
making, funding or maintaining any unpaid drawing under any Letter of Credit or
any unpaid maturing of any Acceptance, then the Borrower shall be liable for,
and shall from time to time, promptly after receipt of written demand therefor
(with a copy of such demand to be sent to the Administrative Agent), accompanied
by a written notice showing in reasonable detail the basis for the calculation
of any such increased costs (which notice shall, absent clearly demonstrable
error, be final and conclusive and binding upon all parties hereto), pay to the
Administrative Agent for the account of such Lender, additional amounts as are
sufficient to compensate such Lender for such increased costs.
(b) If, after the Closing Date, (i) the introduction of any Capital
Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii)
any change in the interpretation or administration of any Capital Adequacy
Regulation by any central bank or other Governmental Authority, or by NAIC or
any other comparable agency charged with the interpretation or administration
thereof or (iv) compliance by any Lender (or its Lending Office) or any
corporation controlling any Lender with any Capital Adequacy Regulation, affects
or would affect the amount of capital required to be maintained by such Lender
or any corporation controlling such Lender and (taking into consideration such
Lender's or such corporation's policies with respect to capital adequacy and
such Lender's desired return on capital) the amount of such capital is increased
as a consequence of its Commitment, loans, credits, participation interests or
obligations under this Agreement, then, upon demand of such Lender to the
Borrower through the Administrative Agent, accompanied by a written notice
showing in reasonable detail the basis for calculation of any such amounts, the
Borrower shall pay to such Lender, from time to time promptly after receipt of
such demand and notice as specified by such Lender, additional amounts
sufficient to compensate such Lender for such increase.
4.4. Funding Losses. If (a) any payment of principal of any Eurodollar
Loan is made by the Borrower to or for the account of a Lender or is otherwise
received by a Lender pursuant to Section 4.9 other than on the last day of the
Interest Period for such Eurodollar Loan, as a result of a payment or conversion
pursuant to Section 2.4, 2.6, 2.7, 2.8, 2.9, 4.2 or 4.3, as a result of
acceleration of the maturity of the Loans pursuant to Article IX or for any
other reason, or if any prepayment of Eurodollar
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Loans is not made on any date specified in a notice of prepayment given by the
Borrower or if any payment of Eurodollar Loans is not made when due, (b) if any
Borrowing of Eurodollar Loans is not made as a result of a withdrawn Notice of
Borrowing or for any other reason (other than a default by any Lender or the
Administrative Agent), (c) if any Eurodollar Loan or Base Rate Loan is not
converted as a result of a withdrawn Notice of Conversion/Continuation or for
any other reason (other than a default by any Lender or the Administrative
Agent), or (d) if any Eurodollar Loan is not continued as a result of a
withdrawn Notice of Conversion/Continuation or for any other reason (other than
a default by any Lender or the Administrative Agent), the Borrower shall, after
receipt of a written request by such Lender (which request shall set forth in
reasonable detail the basis for requesting such amount), pay to the
Administrative Agent for the account of such Lender any amounts required to
compensate such Lender for any additional losses, costs or expenses that such
Lender may reasonably incur as a result of such payment, failure to convert or
failure to continue, including any loss, cost or expense (excluding loss of
anticipated profits) actually incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by any Lender to fund or
maintain such Eurodollar Loan.
4.5. Inability to Determine Rates. If the Majority Lenders reasonably
determine that for any reason adequate and reasonable means do not exist for
determining the Eurodollar Rate for any requested Interest Period with respect
to a proposed Eurodollar Loan, or that the Eurodollar Rate applicable pursuant
to Section 2.10(a) for any requested Interest Period with respect to a proposed
Eurodollar Loan does not adequately and fairly reflect the cost to the Lenders
of funding such Loan, the Administrative Agent will promptly so notify the
Borrower and each Lender. Thereafter, the obligation of the Lenders to make or
maintain Eurodollar Loans hereunder shall be suspended until the Administrative
Agent upon the instruction of the Majority Lenders revokes such notice in
writing, which Lenders constituting the Majority Lenders shall do promptly upon
such circumstances ceasing to exist. Upon receipt of such notice, the Borrower
may revoke any Notice of Borrowing or Notice of Conversion/Continuation then
submitted by it. If the Borrower does not revoke such Notice, the Lenders shall
make, convert or continue the Loans, as proposed by the Borrower, in the amount
specified in the applicable notice submitted by the Borrower, but such Loans
shall be made, converted or continued as Base Rate Loans instead of Eurodollar
Loans.
4.6. Notice from Lenders. Any Lender claiming reimbursement or
compensation under this Article IV shall deliver to the Borrower (with a copy to
the Administrative Agent) a notice setting forth in reasonable detail the amount
payable to the Lender hereunder and the basis therefor and such notice shall be
conclusive and binding on the Borrower in the absence of clearly demonstrable
error.
4.7. Change of Lending Office. Each Lender agrees that, upon the
occurrence of any event giving rise to the operation of Section 4.1(b), 4.1(c),
4.2 or 4.3 with respect to such Lender, it will, if requested by the Borrower,
use reasonable efforts (subject to overall policy considerations of such Lender)
to designate another Lending Office for any Loans affected by such event or take
other action, provided that such Lender and its Lending Office suffer no
economic, legal or regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of any such Section.
Nothing in this Section 4.7 shall affect or postpone any of the Obligations of
the Borrower or the right of any Lender provided in Section 4.1(b), 4.1(c), 4.2
or 4.3.
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4.8. Notice of Certain Costs. Notwithstanding anything in this
Agreement to the contrary, to the extent any notice or demand required by
Section 4.1, 4.2, 4.3 or 4.4 is given by any Lender more than 180 days after
such Lender has knowledge of the occurrence of the event giving rise to the
additional cost, reduction in amounts, loss, tax or other additional amounts
described in such Section, such Lender shall not be entitled to compensation
under such Section 4.1, 4.2, 4.3 or 4.4, as the case may be, for any such amount
incurred or accruing prior to the giving of such notice or demand to the
Borrower.
4.9. Replacement of Lenders. If (a) the Borrower receives notice from
any Lender requesting increased costs or additional amounts under Section 4.1 or
4.3, (b) any Lender is affected in the manner described in Section 4.2 or (c) a
Lender becomes a Defaulting Lender, then, in each case, the Borrower shall have
the right, so long as no Event of Default shall have occurred and be continuing
and unless, in the case of clause (a), such Lender has removed or cured the
conditions which resulted in the obligation to pay such increased costs or
additional amounts or agreed to waive and otherwise forego any right it may have
to any payments provided for under Sections 4.1 or 4.3 in respect of such
conditions, to replace in its entirety such Lender (the "Replaced Lender"), upon
prior written notice to the Administrative Agent and such Replaced Lender, with
one or more other Eligible Assignee(s) (collectively, the "Replacement Lender")
acceptable to the Administrative Agent and, in the event the Replaced Lender is
a Revolving Lender, the Fronting Lender (which acceptance, in each case, shall
not be unreasonably withheld); provided, however, that, at the time of any
replacement pursuant to this Section 4.9, the Replaced Lender and the
Replacement Lender shall enter into (each Replaced Lender hereby unconditionally
agreeing to enter into) one or more Assignment and Acceptance agreements
(appropriately completed), pursuant to which (i) the Replacement Lender shall
acquire all of the Commitments and outstanding Revolving Loans and Term Loans
of, and participations in Swing Line Loans and Special Facility Obligations of,
the Replaced Lender and, in connection therewith, shall pay (x) to the Replaced
Lender in respect thereof an amount equal to the sum of (A) an amount equal to
the principal of, and all accrued but unpaid interest on, all outstanding Loans
of the Replaced Lender and (B) an amount equal to all accrued but theretofore
unpaid fees owing to the Replaced Lender pursuant to Section 2.11 and (y) to the
Fronting Lender, an amount equal to any portion of the Replaced Lender's funding
of an unpaid drawing under a Letter of Credit or an unpaid maturing of an
Acceptance as to which the Replaced Lender is then in default; and (ii) the
Borrower shall pay to the Replaced Lender any other amounts payable to the
Replaced Lender under this Agreement (including amounts payable under Sections
3.8, 4.1, 4.2, 4.3 and 4.4 which have accrued to the date of such replacement).
Upon the execution of the Assignment and Acceptance agreement(s), the payment of
the amounts referred to in the preceding sentence and, if so requested by the
Replacement Lender, delivery to the Replacement Lender of the applicable Notes
executed by the Borrower, the Replacement Lender shall automatically become a
Lender hereunder and the Replaced Lender shall cease to constitute a Lender
hereunder, except with respect to indemnification provisions under this
Agreement, which shall survive as to such Replaced Lender. It is understood and
agreed that if any Replaced Lender shall fail to enter into an Assignment and
Acceptance Agreement in accordance with the foregoing, it shall be deemed to
have entered into such an Assignment and Acceptance Agreement.
4.10. Survival. The agreements and obligations of the Borrower in this
Article IV shall survive the payment of all other Obligations.
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ARTICLE V
CONDITIONS PRECEDENT
5.1. Conditions of Initial Credit Extensions. The obligation of each
Lender to make its initial Loan and the obligation of the Fronting Lender to
Issue the initial Letter of Credit or create the initial Acceptance hereunder is
subject to the fulfillment of the following conditions precedent to the
satisfaction of the Administrative Agent (all documents to be provided in
sufficient quantity so that each Lender may receive a copy):
(a) Credit Agreement. The Administrative Agent shall have received full
counterparts of this Agreement, duly executed by each party hereto.
(b) Resolutions; Incumbency. The Administrative Agent shall have
received (i) copies of the resolutions of the board of directors of the Borrower
authorizing the execution, delivery and performance of this Agreement, each
other Loan Document to be delivered by the Borrower and the transactions
contemplated hereby and thereby, certified as of the Closing Date by the
Secretary or an Assistant Secretary of the Borrower, together with a certificate
of the Secretary or Assistant Secretary of the Borrower dated the Closing Date,
certifying the names and true signatures of the officers of the Borrower
authorized to execute, deliver and perform, as applicable, this Agreement, and
all other Loan Documents to be delivered by it hereunder; and (ii) copies of the
resolutions of the board of directors of each of the Guarantors authorizing the
delivery, execution and performance by such Guarantor of the Guaranty, certified
as of the Closing Date by the Secretary or an Assistant Secretary of such
Guarantor, together with a certificate of the Secretary or Assistant Secretary
of such Guarantor dated the Closing Date, certifying the names and true
signatures of the officers of such Guarantor authorized to execute, deliver and
perform the Guaranty.
(c) Organization Documents; Good Standing. The Administrative Agent
shall have received each of the following documents:
(i) the articles or certificate of incorporation and the
bylaws of each of the Borrower, each direct Domestic Subsidiary and each
Guarantor, in each case, as in effect on the Closing Date, certified by the
Secretary or Assistant Secretary of such Person as of the Closing Date; and
(ii) good standing certificates for each of the Borrower and
each Guarantor from the Secretary of State (or similar, applicable Governmental
Authority) of its state of incorporation and each state where the Borrower or
such Guarantor, as the case may be, is qualified to do business as a foreign
corporation as of a recent date, together with a bring-down certificate by
facsimile, dated the Closing Date.
(d) Legal Opinions. The Administrative Agent shall have received (i)
(A) a favorable legal opinion of Simpson Thacher & Bartlett, special counsel to
the Obligors, addressed to the Administrative Agent and the Lenders and dated
the Closing Date, substantially in the form of Exhibit
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G-1, and (B) a favorable legal opinion of Milbank, Tweed, Hadley & McCloy,
special counsel to the Obligors, addressed to the Administrative Agent and the
Lenders and dated the Closing Date, substantially in the form of Exhibit G-2 and
(ii) to the extent available, a reliance letter from Milbank, Tweed, Hadley &
McCloy dated the Closing Date, permitting the Administrative Agent and the
Lenders to rely upon its opinions contained in its opinion letter delivered in
connection with the Recapitalization and Stock Purchase Agreement.
(e) Payment of Fees. The Administrative Agent shall have received
evidence of payment by the Borrower of all accrued and unpaid fees, costs and
expenses to the extent then due and payable under this Agreement or the Fee
Letter on the Closing Date, together with all reasonable and documented legal
costs and expenses of the Agents to the extent invoiced prior to or on the
Closing Date, including any such costs, fees and expenses arising under or
referenced in Sections 2.11 and 11.4.
(f) Guaranty. The Administrative Agent shall have received the
Guaranty, duly executed by each Guarantor.
(g) Pledge Agreement. The Administrative Agent shall have received the
Pledge Agreement substantially in the form of Exhibit F, duly executed by the
Borrower, together with all certificates and instruments representing the
collateral pledged thereunder, together with undated stock transfer powers
executed in blank with respect thereto.
(h) Consummation of Recapitalization. The Borrower shall have
consummated (or contemporaneously therewith will consummate) the
Recapitalization and the other transactions contemplated by the Recapitalization
and Stock Purchase Agreement in accordance with applicable law and pursuant to
the Recapitalization and Stock Purchase Agreement, which Recapitalization and
Stock Purchase Agreement shall not have been amended nor shall any provision
thereof have been waived by any party thereto, in each case unless such
amendment or waiver is not adverse in any material respect to the interests of
the Lenders, and the Recapitalization and Stock Purchase Agreement shall have
been approved by the Board of Directors of the Borrower (which approval shall
not have been rescinded or withdrawn).
(i) Solvency. The Administrative Agent shall have received (a) a
written opinion of Valuation Research Corporation, addressed to the
Administrative Agent and the Lenders and dated the Closing Date, as to the
solvency of the Borrower and its Subsidiaries taken as a whole, after giving
effect to the incurrence of the Indebtedness contemplated by this Agreement and
the effecting of the Recapitalization and the other transactions contemplated by
the Recapitalization and Stock Purchase Agreement and (b) a solvency
certificate, executed and delivered by the chief financial officer of the
Borrower and dated the Closing Date, substantially in the form of Exhibit H.
(j) Other Indebtedness. All Indebtedness identified in Schedule 5.1(j)
(including under the Existing Credit Agreement and the Etonic Credit Agreement),
together with all interest, all prepayment premiums and all other amounts due
and payable with respect thereto, shall have been paid in full, all letters of
credit constituting such Indebtedness shall have been (or contemporaneously
therewith shall
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be) terminated, replaced or backstopped and all commitments in respect of such
Indebtedness shall have been terminated. All Liens securing payment of any such
Indebtedness shall have been (or contemporaneously therewith shall be) released
and the Administrative Agent shall have received all Uniform Commercial Code
Form UCC-3 termination statements and other instruments as may be suitable or
appropriate in connection therewith. After giving effect to the Recapitalization
and the other transactions contemplated hereby to occur on or prior to the
Closing Date, the Borrower and its Subsidiaries shall have outstanding no
Indebtedness other than (a) Indebtedness under this Agreement, (b) the Senior
Subordinated Notes and (c) other Indebtedness existing on the Closing Date and
permitted to be outstanding under Section 8.4 (other than clauses (h), (i), (j)
and (l) thereof).
(k) Equity. The Borrower shall have received at least $220,000,000 in
cash proceeds from the issuance of Common Stock.
(l) Issuance of Preferred Stock. The Borrower shall have issued
1,000,000 shares of the Preferred Stock and shall have received at least
$100,000,000 in gross cash proceeds therefrom.
(m) Subordinated Debt. The Borrower shall have issued at least
$200,000,000 of the Senior Subordinated Notes pursuant to the Senior
Subordinated Indenture and shall have received at least $200,000,000 in gross
cash proceeds therefrom.
(n) Availability of Revolving Commitments. After giving effect to the
Recapitalization and the other transactions contemplated hereby to occur on or
prior to the Closing Date, no less than $100,000,000 of the combined Revolving
Commitments shall be available to the Borrower for Revolving Loans.
(o) Insurance Certificate. The Administrative Agent shall have received
a certificate of the Borrower setting forth all of the Borrower's and its
Restricted Subsidiaries' material insurance policies, which policies shall be
certified to satisfy the requirements of Section 7.6.
(p) Approvals. All necessary material governmental, shareholders' and
third-party approvals in connection with the Recapitalization and the other
transactions contemplated by the Recapitalization and Stock Purchase Agreement,
the execution, delivery and performance of this Agreement and the other Loan
Documents, the execution, delivery and performance of the Senior Subordinated
Indenture and the Senior Subordinated Notes and the execution, delivery and
performance of all equity financing documents relating to the Recapitalization
and the other transactions contemplated by the Recapitalization and Stock
Purchase Agreement shall have been duly obtained and all applicable waiting
periods shall have expired without, in all such cases, any action being taken by
any competent authority that restrains, prevents or imposes materially adverse
conditions or material increased costs upon the consummation of the
Recapitalization and the other transactions contemplated by the Recapitalization
and Stock Purchase Agreement.
(q) Certificate. Each of the following statements shall be true and
correct on and as of the Closing Date (and the Administrative Agent shall have
received a certificate signed by a Responsible Officer, dated as of the Closing
Date, to such effect):
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(i) after giving effect to the Recapitalization, the
representations and warranties contained in Article VI and in each of the other
Loan Documents are true and correct in all material respects on and as of such
date, as though made on and as of such date (except to the extent such
representations and warranties expressly refer to an earlier date, in which case
they shall be true and correct in all material respects as of such earlier
date);
(ii) no Default or Event of Default exists or would result
from the initial Credit Extension, the consummation of the Recapitalization and
the other transactions contemplated by the Recapitalization and Stock Purchase
Agreement or from the grant or perfection of the Lien of the Administrative
Agent and the Lenders on the collateral security provided under the Loan
Documents;
(iii) no Material Adverse Change has occurred since September
30, 1995 and no material adverse change has occurred since September 30, 1995
with respect to the business, assets, operations, results of operations,
condition (financial or otherwise) or prospects of the Borrower or the Borrower
and its Subsidiaries, taken as a whole;
(iv) neither the Borrower nor any of its Subsidiaries is
subject to any material litigation or governmental proceeding with respect to
the Recapitalization and other transactions contemplated by the Recapitalization
and Stock Purchase Agreement and no injunction or restraining order exists with
respect to the Recapitalization and such transactions; and
(v) the conditions set forth in clauses (h), (j), (k), (l) and
(m) have been satisfied.
Attached to such certificate shall be true and complete (as certified in such
certificate) copies of the Recapitalization and Stock Purchase Agreement, the
Senior Subordinated Indenture and the certificate of designation for the
Preferred Stock, which certificate shall specify that none of the foregoing
documents have been amended or otherwise modified except as set forth in such
certificate.
5.2. Conditions to All Credit Extensions. The obligation of each Lender
to make any Loan to be made by it (including its initial Loan), including the
obligation of the Swing Line Lender to make any Swing Line Loan, and the
obligation of the Fronting Lender to Issue any Letter of Credit (including the
initial Letter of Credit) or create any Acceptance (including the initial
Acceptance), is subject to the satisfaction of the following conditions
precedent on the relevant Credit Extension Date:
(a) Notice of Credit Extension. The Administrative Agent shall have
received (with, in the case of the initial Loan only, a copy for each Lender) a
Notice of Borrowing or, in the case of any Issuance of any Letter of Credit, the
Fronting Lender and the Administrative Agent shall have received a Notice of L/C
Issuance/Amendment, as required under Section 3.2;
(b) Continuation of Representations and Warranties. The representations
and warranties in Article VI hereof and in the Loan Documents shall be true and
correct in all material respects on and as of such Credit Extension Date with
the same effect as if made on and as of such Credit Extension Date (except to
the extent such representations and warranties expressly refer to an earlier
date, in which case they shall be true and correct in all material respects as
of such earlier date); and
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(c) No Existing Default. No Default or Event of Default shall exist or
shall result from such Credit Extension.
Each Notice of Borrowing and Notice of L/C Issuance/Amendment (or
Computerized Request) submitted by the Borrower hereunder shall constitute a
representation and warranty by the Borrower hereunder, as of the date of each
such notice and as of each Credit Extension Date, that the conditions in this
Section 5.2 are satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Administrative Agent and
each Lender that:
6.1. Corporate Existence and Power. The Borrower and each of its
Material Subsidiaries:
(a) is a corporation or other business entity duly organized or formed,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or formation;
(b) has the power and authority to own its assets, carry on its
business and to execute, deliver and perform its obligations under this
Agreement and the other Loan Documents to which it is a party; and
(c) is duly qualified as a foreign corporation or other business entity
and is licensed and in good standing under the laws of each jurisdiction where
its ownership, lease or operation of property or the conduct of its business
requires such qualification or license,
except, in the case of clauses (a) and (b) above, with respect to Material
Subsidiaries, and, in the case of clause (c) above, with respect to the Borrower
and its Material Subsidiaries, to the extent that the failure of which could not
reasonably be expected to have a Material Adverse Effect.
6.2. Corporate Authorization; No Contravention; Binding Effect. The
execution, delivery and performance by the Borrower of this Agreement and each
other Loan Document to which the Borrower is a party, the execution, delivery
and performance by each other Obligor of each Loan Document to which it is a
party, the granting of the Liens contemplated by the Pledge Agreement and as of
the Closing Date the consummation of the Recapitalization, have in each case
been duly authorized by all necessary corporate or other action, and do not and
will not:
(a) contravene the terms of any of the Borrower's or such other
Obligor's Organization Documents;
(b) conflict with or result in any default, breach or contravention of,
or the creation of any Lien under, any document evidencing any material
Contractual Obligation to which the Borrower, any
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69
of its Material Subsidiaries or any Obligor is a party or any material order,
injunction, writ or decree of any Governmental Authority to which the Borrower,
any of its Material Subsidiaries, any Obligor or any of their respective
material properties is subject; or
(c) violate any material Requirement of Law applicable to the Borrower,
any of its Material Subsidiaries or any Obligor or any of their respective
material properties.
This Agreement has been duly executed and delivered by the Borrower and this
Agreement and each other Loan Document to which the Borrower or any other
Obligor is a party constitutes the legal, valid and binding obligations of the
Borrower or such Obligor, as the case may be, enforceable against the Borrower
or such Obligor, as the case may be, in accordance with their respective terms,
except as enforceability may be limited by applicable bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally or by
general equitable principles relating to enforceability.
6.3. Governmental Authorization. No approval, consent, exemption,
authorization or other action by, or notice to, or filing with, any Governmental
Authority is necessary or required in connection with the execution, delivery or
performance by, or enforcement against, the Borrower or any other Obligor of
this Agreement, any other Loan Document to which the Borrower or any such
Obligor is a party, the granting of the Liens contemplated by the Pledge
Agreement or as of the Closing Date, the consummation of the Recapitalization,
except (a) for any thereof which have been obtained and are in full force and
effect, (b) as such performance or enforcement may be subject to the exceptions
set forth in Schedule 6.3 and (c) as of the Closing Date with respect to the
consummation of the Recapitalization, any of the foregoing the failure to obtain
or make could not reasonably be expected to have a Material Adverse Effect.
6.4. Litigation. Except as set forth on Schedule 6.4, there are no
actions, suits or proceedings pending or, to the knowledge of the Borrower,
threatened, with respect to the Borrower or any of its Restricted Subsidiaries
(i) that have, or could reasonably be expected to have, a Material Adverse
Effect or (ii) that have, or could reasonably be expected to have, a material
adverse effect on the rights and remedies of the Lenders taken as a whole or on
the ability of the Borrower and the other Obligors to perform their material
obligations under the Loan Documents taken as a whole.
6.5. ERISA Compliance. Except as specifically disclosed in Schedule
6.5:
(a) Each Plan is in compliance in all material respects with the terms
thereof and the applicable provisions of ERISA, the Code and other federal or
state law except to the extent that failure to comply would not result,
individually or in the aggregate, in an amount of liability that could
reasonably be expected to have a Material Adverse Effect. The Borrower and each
ERISA Affiliate has made all required contributions to any Plan subject to
Section 412 of the Code, except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect, and no application for
a funding waiver or an extension of any amortization period pursuant to Section
412 of the Code has been made with respect to any Plan.
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(b) There are no pending or, to the best knowledge of Borrower,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Pension Plan which has resulted or could reasonably be
expected to result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to occur;
(ii) no Pension Plan has any Unfunded Pension Liability in an amount which could
reasonably be expected to have a Material Adverse Effect if such Pension Plan
were then terminated; and (iii) neither the Borrower nor any ERISA Affiliate has
engaged in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA that could reasonably be expected to have a Material Adverse Effect.
6.6. Regulatory Matters. Neither the making of any Credit Extension
hereunder, nor the use of any proceeds thereof, will violate the provisions of
Regulation G, T, U or X of the FRB. The Borrower is not an "Investment Company"
within the meaning of the Investment Company Act of 1940.
6.7. Title to Properties. The Borrower and each of its Restricted
Subsidiaries has good title to, or leasehold interests in, all property
necessary for the conduct of their respective businesses free and clear of all
Liens (other than any Liens permitted by this Agreement), except where the
failure to have such good title or leasehold interests could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
6.8. Taxes. The Borrower, its Restricted Subsidiaries and all other
corporations with whom the Borrower or any Restricted Subsidiary join in the
filing of a consolidated return have filed all Federal income tax returns and
other material tax returns and reports, domestic and foreign, required to be
filed, and have paid all material taxes, assessments, fees and other
governmental charges levied or imposed upon them or their properties, income or
assets otherwise due and payable, except those not yet delinquent or which are
being contested in good faith. The Borrower, each of its Restricted Subsidiaries
and each such other corporation with whom the Borrower or any Restricted
Subsidiary joins in the filing of a consolidated return have paid, or have
provided adequate reserves (in the good faith judgment of the management of the
Borrower) in accordance with GAAP for the payment of all such material taxes,
assessments, fees and charges relating to all prior taxable years and the
current taxable year of the Borrower, each of its Restricted Subsidiaries and
each such other corporation with whom the Borrower or any Restricted Subsidiary
joins in the filing of a consolidated return. To the best knowledge of the
Borrower, there is no proposed tax assessment against the Borrower, any
Restricted Subsidiary or any such other corporation with whom the Borrower or
any Restricted Subsidiary joins in the filing of a consolidated return that
could reasonably be expected to have a Material Adverse Effect.
6.9. Financial Condition. (a) The audited consolidated balance sheet of
S&E and its Subsidiaries as of September 30, 1995, and the related consolidated
statements of earnings and cash flows for the Fiscal Year ended on such date:
(i) were prepared in accordance with GAAP consistently applied throughout the
period covered thereby, except as otherwise expressly noted therein; and (ii)
fairly present in all material respects the financial condition of S&E and its
Subsidiaries as of the date thereof and results of operations for the period
covered thereby.
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(b) The audited consolidated balance sheet of the Borrower and its
Subsidiaries as of September 30, 1995, and the related consolidated statements
of earnings and cash flows for the Fiscal Year ended on such date: (i) were
prepared in accordance with GAAP consistently applied throughout the period
covered thereby, except as otherwise expressly noted therein; and (ii) fairly
present in all material respects the financial condition of the Borrower and its
Subsidiaries as of the date thereof and results of operations for the period
covered thereby.
(c) Since September 30, 1995, except as may have been disclosed in
writing to the Lenders prior to the Closing Date, there has been no Material
Adverse Change.
6.10. Trademarks, Copyrights, Patents and Licenses, etc. Each of the
Borrower and its Restricted Subsidiaries owns or are licensed or otherwise have
the right to use all of the Trademarks, copyrights, patents, licenses and other
rights that are reasonably necessary for the operation of each of their
respective businesses, without conflict with the rights of any other Person and
free of burdensome restrictions, except where the failure to have any such
rights could not reasonably be expected to have a Material Adverse Effect.
6.11. Subsidiaries. As of the Closing Date, the Borrower has no
Subsidiaries other than those specifically disclosed in Schedule 6.11 hereto.
6.12. Full Disclosure. (a) All factual information (taken as a whole)
heretofore or contemporaneously furnished by or on behalf of the Borrower or any
of its Subsidiaries in writing to any Agent and/or any Lender on or before the
Closing Date (including (i) the Confidential Information Memorandum and (ii) all
information contained in the Loan Documents) for purposes of or in connection
with this Agreement or any transactions contemplated herein is true and complete
in all material respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any material fact necessary to
make such information (taken as a whole) not misleading at such time in light of
the circumstances under which such information was provided, it being understood
and agreed that for purposes of this Section 6.12(a), such factual information
shall not include projections and pro forma financial information.
(b) The projections and pro forma financial information contained in
the factual information referred to in clause (a) above (including the pro forma
consolidated balance sheet of the Borrower as at June 30, 1996, and the pro
forma consolidated statements of earnings for the year ending September 30, 1995
and the nine-month period ending June 30, 1996) were or are based on good faith
estimates and assumptions believed to be reasonable at the time made, it being
recognized by the 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 significantly from the projected results.
6.13. Compliance with Environmental Laws. The Borrower and each of its
Restricted Subsidiaries is in compliance with all applicable Environmental Laws
in respect of the conduct of its business and the ownership of its property,
except such noncompliance as could not, in the aggregate, reasonably be expected
to have a Material Adverse Effect. Without limiting the effect of the preceding
sentence:
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(a) neither the Borrower nor any of its Subsidiaries has received a
complaint, order, citation, notice or other written communication with respect
to the existence or alleged existence of a violation of, or liability arising
under, any Environmental Law, the outcome of which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect; and
(b) to the best of the Borrower's knowledge, after due inquiry, there
are no environmental, health or safety conditions existing or reasonably
expected to exist at any real property owned, operated, leased or used by the
Borrower or any of its existing or former Subsidiaries or any of their
respective predecessors, including off-site treatment or disposal facilities
used by the Borrower or its existing or former Subsidiaries for wastes treatment
or disposal, which could reasonably be expected to require any construction or
other capital costs or clean-up obligations to be incurred prior to the Tranche
D Term Maturity Date in order to assure compliance with any Environmental Law,
including provisions regarding clean-up, to the extent that any of such
conditions, construction or other capital costs or clean-up obligations,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
ARTICLE VII
AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, unless the Majority
Lenders waive compliance in writing:
7.1. Financial Statements. The Borrower shall deliver to the
Administrative Agent, with sufficient copies for each Lender:
(a) promptly after available, but not later than 120 days after the end
of each Fiscal Year, a copy of the audited consolidated balance sheet of the
Borrower and its Restricted Subsidiaries as at the end of such year and the
related consolidated statements of earnings, cash flows and, to the extent
prepared, shareholders' equity for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, and accompanied by
the opinion of a nationally recognized independent public accounting firm
("Independent Auditor") which report shall state that such consolidated
financial statements present fairly in all material respects the financial
position of the Borrower and its Restricted Subsidiaries for the periods
indicated in conformity with GAAP applied on a basis consistent with prior years
(except as noted therein) (such opinion shall not be qualified or limited
because of a restricted or limited examination by the Independent Auditor of any
material portion of the Borrower's or any Restricted Subsidiary's records); and
(b) promptly after available, but not later than 60 days after the end
of each of the first three Fiscal Quarters of each Fiscal Year, a copy of the
unaudited consolidated balance sheet of the Borrower and its Restricted
Subsidiaries as of the end of such quarter and the related consolidated
statements of earnings, cash flows and, to the extent prepared, shareholders'
equity for the period commencing on the first day and ending on the last day of
such quarter, and certified by a Responsible
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Officer as fairly presenting in all material respects, in accordance with GAAP
(subject to year-end audit adjustments), the financial position and the results
of operations of the Borrower and its Restricted Subsidiaries as of the date
thereof.
7.2. Certificates; Other Information. The Borrower shall furnish to the
Administrative Agent, with sufficient copies for each Lender:
(a) promptly when available but not later than 120 days after the end
of each Fiscal Year, a certificate of the Independent Auditor, in conformity
with professional auditing standards applicable to such matters, stating that in
making the examination necessary therefor no knowledge was obtained of any
Default or Event of Default under Section 8.6, except as specified in such
certificate;
(b) concurrently with the delivery of the financial statements referred
to in clauses (a) and (b) of Section 7.1, financial statements prepared on a Pro
Forma Basis for each Acquisition consummated during the Test Period relating to
such financial statements referred to in clauses (a) and (b) of Section 7.1,
together with a Compliance Certificate executed by a Responsible Officer;
(c) within 60 days after the commencement of each Fiscal Year of the
Borrower, operating and related budgets of the Borrower and its Restricted
Subsidiaries in reasonable detail for such Fiscal Year by Fiscal Quarter as
customarily prepared by management of the Borrower for its internal use, setting
forth the principal assumptions upon which such budgets are based;
(d) promptly after transmission thereof, copies of any reports filed on
Forms 10-K, 10-Q, and 8-K, effective registration statements filed on Forms S-1,
S-2, S-3 and S-4, and any proxy statements, as well as any substitute or similar
documents to substantially the same effect as the foregoing, including, to the
extent requested by the Administrative Agent, the schedules and exhibits
thereto, in each case as transmitted to the SEC by the Borrower or any of its
Restricted Subsidiaries (other than immaterial amendments to any such
registration statement); and
(e) promptly, such additional information regarding the business or
financial condition of the Borrower or any Restricted Subsidiary as the
Administrative Agent, on its own behalf or on behalf of the Majority Lenders,
may from time to time reasonably request in writing.
7.3. Notices. The Borrower shall notify the Administrative Agent and
each Lender of:
(a) promptly after a Responsible Officer of the Borrower or any of its
Restricted Subsidiaries obtains actual knowledge thereof, (i) the occurrence of
any event that constitutes a Default or Event of Default (including any Event of
Default, as defined in the Senior Subordinated Indenture), (ii) any litigation
or governmental proceeding pending against the Borrower or any of its Restricted
Subsidiaries that could reasonably be expected to have a Material Adverse Effect
and (iii) any acceleration, redemption or purchase demands or notices provided
by the trustee for the Senior Subordinated Notes; and
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(b) promptly after a Responsible Officer of the Borrower or any of its
Restricted Subsidiaries obtains actual knowledge thereof, the occurrence of any
ERISA Event (but in no event more than 10 days after a Responsible Officer of
the Borrower obtains knowledge of such ERISA Event), and deliver to the
Administrative Agent and each Lender a copy of any notice with respect to such
event that is filed with a Governmental Authority and any notice delivered by a
Governmental Authority to the Borrower or any ERISA Affiliate with respect to
such event.
Each notice from the Borrower under this Section shall specify the
nature of the occurrence referred to therein, the period of existence thereof
and what action the Borrower proposes to take with respect thereto.
7.4. Preservation of Corporate Existence, etc. The Borrower shall, and
shall cause each Restricted Subsidiary to:
(a) preserve and maintain in full force and effect its corporate
existence under the laws of its state or jurisdiction of incorporation (provided
that the Borrower and its Restricted Subsidiaries may consummate any transaction
permitted under Section 8.2), except, in the case of any such Restricted
Subsidiary, to the extent that the failure to do so could not reasonably be
expected to have a Material Adverse Effect; and
(b) preserve and maintain in full force and effect its good standing
under the laws of its state or jurisdiction of incorporation and all material
governmental rights, privileges, qualifications, permits, licenses and
franchises necessary in the normal conduct of its business except in each case
to the extent that the failure to do so could not reasonably be expected to have
a Material Adverse Effect.
7.5. Maintenance of Property. The Borrower will, and will cause each of
its Restricted Subsidiaries to, ensure that its properties and equipment used or
useful in its business, in whomsoever's possession they may be to the extent
that it is within the Borrower's or such Restricted Subsidiary's control to
cause same, are kept in good repair, working order and condition, normal wear
and tear excepted, and that from time to time there are made in such properties
and equipment all needful and proper repairs, renewals, replacements,
extensions, additions, betterments and improvements thereto, to the extent and
in the manner customary for companies in similar businesses and consistent with
third-party leases, except in each case to the extent the failure to do so could
not reasonably be expected to have a Material Adverse Effect.
7.6. Insurance. The Borrower shall maintain, and shall cause each of
its Material Subsidiaries to maintain, insurance in full force and effect, in
such amounts and against such risks and in such amounts, and with such
deductibles, retentions, self-insured amounts and co-insurance provisions, as
are customarily maintained in accordance with normal industry practices.
7.7. Payment of Taxes. The Borrower shall, and shall cause each
Subsidiary to, pay and discharge all material taxes, assessments and
governmental charges or levies upon it or upon its income or profits, or upon
any properties belonging to it, prior to the date on which material penalties
attach thereto, and all lawful material claims that, if unpaid, could reasonably
be expected to become a
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75
material Lien upon any properties of the Borrower or any of its Material
Subsidiaries; provided, however, that neither the Borrower nor any of its
Subsidiaries shall be required hereunder to pay any such tax, assessment,
charge, levy or claim that is being contested in good faith if it has maintained
adequate reserves (in the good faith judgment of the management of the Borrower
or such Subsidiary) with respect thereto in accordance with GAAP.
7.8. Compliance with Statutes, etc. The Borrower shall comply, and
shall cause each Subsidiary to comply, in all material respects, with all
applicable statutes, regulations and other Requirements of Law (including
Environmental Laws) having jurisdiction over it or its business, except such as
may be contested in good faith or as to which a bona fide dispute may exist or
except to the extent that the failure to so comply could not reasonably be
expected to have a Material Adverse Effect.
7.9. Inspection of Property and Books and Records. The Borrower shall
permit, and shall cause each Material Subsidiary to permit, officers and
designated representatives of the Administrative Agent or the Majority Lenders
to visit and inspect any of their respective properties, to examine their
respective corporate, financial and operating records, and make copies thereof
or abstracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective directors, officers, and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably desired, upon reasonable advance notice to the
Borrower.
7.10. Use of Proceeds. The Borrower shall use the proceeds of the Loans
for the purposes described in the third recital to this Agreement.
7.11. Future Subsidiaries. Without limiting the effect of any provision
contained herein (including Section 8.3), upon any Person becoming, after the
date hereof, a Subsidiary of the Borrower (other than any Unrestricted
Subsidiary or a Restricted Subsidiary that is not a Material Subsidiary),
including any Person that was a Restricted Subsidiary, but not a Material
Subsidiary, but which becomes a Material Subsidiary through internal growth or
otherwise, or upon the Borrower acquiring additional capital stock of any
existing Subsidiary the capital stock of which is then pledged under the Pledge
Agreement:
(a) in the event such Person is a Domestic Subsidiary, the Borrower
shall cause such Person, if not theretofore a party to the Guaranty, to execute
a supplement to the Guaranty for the purpose of becoming a guarantor thereunder;
and
(b) in the event such Person is a direct Subsidiary of the Borrower,
the Borrower shall, pursuant to the Pledge Agreement, pledge to the
Administrative Agent for the benefit of the Lenders (free and clear of any other
pledges relating to such Person or any of its Subsidiaries) all of the
outstanding shares of such capital stock of such Subsidiary owned directly by it
(provided, that, in the event such Subsidiary is a Foreign Subsidiary, the
Borrower shall not be required to pledge more than 65% of the outstanding shares
of the capital stock of such Subsidiary), along with undated stock
powers for such certificates, executed in blank (or, if any such shares of
capital stock are uncertificated, confirmation and evidence satisfactory to the
Administrative Agent that the security
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76
interest in such uncertificated securities has been perfected by the
Administrative Agent in accordance with Section 8-313 and Section 8-321 of the
Uniform Commercial Code as in effect in the State of New York or any similar law
which may be applicable).
7.12. Transactions with Affiliates. The Borrower shall, and shall cause
each of its Restricted Subsidiaries to, conduct all transactions with any of its
Affiliates (other than the Borrower and its Restricted Subsidiaries) upon terms
that are substantially as favorable to the Borrower or such Restricted
Subsidiary as it would obtain in a comparable arm's-length transaction with a
Person not an Affiliate of the Borrower or such Restricted Subsidiary; provided
that the foregoing restrictions shall not apply to (a) the payment of customary
annual fees to KKR and its Affiliates for management, consulting and financial
services rendered to the Borrower and its Restricted Subsidiaries, and customary
investment banking fees paid to KKR and its Affiliates for services rendered to
the Borrower or its Restricted Subsidiaries in connection with divestitures,
acquisitions, financings and other transactions, (b) customary fees paid to
members of the Board of Directors of the Borrower and its Restricted
Subsidiaries, (c) transactions expressly permitted with an Affiliate hereunder
and sales and other dispositions of assets in the ordinary course of business
and (d) the performance of any of the agreements listed on Schedule 7.12.
7.13. Change in Business. The Borrower shall, and shall cause its
Material Subsidiaries to, taken as a whole, engage primarily in (a) the lines of
business carried on by the Borrower and its Restricted Subsidiaries on the
Closing Date and any other business the majority of whose revenues are derived
from sales of consumer products and/or (b) businesses or activities reasonably
similar thereto or a reasonable extension, development or expansion thereof or
ancillary thereto.
7.14. End of the Fiscal Year. The Borrower will, for financial
reporting purposes, cause each of its, and each of its Domestic Subsidiaries',
fiscal years to end on September 30 of each year (the "Fiscal Year End") (each
such period a "Fiscal Year" and references to a Fiscal Year with a number
corresponding to any calendar year (e.g., the "1997 Fiscal Year") shall
hereinafter refer to the Fiscal Year ending in the Fiscal Year End occurring
during such calendar year); provided, however, that the Borrower may, upon prior
written notice to the Administrative Agent, change the definition of Fiscal Year
End set forth above to any other date reasonably acceptable to the
Administrative Agent, in which case the Borrower and the Administrative Agent
will, and are hereby authorized by the Lenders to, make any adjustments to this
Agreement that are necessary in order to reflect such change in financial
reporting.
ARTICLE VIII
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, unless the Majority
Lenders waive compliance in writing:
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77
8.1. Limitation on Liens. The Borrower shall not, and shall not suffer
or permit any of its Restricted Subsidiaries to, directly or indirectly, make,
create, incur, assume or suffer to exist any Lien upon or with respect to any
part of its property, whether now owned or hereafter acquired, other than the
following ("Permitted Liens"):
(a) any Lien created under any Loan Document;
(b) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the extent
that non-payment thereof is permitted by Section 7.7;
(c) Liens in respect of property or assets imposed by law, such as
carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or
other similar Liens arising in the ordinary course of business, in each case so
long as such Liens do not individually or in the aggregate have a Material
Adverse Effect;
(d) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and return-of-money bonds
and other similar obligations incurred in the ordinary course of business
(exclusive of obligations in respect of the payment for borrowed money);
(e) Liens incurred in the ordinary course of business by a Restricted
Subsidiary on securities to secure repurchase and reverse repurchase obligations
in respect of such securities;
(f) Liens consisting of judgment or judicial attachment liens in
circumstances not constituting an Event of Default under clause (i) of Section
9.1;
(g) easements, rights-of-way, restrictions, minor defects or
irregularities of title and other similar encumbrances not interfering in any
material respect with the business of the Borrower and its Restricted
Subsidiaries taken as a whole;
(h) Liens securing obligations in respect of Capital Leases on assets
subject to such leases, provided that such Capital Leases are otherwise
permitted hereunder;
(i) Liens arising solely by virtue of any statutory or common law
provision relating to banks' liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution, provided that such deposit account is not a cash
collateral account;
(j) Liens existing on the date hereof securing obligations not in
excess of $4,200,000 in the aggregate;
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78
(k) any interest or title of a lessor or secured by a lessor's interest
under any lease permitted by this Agreement, or any leases or subleases granted
to others not interfering in any material respect with the business of the
Borrower or its Restricted Subsidiary to which the property subject to such
lease or sublease relates;
(l) Liens (i) placed upon property, plant or equipment used in the
ordinary course of business of the Borrower or any of its Restricted
Subsidiaries in connection with the acquisition thereof by the Borrower or any
such Restricted Subsidiary to secure Indebtedness incurred to pay all or a
portion of the purchase price thereof (provided that (A) the Lien encumbering
the property, plant or equipment so acquired does not encumber any other asset
of the Borrower or any such Restricted Subsidiary and (B) the Indebtedness
secured thereby is permitted by clause (f) of Section 8.4 and such acquisition
was otherwise permitted by this Agreement), and (ii) existing on specific assets
at the time acquired by the Borrower or any Restricted Subsidiary (provided that
(A) any such Liens were not created at the time of or in contemplation of the
acquisition of such assets by the Borrower or such Restricted Subsidiary, (B)
such Lien does not encumber any other asset of the Borrower or any Restricted
Subsidiary and (C) the Indebtedness secured thereby is permitted by clause (i)
of Section 8.4 and such acquisition was otherwise permitted by this Agreement);
(m) any Lien placed upon the capital stock or other equity interests of
a Restricted Subsidiary acquired pursuant to a Permitted Acquisition under
clause (h) of Section 8.3 to secure Indebtedness incurred pursuant to clause (j)
of Section 8.4 to finance the acquisition of such Restricted Subsidiary by the
Borrower or any of its other Restricted Subsidiaries, provided such Restricted
Subsidiary has executed a supplement to the Guaranty in accordance with the
provisions of clause (h) of Section 8.3;
(n) 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;
(o) Liens on goods the purchase price of which is financed by a
documentary letter of credit issued for the account of the Borrower or any of
its Restricted Subsidiaries, provided that such Lien secures only the
obligations of the Borrower or such Restricted Subsidiaries in respect of such
letter of credit to the extent permitted under Section 8.4;
(p) leases or subleases granted to others not interfering in any
material respect with the business of the Borrower and its Restricted
Subsidiaries taken as a whole;
(q) additional Liens (other than Liens on any collateral securing the
Obligations) securing obligations of the Borrower and its Restricted
Subsidiaries so long as the aggregate amount of the obligations so secured does
not exceed $25,000,000 at any time outstanding;
(r) any Lien arising pursuant to Section 107(1) of CERCLA, 42 U.S.C.
ss. 9607(1), or other Environmental Law, unless such Lien (i) by action of the
lienholder, or by operation of law, takes priority over any subsequent Lien on
the property upon which it is a Lien and (ii) relates to a liability of the
Borrower and the Restricted Subsidiaries that is reasonably likely to exceed,
individually or in the aggregate, $20,000,000; and
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79
(s) the replacement, extension or renewal of any Lien permitted by
clauses (a) through (m) above upon or in the same assets theretofore subject to
such Lien or the replacement, extension or renewal (without increase in the
amount or change in any direct or contingent obligor except to the extent
otherwise permitted under this Agreement) of the Indebtedness secured thereby.
8.2. Consolidations and Mergers; Sales of Assets. The Borrower shall
not, and shall not suffer or permit any of its Restricted Subsidiaries to,
merge, consolidate or otherwise combine or liquidate with or into, or enter into
or consummate any Disposition (other than any Disposition resulting from a
casualty or condemnation), whether in one transaction or in a series of
transactions to or in favor of, any Person, except:
(a) (i) any Restricted Subsidiary may merge or otherwise consolidate
with the Borrower (provided that the Borrower shall be the continuing or
surviving corporation) and (ii) any Restricted Subsidiary may merge or otherwise
consolidate with any other Restricted Subsidiary;
(b) any Restricted Subsidiary may sell or otherwise transfer its assets
(upon voluntary liquidation or otherwise) to the Borrower and the Borrower or
any Restricted Subsidiary may sell or otherwise transfer its assets (upon
voluntary liquidation or otherwise) to any other Restricted Subsidiary;
(c) any Foreign Subsidiary may sell its accounts receivable for cash
pursuant to discounting arrangements entered into in the ordinary course of its
business, provided that (i) such sale is without recourse to the Borrower and
its other Restricted Subsidiaries and (ii) the aggregate amount of all such
financings outstanding at any one time, when added to the aggregate amount of
Indebtedness outstanding at such time under clause (g) of Section 8.4, does not
exceed $75,000,000; and
(d) the Borrower or any Restricted Subsidiary may consummate one or
more Dispositions (in addition to any thereof described in any other provision
of this Section 8.2), provided that (i) the Borrower complies with the
requirements of Section 2.8(a), (ii) such Disposition is made for fair value (as
determined in good faith by the Borrower) and (iii) the aggregate consideration
received for all assets disposed of in Dispositions from and after the Closing
Date pursuant to this clause (d) shall not exceed $250,000,000.
8.3. Loans, Acquisitions and Investments. The Borrower shall not make,
purchase, repurchase, redeem or acquire, or suffer or permit any Restricted
Subsidiary to make, purchase, repurchase, redeem or acquire, any capital stock,
equity interest or any obligations or other securities of, or any interest in,
any Person, or make any acquisitions of any assets (including Acquisitions), or
make any advance, loan, extension of credit or capital contribution to or any
other investment in any Person, including any Affiliate of the Borrower
(collectively, "Investments"), except for:
(a) Investments in the form of Cash Equivalents;
(b) Investments in the Borrower or in any of its Restricted
Subsidiaries;
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(c) Investments incurred in order to consummate the Recapitalization in
accordance with the terms of the Recapitalization and Stock Purchase Agreement
and the contribution of Etonic Worldwide Corporation to S&E by the Borrower;
(d) loans and advances to officers, directors and employees of the
Borrower or any of the Restricted Subsidiaries (i) to finance the purchase of
capital stock of the Borrower and (ii) for additional purposes not contemplated
by clause (i) above, in an aggregate principal amount at any time outstanding
with respect to this clause (ii) not exceeding $5,000,000;
(e) Investments existing on the date hereof and listed on Schedule 8.3
and any extensions, renewals or reinvestments thereof, so long as the aggregate
amount of all Investments pursuant to this clause (e) is not increased at any
time above the amount of such Investments existing on the date hereof;
(f) Investments constituting non-cash proceeds of the sale or other
disposition of assets, so long as such Investments arise from Dispositions
permitted under Section 8.2(d);
(g) Investments in Swap Contracts;
(h) Investments by the Borrower or any Restricted Subsidiary (other
than any Investment in an Unrestricted Subsidiary) constituting an Acquisition
(any such Acquisition permitted pursuant to this clause (h), a "Permitted
Acquisition"), so long as (i) such Acquisition and all transactions related
thereto are consummated in accordance with applicable law, (ii) in the case of
an Acquisition of capital stock or other equity interest by the Borrower or a
Restricted Subsidiary, such Acquisition results in the issuer of such capital
stock or other equity interest becoming a Restricted Subsidiary and such
Restricted Subsidiary (other than a Foreign Subsidiary) executes an appropriate
supplement to the Guaranty for the purposes of becoming a Guarantor thereunder,
(iii) no capital stock or other equity interest or assets acquired in connection
with such Acquisition shall be subject to any Lien (other than Liens permitted
by Section 8.1), (iv) neither the Borrower nor any other Restricted Subsidiary
shall assume or incur, directly or indirectly, any Indebtedness in connection
with such Acquisition (other than Indebtedness otherwise permitted by Section
8.4), provided that if any of such Indebtedness shall be secured, the guaranty
referred to in subclause (ii) of clause (h) of this Section 8.3 shall be equally
and ratably secured, (v) after giving effect to such Acquisition, no Event of
Default or payment Default shall have occurred and be continuing and (vi) the
Borrower shall have delivered to the Administrative Agent prior to the
consummation of such Acquisition (A) financial statements prepared on a Pro
Forma Basis for the period of four consecutive Fiscal Quarters ending with the
Fiscal Quarter then last ended for which financial statements and the Compliance
Certificate relating thereto have been delivered to the Administrative Agent
pursuant to Sections 7.1 and 7.2 and (B) a certificate of the Borrower executed
by its chief financial officer demonstrating that the financial results
reflected in such financial statements would comply with the requirements of
Section 8.6 for the Fiscal Quarter in which such Investment is to be made (or,
for Investments made in Fiscal Quarters ended prior to September 30, 1997, the
requirements of Section 8.6 as if such Investment were made during the Fiscal
Quarter ended September 30, 1997);
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(i) so long as no Event of Default or payment Default exists and is
continuing at the time of the making of such Investment (or would occur
immediately after giving effect thereto), additional Investments by the Borrower
or its Restricted Subsidiaries (including in Unrestricted Subsidiaries) in an
aggregate amount not to exceed at any time the sum of (i) $50,000,000 plus (ii)
the aggregate amount of net cash proceeds in respect of equity contributions
made to the Borrower after the Closing Date and prior to such time or issuances
of equity of the Borrower after the Closing Date and prior to such time (other
than, in any event, any proceeds of the Preferred Stock and equity contributions
made in accordance with clause (d)(i) of this Section 8.3 or used in accordance
with clause (b) or (c) of Section 8.5), plus (iii) the sum of (A) an amount
equal to Cumulative Borrower's Excess Cash Flow, if any (to the extent not used
in accordance with clause (c) of Section 8.5), plus (B) the aggregate amount of
prepayments refused by Tranche B Term Lenders, Tranche C Term Lenders or Tranche
D Term Lenders and retained by the Borrower in accordance with clause (ii)(D) of
Section 2.8(d) prior to such time and not used in accordance with clause (c) of
Section 8.5 (it being agreed that each Investment made pursuant to this clause
(i) shall not be outstanding to the extent of any return or prepayment of such
Investment);
(j) Investments permitted by Section 8.5;
(k) Investments in or constituting Capital Expenditures permitted by
Section 8.7; and
(l) Investments acquired by the Borrower or any of its Restricted
Subsidiaries in the ordinary course of business in connection with the
collection or settlement of accounts receivable.
8.4. Limitation on Indebtedness. The Borrower shall not, and shall not
suffer or permit any of its Restricted Subsidiaries to, create, incur, assume,
suffer to exist, or otherwise become or remain directly or indirectly liable
with respect to, any Indebtedness, except (subject in any event to the
provisions of Section 8.6):
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness evidenced by the Senior Subordinated Notes in an
aggregate principal amount not to exceed $200,000,000;
(c) Indebtedness between the Borrower and its Restricted Subsidiaries
and Indebtedness between Restricted Subsidiaries;
(d) Contingent Obligations in respect of obligations that are permitted
to be incurred under this Agreement (other than obligations that are permitted
to be incurred under clause (c) of Section 8.2); provided, however, that (i) in
the event any primary obligation to which any such Contingent Obligation relates
is subordinated to Indebtedness under a Loan Document, such Contingent
Obligation is subordinated to the same extent and (ii) Contingent Obligations
(without duplication) of the Borrower and its Domestic Subsidiaries in respect
of obligations incurred by Foreign Subsidiaries shall not exceed $75,000,000 at
any one time outstanding;
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(e) Indebtedness outstanding on the date hereof of the Borrower and its
Domestic Subsidiaries and listed on Schedule 8.4 and any refinancing, refunding,
renewal or extension thereof; provided that (i) the principal amount thereof is
not increased above the principal amount thereof outstanding immediately prior
to such refinancing, refunding, renewal or extension (except to the extent
otherwise permitted under this Section 8.4) and (ii) the direct and contingent
obligors with respect to such Indebtedness are not changed (except to the extent
otherwise permitted under this Section 8.4);
(f) Indebtedness of Domestic Subsidiaries described in clause (l)(i) of
Section 8.1 or constituting Capitalized Lease Liabilities; provided that the
aggregate amount of such Indebtedness (including the aggregate amount of
Capitalized Lease Liabilities under all Capitalized Leases) shall not exceed
$20,000,000 at any one time outstanding;
(g) Indebtedness of Foreign Subsidiaries in an aggregate amount at any
one time outstanding, which, when added to the aggregate amount of financings
outstanding at such time under clause (c) of Section 8.2, does not exceed
$75,000,000;
(h) unsecured Indebtedness of the Borrower (i) which does not have any
scheduled principal payment (including any sinking fund requirement) prior to
the Tranche D Term Maturity Date, (ii) which has pricing terms, covenants,
representations and defaults, which, taken as a whole, are not more burdensome
or restrictive on the Borrower than the pricing terms, covenants,
representations and defaults provided in this Agreement and (iii) all the net
proceeds of which are immediately applied to the prepayment of Term Loans
pursuant to Section 2.8(c);
(i) (i) Indebtedness of a Person that becomes a Restricted Subsidiary
after the Closing Date as the result of an Investment permitted under clause (h)
of Section 8.3, provided that (A) such Indebtedness existed at the time such
Person became a Restricted Subsidiary and was not created in anticipation
thereof, (B) such Indebtedness is not guaranteed in any respect by the Borrower
or any other Restricted Subsidiary and (C) the aggregate amount of such
Indebtedness and all Indebtedness outstanding under clause (j) immediately below
shall not exceed $225,000,000 in the aggregate at any one time outstanding, and
(ii) any refinancing, refunding, renewal or extension of any Indebtedness
specified in the immediately preceding clause (i), provided that (1) the
principal amount of any such Indebtedness is not increased above the principal
amount thereof outstanding immediately prior to such refinancing, refunding,
renewal or extension (except to the extent otherwise permitted by this Section
8.4) and (2) the direct and contingent obligors with respect to such
Indebtedness are not changed (except to the extent otherwise permitted by this
Section 8.4);
(j) (i) Indebtedness of the Borrower incurred to finance a Permitted
Acquisition under clause (h) of Section 8.3, provided that the aggregate
principal amount of Indebtedness incurred pursuant to this clause (j) and
pursuant to clause (i) of Section 8.4 immediately above shall not exceed
$225,000,000 in the aggregate at any one time outstanding and (ii) to the extent
such Permitted Acquisition results in a Person becoming a Restricted Subsidiary
and such Restricted Subsidiary executes a supplement to the Guaranty in
accordance with the provisions of clause (h) of Section 8.3, Contingent
Obligations of Guarantors in respect of guarantees of the Indebtedness described
in the immediately preceding subclause (i);
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83
(k) Contingent Obligations incurred in the ordinary course of business
in respect of obligations of customers, suppliers, franchisees and licensees;
and
(l) additional Indebtedness in an aggregate principal amount not to
exceed $50,000,000 at any time outstanding.
8.5. Restricted Payments. The Borrower shall not declare or make any
dividend payment or other distribution of assets, properties, cash, rights,
obligations or securities on account of any shares of any class of its capital
stock, purchase, redeem or otherwise acquire for value any shares of its capital
stock or any warrants, rights or options to acquire such shares, now or
hereafter outstanding, or pay, prepay, purchase, redeem or defease principal of
the Senior Subordinated Notes, and the Borrower shall not permit any Restricted
Subsidiary to purchase, redeem or otherwise acquire for value any shares of any
class of capital stock of the Borrower, any other Restricted Subsidiary (except
shares thereof owned by the Borrower or any Restricted Subsidiary) or such
Restricted Subsidiary (other than (i) of its shares held by the Borrower or any
other Restricted Subsidiary and (ii) in pro rata redemption or repurchases of
its common stock), as the case may be, now or hereafter outstanding (or any
warrants, rights or options to acquire such shares), and the Borrower shall not
permit any of its Restricted Subsidiaries to pay, prepay, purchase, redeem or
defease principal of the Senior Subordinated Notes, except that, so long as
before and after giving effect to any such payment no Event of Default or
payment Default shall have occurred, the Borrower may:
(a) declare and make dividends or other distributions payable solely in
shares of its capital stock;
(b) purchase, redeem or otherwise acquire (i) shares of Common Stock or
warrants or options to acquire any such shares with the proceeds received from
the substantially concurrent issuance of new shares of Common Stock and (ii)
shares of Preferred Stock with a portion of the proceeds received from the
substantially concurrent issuance of new shares of Common Stock in an aggregate
amount not to exceed 50% of the proceeds received by the Borrower from such
issuance;
(c) redeem, defease or otherwise prepay or retire the Senior
Subordinated Notes in an aggregate amount not to exceed at any time the sum of
(i) the aggregate amount of net cash proceeds in respect of equity contributions
made to the Borrower after the Closing Date and prior to such time or issuances
of equity of the Borrower after the Closing Date and prior to such time (other
than, in any event, any proceeds of the Preferred Stock and equity contributions
made in accordance with clause (d)(i) of Section 8.3 or used in accordance with
clause (b) of this Section 8.5 or clause (i) of Section 8.3) plus (ii) the sum
of (A) an amount equal to Cumulative Borrower's Excess Cash Flow, if any (to the
extent not used in accordance with clause (i) of Section 8.3), plus (B) the
aggregate amount of prepayments refused by Tranche B Term Lenders, Tranche C
Term Lenders or Tranche D Term Lenders and retained by the Borrower in
accordance with clause (ii)(D) of Section 2.8(d) prior to such time and not used
in accordance with clause (i) of Section 8.3;
(d) redeem or exchange in whole or in part any capital stock of the
Borrower for another class of capital stock or rights to acquire such other
class of capital stock of the Borrower, provided
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that such other class of capital stock contains terms and provisions (taken as a
whole) at least as advantageous to the Lenders as those contained in the capital
stock redeemed or exchanged thereby;
(e) repurchase shares of its capital stock (together with options or
warrants in respect of any thereof) held by the officers, directors and
employees of the Borrower (other than any Affiliate of Abarco and its successors
and assigns), so long as such repurchase is pursuant to, and in accordance with
the terms of, management and/or employee stock plans, stock subscription
agreements or shareholder agreements;
(f) pay cash dividends not otherwise permitted hereunder, to the extent
that (i) the Borrower shall have delivered to the Administrative Agent (A)
financial statements prepared on a Pro Forma Basis for the period of four
consecutive Fiscal Quarters ending with the Fiscal Quarter then last ended for
which financial statements and the Compliance Certificate relating thereto have
been delivered to the Administrative Agent pursuant to Sections 7.1 and 7.2 and
(B) a certificate of the Borrower executed by its chief financial officer
demonstrating that the financial results reflected in such financial statements
would (1) comply with the requirements of clauses (a) and (b) of Section 8.6 for
the Fiscal Quarter in which such dividend is to be made and (2) satisfy a
requirement that the ratio of Consolidated Total Debt as at the end of such
period to Consolidated EBITDA for such period be less than 4.0 to 1.0 and (ii)
the aggregate amount expended by the Borrower pursuant to this clause (f) shall
not at any time exceed in the aggregate 50% of Cumulative Consolidated Net
Income Available to Common Stockholders at such time.
8.6. Financial Covenants. The Borrower shall not permit:
(a) the ratio of Consolidated EBITDA for any Test Period ending on or
about any date set forth below to Consolidated Interest Expense for such Test
Period to be less than the ratio set forth opposite such date:
Date Ratio
---- -----
March 31, 1997 1.10 : 1.00
June 30, 1997 1.10 : 1.00
September 30, 1997 1.40 : 1.00
December 31, 1997 1.40 : 1.00
March 31, 1998 1.40 : 1.00
June 30, 1998 1.40 : 1.00
September 30, 1998 1.70 : 1.00
December 31, 1998 1.70 : 1.00
March 31, 1999 1.70 : 1.00
June 30, 1999 1.70 : 1.00
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September 30, 1999 2.00 : 1.00
December 31, 1999 2.00 : 1.00
March 31, 2000 2.00 : 1.00
June 30, 2000 2.00 : 1.00
September 30, 2000 2.25 : 1.00
and the last day of each
December, March, June and
September thereafter
(b) the ratio of Consolidated EBITDA for any Test Period ending on or
about any date set forth below to Consolidated Fixed Charges for such Test
Period to be less than the ratio set forth opposite such date:
Date Ratio
---- -----
September 30, 1997 1.25 : 1.00
and the last day of each
December, March, June and
September thereafter through
June 30, 2000
September 30, 2000 1.35 : 1.00
and the last day of each
December, March, June and
September thereafter
(c) the ratio of Consolidated Total Debt as at the last day of any Test
Period ending on or about any date set forth below to Consolidated EBITDA for
such Test Period, determined on a Pro Forma Basis for each Acquisition
consummated during such Test Period, to be greater than or equal to the ratio
set forth opposite such date:
Date Ratio
---- -----
September 30, 1997 6.50 : 1.00
December 31, 1997 6.50 : 1.00
March 31, 1998 6.50 : 1.00
June 30, 1998 6.50 : 1.00
September 30, 1998 5.50 : 1.00
December 31, 1998 5.50 : 1.00
March 31, 1999 5.50 : 1.00
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June 30, 1999 5.50 : 1.00
September 30, 1999 5.00 : 1.00
December 31, 1999 5.00 : 1.00
March 31, 2000 5.00 : 1.00
June 30, 2000 5.00 : 1.00
September 30, 2000 4.50 : 1.00
December 31, 2000 4.50 : 1.00
March 31, 2001 4.50 : 1.00
June 30, 2001 4.50 : 1.00
September 30, 2001 4.00 : 1.00
and the last day of each
December, March, June and
September thereafter
8.7. Capital Expenditures. (a) The Borrower shall not, and shall not
permit any of its Restricted Subsidiaries to, make any Capital Expenditures that
would cause the aggregate amount of all Capital Expenditures made by the
Borrower and its Restricted Subsidiaries in (i) the 1997 Fiscal Year of the
Borrower to exceed $35,000,000 and (ii) the 1998 Fiscal Year of the Borrower and
each Fiscal Year thereafter to exceed an amount equal to 5% of the consolidated
net sales of the Borrower and its Restricted Subsidiaries for the immediately
preceding Fiscal Year, provided that, in determining such consolidated net
sales, (A) the net sales of any business or Person acquired by the Borrower or
any Restricted Subsidiary during such immediately preceding Fiscal Year pursuant
to a Permitted Acquisition shall be determined as if such business or Person had
been so acquired on the first day of such immediately preceding Fiscal Year and
(B) the net sales of any business or Person sold or otherwise disposed of by the
Borrower and its Restricted Subsidiaries during such immediately preceding
Fiscal Year shall be eliminated from such consolidated net sales, in each case
based on assumptions believed by the Borrower in good faith to be reasonable.
(b) Notwithstanding anything to the contrary contained in clause (a)
above, the Borrower and its Restricted Subsidiaries may in any Fiscal Year make
Capital Expenditures (in addition to the Capital Expenditures permitted to be
made pursuant to clause (a) above) equal to an aggregate amount equal to 5% of
the excess, if any, of (i) the increase (if any) in consolidated net sales of
the Borrower and its Restricted Subsidiaries for such Fiscal Year attributable
to businesses and Persons acquired during such Fiscal Year pursuant to Permitted
Acquisitions over (ii) the decrease (if any) in such consolidated net sales
attributable to businesses and Persons sold or otherwise disposed of by the
Borrower and its Restricted Subsidiaries during such Fiscal Year.
(c) Notwithstanding anything to the contrary contained in clauses (a)
and (b) above, to the extent that Capital Expenditures made by the Borrower and
its Restricted Subsidiaries during any Fiscal Year are less than the maximum
amount permitted to be made for such Fiscal Year pursuant to
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87
clauses (a) and (b) above, 100% of such unused amount (each such amount, a
"carry-forward amount") may be carried forward to the immediately succeeding
Fiscal Year and utilized to make Capital Expenditures in such succeeding Fiscal
Year in the event the amount permitted pursuant to clauses (a) and (b) in such
succeeding Fiscal Year have been used (it being understood and agreed that no
carry- forward amount may be carried forward beyond the Fiscal Year immediately
succeeding the Fiscal Year in which it arose and that no portion of the
carry-forward amount available for any Fiscal Year may be used until the entire
amount of Capital Expenditures permitted to be made in such Fiscal Year (without
giving effect to such carry-forward amount) shall be made).
8.8. Amendments. The Borrower shall not amend or modify, and shall not
permit or suffer to exist the amendment or other modification of, the Senior
Subordinated Notes, the Senior Subordinated Indenture or the certificate of
designation for the Preferred Stock in a manner materially adverse to the
Lenders.
ARTICLE IX
EVENTS OF DEFAULT
9.1. Event of Default. Any of the following shall constitute an "Event
of Default":
(a) Non-Payment. The Borrower fails to make (i) when and as required to
be made herein, payments of any amount of principal of any Loan or Acceptance or
(ii) within five days after the same becomes due, payment of any interest, fee
or any other amount payable hereunder or under any other Loan Document; or
(b) Representation or Warranty. Any representation or warranty by the
Borrower or any Restricted Subsidiary made or deemed made herein or in any other
Loan Document or which is contained in any certificate, document or financial or
other statement by the Borrower, any Restricted Subsidiary or any Responsible
Officer, furnished at any time under this Agreement or in or under any other
Loan Document, is incorrect in any material respect on or as of the date made or
deemed made; or
(c) Specific Defaults. The Borrower fails to perform or observe any
term, covenant or agreement contained in any of clause (a)(i) of Section 7.3 or
Sections 8.2 through 8.8 or Section 8 of the Pledge Agreement; or
(d) Other Defaults. The Borrower fails to perform or observe any term,
covenant or agreement contained in Section 8.1 and such default shall continue
unremedied for 10 days after the date upon which a Responsible Officer of the
Borrower has actual knowledge or receives written notice thereof; or the
Borrower or any other Obligor fails to perform or observe any other term or
covenant contained in this Agreement or any other Loan Document to which it is a
party, and such default shall continue unremedied for a period of 30 days after
the date upon which written notice
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88
thereof is received by the Borrower or such Obligor, as applicable, from the
Administrative Agent or the Majority Lenders; or
(e) Cross-Default. The Borrower or any of its Restricted Subsidiaries
(i) (A) fails to make any payment in respect of any Indebtedness (other than the
Obligations or Indebtedness described in clause (c) of Section 8.4) when due
(whether by scheduled maturity, required prepayment, acceleration, demand, or
otherwise) and such failure continues after the applicable grace or notice
period, if any, specified in the relevant document on the date of such failure
or (B) fails to perform or observe any other condition or covenant, or (except
in the case of Indebtedness consisting of any Swap Contract) any other event
shall occur or condition exist, under any agreement or instrument relating to
any such Indebtedness, and such failure continues after the applicable grace or
notice period, if any, specified in the relevant document on the date of such
failure if the effect of such failure, event or condition is to cause, or to
permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause, such Indebtedness
to be declared to be due and payable prior to its stated maturity, or, in the
case of Indebtedness consisting of Contingent Obligations, to become due and
payable and (ii) the aggregate amount of such Indebtedness, together with the
aggregate amount of all other Indebtedness in default for failure to make
payment or the maturity of which has been declared, or could be so declared, to
be so due and payable, equals or exceeds $20,000,000; or
(f) Insolvency; Voluntary Proceedings. The Borrower or any Material
Subsidiary (i) makes a general assignment for the benefit of creditors or
generally fails to pay, or admits in writing its inability to pay, its debts as
they become due, subject to applicable grace periods, if any, whether at stated
maturity or otherwise; (ii) is adjudicated insolvent or bankrupt, or any order
of relief or other order approving any such case or proceeding is entered; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding
is commenced or filed against the Borrower or any Material Subsidiary, or any
writ, judgment, warrant of attachment, execution or similar process is issued or
levied against a substantial part of the Borrower's or any Material Subsidiary's
properties, and any such proceeding or petition shall not be dismissed, or such
writ, judgment, warrant of attachment, execution or similar process shall not be
released, vacated or fully bonded within 60 days after commencement, filing or
levy; (ii) the Borrower or any Material Subsidiary admits the material
allegations of a petition against it in any Insolvency Proceeding, or an order
for relief (or similar order under non-U.S. law) is ordered in any Insolvency
Proceeding; or (iii) the Borrower or any Material Subsidiary acquiesces in the
appointment of a receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar Person for itself or a substantial portion of its
property or business; or
(h) ERISA. An ERISA Event shall occur with respect to a Pension Plan or
Multiemployer Plan; or
(i) Judgments. One or more judgments, orders, decrees or arbitration
awards is entered against the Borrower or any of its Restricted Subsidiaries
involving in the aggregate a liability (to the
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89
extent not paid or covered by insurance provided by a carrier that has not
disputed coverage in writing) of $20,000,000 or more, and the same shall remain
unsatisfied, unvacated and unstayed pending appeal for a period of 60 days after
the entry thereof; or
(j) Change of Control. There occurs any Change of Control; or
(k) Collateral. Any material provision of the Pledge Agreement shall
for any reason (other than as a result of acts or omissions of the
Administrative Agent or any Lender) cease to create a valid security interest in
the collateral purported to be covered thereby or any material provision of the
Pledge Agreement or the Guaranty shall cease to be valid and binding on or
enforceable against the Borrower or any other Obligor party thereto, or the
Borrower or any other Obligor shall deny or disaffirm in writing its obligations
under the Pledge Agreement or the Guaranty.
9.2. Remedies. If any Event of Default occurs, the Administrative Agent
shall, at the request of, or may, with the consent of, the Majority Lenders:
(a) declare the commitment of each Lender to make Loans, any obligation
of the Swing Line Lender to make Swing Line Loans and any obligation of the
Fronting Lender to Issue Letters of Credit or create Acceptances to be
terminated, whereupon such commitments shall be terminated;
(b) (i) declare an amount equal to the sum of (x) the aggregate face
amount of all unmatured Acceptances and (y) the maximum aggregate amount that is
or at any time thereafter may become available for drawing under any outstanding
Letters of Credit (whether or not any beneficiary shall have presented, or shall
be entitled at such time to present, the drafts or other documents required to
draw under such Letters of Credit) to be immediately due and payable, the
Borrower being obligated to cash collateralize all such obligations immediately,
and/or (ii) declare the unpaid principal amount of all outstanding Loans, all
interest accrued and unpaid thereon and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
all without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived by the Borrower; and/or
(c) exercise on behalf of itself and the Lenders all rights and
remedies available to it and the Lenders under the Loan Documents or applicable
law; provided, however, that upon the occurrence of any event specified in
clause (f) or (g) of Section 9.1 with respect to the Borrower (in the case of
clause (g)(i), upon the expiration of the 60-day period mentioned therein), the
obligation of each Lender to make Loans and any obligation of the Fronting
Lender to Issue Letters of Credit or create Acceptances shall automatically
terminate and the unpaid principal amount of all outstanding Loans and all
interest and other amounts as aforesaid and an amount equal to the sum of (x)
the aggregate face amount of all unmatured Acceptances and (y) the maximum
aggregate amount that is or at any time thereafter may become available for
drawing under any outstanding Letters of Credit (whether or not any beneficiary
shall have presented, or shall be entitled to present, the drafts or other
documents required to draw under such Letter of Credit) shall automatically
become immediately due and payable (the Borrower being automatically immediately
obligated to cash collateralize all such Obligations) without further act of the
Administrative Agent, the Fronting Lender or any Lender.
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90
9.3. Rights Not Exclusive. The rights provided for in this Agreement
and the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE X
THE AGENTS
10.1. Appointment and Authorization; "Administrative Agent". (a) Each
Lender hereby irrevocably (subject to Section 10.9) appoints, designates and
authorizes the Administrative Agent to take such action on its behalf under the
provisions of this Agreement and each other Loan Document and to exercise such
powers and perform such duties as are expressly delegated to it by the terms of
this Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Administrative Agent or any other
Agent have or be deemed to have any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent or any other Agent. Without
limiting the generality of the foregoing sentence, the use of the term "agent"
in this Agreement with reference to the Administrative Agent or any other Agent
is not intended to connote any fiduciary or other implied (or express)
obligations arising under agency doctrine of any applicable law. Instead, such
term is used merely as a matter of market custom, and is intended to create or
reflect only an administrative relationship between independent contracting
parties.
(b) Each Revolving Lender hereby irrevocably (subject to Section 10.9)
appoints the Fronting Lender to act on behalf of the Revolving Lenders with
respect to any Letters of Credit Issued by it, any Acceptances created by it and
the documents associated therewith until such time and except for so long as the
Administrative Agent may agree at the request of the Majority Lenders to act for
such Fronting Lender with respect thereto; provided, however, that the Fronting
Lender shall have all of the benefits and immunities (i) provided to the
Administrative Agent in this Article X with respect to any acts taken or
omissions suffered by the Fronting Lender in connection with Letters of Credit
Issued by it or proposed to be Issued by it, Acceptances created by it or
proposed to be created by it and the application and agreements for letters of
credit pertaining to the Letters of Credit as fully as if the term
"Administrative Agent," as used in this Article X, included the Fronting Lender
with respect to such acts or omissions and (ii) as additionally provided in this
Agreement with respect to the Fronting Lender.
10.2. Delegation of Duties. The Administrative Agent may execute any of
its duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The
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Administrative Agent shall not be responsible for the negligence or misconduct
of any agent or attorney-in-fact that it selects with reasonable care.
10.3. Limitation on Liability of Agents and Agent-Related Persons. None
of the Agents or Agent-Related Persons shall (a) be liable for any action taken
or omitted to be taken by any of them under or in connection with this Agreement
or any other Loan Document or the transactions contemplated hereby (except for
its own gross negligence or willful misconduct) or (b) be responsible in any
manner to any of the Lenders for any recital, statement, representation or
warranty made by the Borrower or any Subsidiary or Affiliate of the Borrower, or
any officer thereof, contained in this Agreement or in any other Loan Document,
or in any certificate, report, statement or other document referred to or
provided for in, or received by the Administrative Agent or any other Agent
under or in connection with, this Agreement or any other Loan Document, or for
the value of or title to any collateral security, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of the Borrower or any other party
to any Loan Document to perform its obligations hereunder or thereunder. No
Agent or Agent-Related Person shall be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower or any
of the Borrower's Subsidiaries or Affiliates.
10.4. Reliance by Administrative Agent. (a) The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, consent, certificate, affidavit, letter, telegram,
facsimile, telex or telephone message, statement or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and upon advice and statements of
legal counsel (including counsel to the Borrower), independent accountants and
other experts selected by the Administrative Agent. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Majority Lenders as it deems appropriate and, if it so
requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Administrative Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement or any other Loan Document in accordance with a request or
consent of the Majority Lenders and such request and any action taken or failure
to act pursuant thereto shall be binding upon all of the Lenders.
(b) For purposes of determining compliance with the conditions
specified in Section 5.1, each Lender that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by the Administrative Agent to such Lender
for consent, approval, acceptance or satisfaction, or required thereunder to be
consented to or approved by or acceptable or satisfactory to a Lender.
10.5. Notice of Default. The Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of
Default, except with respect to defaults in the payment of principal, interest
and fees required to be paid to the Administrative Agent for the account
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of the Lenders, unless the Administrative Agent shall have received written
notice from a Lender or the Borrower referring to this Agreement, describing
such Default or Event of Default and stating that such notice is a "notice of
default." The Administrative Agent will notify the Lenders of its receipt of any
such notice. The Administrative Agent shall, subject to the provisions of this
Article X, take such action with respect to such Default or Event of Default as
may be requested by the Majority Lenders in accordance with Article IX (other
than any such action which may conflict with applicable law); provided, however,
that unless and until the Administrative Agent has received any such request,
the Administrative Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable or in the best interest of the Lenders
(except to the extent that this Agreement expressly requires that such action be
taken, or not be taken, only with the consent or upon the authorization of
Majority Lenders).
10.6. Credit Decision. Each Lender acknowledges that none of the Agents
or Agent-Related Persons has made any representation or warranty to it, and that
no act by the Agents hereinafter taken, including any review of the affairs of
the Borrower and its Subsidiaries, shall be deemed to constitute any
representation or warranty by any Agent or Agent-Related Person to any Lender.
Each Lender represents to each Agent that it has, independently and without
reliance upon any Agent or Agent-Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Borrower and its Subsidiaries, the
value of and title to any collateral security, and all applicable Lender
regulatory laws relating to the transactions contemplated hereby, and made its
own decision to enter into this Agreement and to extend credit to the Borrower
hereunder. Each Lender also represents that it will, independently and without
reliance upon any Agent or Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigations as
it deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of the Borrower.
Except for notices, reports and other documents expressly herein required to be
furnished to the Lenders by the Agents, the Agents shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of the Borrower which may come into the possession
of any of the Agents or Agent-Related Persons.
10.7. Indemnification of Agents and Agent-Related Persons. Whether or
not the transactions contemplated hereby are consummated, the Lenders shall
indemnify upon demand the Agents and Agent-Related Persons (to the extent not
reimbursed by or on behalf of the Borrower and without limiting the obligation
of the Borrower to do so), in accordance with its Total Percentage or, if
indemnification is sought after Commitments are terminated or expire, the Total
Percentages in effect immediately prior to such termination or expiration, or,
if indemnification or reimbursement is sought after Loans are paid in full, the
Total Percentages in effect immediately prior thereto from and against any and
all Indemnified Liabilities; provided, however, that no Lender shall be liable
for the payment to the Agents or Agent-Related Persons of any portion of such
Indemnified Liabilities resulting solely from such Person's gross negligence or
willful misconduct. Without limitation of the foregoing, each
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Lender shall reimburse the Agents upon demand for its ratable share, in
accordance with its Total Percentage or, if reimbursement is sought after the
commitments have terminated or expired, the Total Percentages in effect
immediately prior to such termination or expiration or, if indemnification or
reimbursement is sought after Loans are paid in full, the Total Percentages in
effect immediately prior thereto of any costs or out-of-pocket expenses
(including legal costs and expenses) incurred by the Administrative Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document or any document
contemplated by or referred to herein, to the extent that the Administrative
Agent is not reimbursed for such expenses by or on behalf of the Borrower. The
undertaking in this Section shall survive the payment of all Obligations
hereunder and the resignation or replacement of the Administrative Agent.
10.8. Agents in Individual Capacity. Each Agent-Related Person may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Borrower and its
Subsidiaries and Affiliates as though the applicable Agent-Related Person were
not the Administrative Agent, Documentation Agent, Syndication Agent or Fronting
Lender hereunder or in connection herewith and without notice to or consent of
the Lenders. The Lenders acknowledge that, pursuant to such activities,
Agent-Related Persons may receive information regarding the Borrower or its
Affiliates (including information that may be subject to confidentiality
obligations in favor of the Borrower or such Subsidiary) and acknowledge that
each such Agent-Related Person shall be under no obligation to provide such
information to them. With respect to its Loans, the applicable Agent-Related
Person shall have the same rights and powers under this Agreement as any other
Lender and may exercise the same as though it were not the Administrative Agent,
Documentation Agent, Syndication Agent or Fronting Lender, as the case may be,
and the terms "Lender" and "Lenders" include the applicable Agent-Related Person
in its individual capacity.
10.9. Successor Administrative Agent. The Administrative Agent may
resign as Administrative Agent upon 30 days' notice to the Lenders. If the
Administrative Agent resigns under this Agreement, the Majority Lenders shall
appoint from among the Lenders a successor agent for the Lenders which successor
agent shall be approved by the Borrower, which approval shall not be
unreasonably withheld. If no successor agent is appointed prior to the effective
date of the resignation of the Administrative Agent, the Administrative Agent
may appoint, after consulting with the Agents, the Lenders and the Borrower, a
successor agent from among the Lenders. Upon the acceptance of its appointment
as successor agent hereunder, such successor agent shall succeed to all the
rights, powers and duties of the retiring Administrative Agent and the term
"Administrative Agent" shall mean such successor agent and the retiring
Administrative Agent's appointment, powers and duties as Administrative Agent
shall be terminated. After any retiring Administrative Agent's resignation
hereunder as Administrative Agent, the provisions of this Article X and Sections
11.4 and 11.5 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Administrative Agent under this Agreement. If no
successor agent has accepted appointment as Administrative Agent by the date
which is 30 days following a retiring Administrative Agent's notice of
resignation, the retiring Administrative Agent's resignation shall nevertheless
thereupon become effective and the
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Lenders shall perform all of the duties of the Administrative Agent hereunder
until such time, if any, as the Majority Lenders appoint a successor agent as
provided for above.
10.10. Withholding Tax. (a) If any Lender claims exemption from, or
reduction of, withholding tax under a United States tax treaty by providing IRS
Form 1001 pursuant to clause (i) of Section 4.1(d) and such Lender sells,
assigns, grants a participation in or otherwise transfers all or part of the
Obligations of the Borrower to such Lender, such Lender agrees to notify the
Administrative Agent of the percentage amount in which it is no longer the
beneficial owner of Obligations of the Borrower to such Lender. To the extent of
such percentage amount, the Administrative Agent will treat such Lender's IRS
Form 1001 as no longer valid.
(b) If any Lender claiming exemption from United States withholding tax
by providing IRS Form 4224 to the Administrative Agent sells, assigns, grants a
participation in or otherwise transfers all or part of the Obligations of the
Borrower to such Lender, such Lender agrees to undertake sole responsibility for
complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
(c) If any Lender is entitled to a reduction in the applicable
withholding tax, the Administrative Agent may withhold from any interest payment
to such Lender an amount equivalent to the applicable withholding tax after
taking into account such reduction. However, if the forms or other documentation
required by clause (i) of Section 4.1(d) are not delivered to the Administrative
Agent, then the Administrative Agent may withhold from any interest payment to
such Lender not providing such forms or other documentation an amount equivalent
to the applicable withholding tax imposed by Sections 1441 and 1442 of the Code,
without reduction.
(d) If the IRS or any other Governmental Authority of the United States
or other jurisdiction asserts a claim that the Administrative Agent did not
properly withhold tax from amounts paid to or for the account of any Lender
(because the appropriate form was not delivered or was not properly executed, or
because such Lender failed to notify the Administrative Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding
tax ineffective, or for any other reason) such Lender shall indemnify the
Administrative Agent fully for all amounts paid, directly or indirectly, by the
Administrative Agent as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to the
Administrative Agent under this Section, together with all costs and expenses
(including legal costs and expenses). The obligation of the Lenders under this
clause shall survive the payment of all Obligations and the resignation or
replacement of the Administrative Agent.
10.11. Collateral Matters. (a) The Administrative Agent is authorized
on behalf of all the Lenders, without the necessity of any notice to or further
consent from the Lenders, from time to time to take any action with respect to
any collateral security or the Pledge Agreements which may be necessary to
perfect and maintain perfected the security interest in and Liens upon the
collateral security granted pursuant to the Loan Documents.
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(b) The Lenders irrevocably authorize the Administrative Agent, at its
option and in its discretion, to release (i) any security interest or Lien
granted to or held by the Administrative Agent upon any collateral security (A)
upon termination of the Commitments and Letters of Credit, the maturity of the
Acceptances and payment in full in cash of all principal of and interest on the
Loans, all fees payable pursuant to Sections 2.11 and 11.4, all Special Facility
Obligations (including interest thereon) and all other fees, costs and expenses
that are payable under this Agreement or under any other Loan Document and have
been invoiced (in which case the Lenders hereby authorize the Administrative
Agent to execute, and the Administrative Agent agrees to execute, reasonable
releases in connection with this Agreement (other than, in any event, as to
items stated to survive the termination of this Agreement)); (B) constituting
property sold or to be sold or disposed of as part of or in connection with any
disposition permitted hereunder; (C) constituting property in which the Borrower
or any Subsidiary of the Borrower owned no interest at the time the security
interest and/or Lien was granted or at any time thereafter; (D) consisting of an
instrument evidencing Indebtedness or other debt instrument, if the Indebtedness
evidenced thereby has been paid in full; or (E) if approved, authorized or
ratified in writing by the Majority Lenders or, if required by Section 11.1, the
Supermajority Lenders or each Lender, as applicable, and (ii) any Guarantor from
its obligations under the Guaranty in the event such Guarantor is not required
to be a Guarantor pursuant to the terms of this Agreement. Upon request by the
Administrative Agent at any time, the Lenders will confirm in writing the
Administrative Agent's authority to release particular types or items of
collateral security pursuant to this Section.
10.12. Copies, etc. The Administrative Agent shall give prompt notice
to each Lender of each notice of request required to be given to the
Administrative Agent by the Borrower pursuant to the terms of this Agreement
(unless concurrently delivered to the Lenders by the Borrower). The
Administrative Agent will distribute to each Lenders each document or instrument
received and copies of all other communications received by the Administrative
Agent in each case from the Borrower for distribution to the Lenders by the
Administrative Agent in accordance with the terms of this Agreement.
ARTICLE XI
MISCELLANEOUS
11.1. Amendments and Waivers. No amendment or waiver of any provision
of this Agreement or any other Loan Document, and no consent with respect to any
departure by the Borrower therefrom, shall be effective unless the same shall be
in writing and signed by the Borrower and Majority Lenders and notified to the
Administrative Agent (or signed by the Borrower and the Administrative Agent at
the written request of Majority Lenders) and then any such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that, in addition:
(a) no such waiver, amendment or consent shall (i) forgive any
principal of any Loan or extend the final scheduled maturity date of any Loan
(it being understood that any waiver or
<PAGE>
96
amendment of any installment or prepayment or the method of application of any
prepayment to the amortization of the Obligations shall not constitute such an
extension), or forgive any interest or reduce the stated rate or extend the
scheduled time of payment of any interest or fee payable hereunder (other than
as a result of waiving the applicability of any post-default increase in
interest rates) or extend the final expiration date of any Lender's Commitments
or increase the aggregate amount of the Commitments of any Lender, in each case
without the consent of the Lender holding such Loan, to whom such interest or
fee is payable or having such Commitments, or (ii) amend, modify or waive any
provision of this Section 11.1 or reduce the percentages specified in the
definitions of the terms "Majority Lenders", "Majority Tranche A Term and
Revolving Lenders", "Majority Tranche B, C and D Term Lenders", "Supermajority
Tranche A Term and Revolving Lenders" or "Supermajority Tranche B, C and D Term
Lenders", or consent to the assignment or transfer by the Borrower of its rights
and obligations under any Loan Document to which it is a party, in each case
without the consent of each Lender directly and adversely affected thereby, or
(iii) change any Revolving Commitment to any other Commitment (other than a
Tranche A Term Commitment), change any Tranche A Term Commitment to any other
Commitment (other than a Revolving Commitment) or change any Tranche B Term
Commitment, Tranche C Term Commitment or Tranche D Term Commitment to any other
Commitment, in each case without the consent of each Lender directly and
adversely affected thereby, or (iv) decrease the relative proportion of any
mandatory prepayment to be received by the Lenders holding Tranche A Term Loans,
or extend any scheduled maturity date of any installment (other than the final
installment, as to which clause (a)(i) above is also applicable) of any Tranche
A Term Loans, without the consent of the Majority Tranche A Term and Revolving
Lenders, or (v) decrease the relative proportion of any mandatory prepayment to
be received by the Lenders holding Tranche B Term Loans, Tranche C Term Loans or
Tranche D Term Loans, or extend any scheduled maturity date of any installment
(other than the final installment, as to which clause (a)(i) above is also
applicable) of any Tranche B Term Loans, Tranche C Term Loans or Tranche D Term
Loans, in each case without the consent of the Majority Tranche B, C and D Term
Lenders, or (vi) release all or substantially all the collateral security
provided under the Loan Documents without the consent of (A) the Supermajority
Tranche A Term and Revolving Lenders and (B) the Supermajority Tranche B, C and
D Term Lenders;
(b) no amendment, waiver or consent shall, unless in writing and signed
by the Fronting Lender (in addition to the Lenders required under this Section
to sign such amendment, waiver or consent), adversely affect the rights or
duties of the Fronting Lender under this Agreement, any Letter of Credit, any
Acceptance or any other document relating to any Letter of Credit Issued or to
be Issued by it or any Acceptance created or to be created by it;
(c) no amendment, waiver or consent shall, unless in writing and signed
by the Administrative Agent (in addition to the Lenders required under this
Section to sign such amendment, waiver or consent), adversely affect the rights
or duties of the Administrative Agent under this Agreement or any other Loan
Document; and
(d) the Fee Letter may not be amended, nor may the rights or privileges
thereunder be waived, except in a writing executed by the parties thereto.
<PAGE>
97
11.2. Notices. (a) Except to the extent otherwise expressly provided
herein, all notices, requests, consents, approvals, waivers and other
communications shall be in writing (including, unless the context expressly
otherwise provides, by facsimile transmission, provided that any matter
transmitted to or by the Borrower by facsimile (i) shall be immediately
confirmed by a telephone call to the recipient at the number specified on
Schedule 11.2 and (ii) shall be followed promptly by delivery of a hard copy
original thereof) and mailed, faxed or delivered to the address or facsimile
number specified for notices on Schedule 11.2; or, as directed to the Borrower
or the Administrative Agent, to such other address as shall be designated by
such party in a written notice to the other parties, and as directed to any
other party, at such other address as shall be designated by such party in a
written notice to the Borrower and the Administrative Agent.
(b) All such notices, requests and communications shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, except that notices pursuant to Articles II, III or Article X to the
Administrative Agent shall not be effective until actually received by the
Administrative Agent, and notices pursuant to Article III to the Fronting Lender
shall not be effective until actually received by the Fronting Lender at the
address specified for the "Fronting Lender" on Schedule 11.2.
(c) Any agreement of the Administrative Agent and the Lenders herein to
receive certain notices by telephone or facsimile is solely for the convenience
and at the request of the Borrower. The Administrative Agent and the Lenders
shall be entitled to rely on the authority of any Person purporting to be a
Person authorized by the Borrower to give such notice and the Administrative
Agent and the Lenders shall not have any liability to the Borrower or any other
Person on account of any action taken or not taken by the Administrative Agent
or the Lenders in reliance upon such telephonic or facsimile notice. The
obligation of the Borrower to repay the Loans and Special Facility Obligations
shall not be affected in any way or to any extent by any failure by the
Administrative Agent and the Lenders to receive written confirmation of any
telephonic or facsimile notice or the receipt by the Administrative Agent and
the Lenders of a confirmation which is at variance with the terms understood by
the Administrative Agent and the Lenders to be contained in the telephonic or
facsimile notice.
11.3. No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. All remedies provided
in this Agreement are cumulative, and not exclusive of other remedies, at law or
otherwise.
11.4. Costs and Expenses. The Borrower shall:
(a) pay or reimburse each Agent, the Swing Line Lender and the Fronting
Lender, as the case may be (subject to clause (e) of Section 5.1) promptly for
all reasonable and documented costs and expenses incurred by such Person in
connection with the development, preparation, delivery, execution and closing
of, and all reasonable and documented costs and expenses incurred by such Person
in
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98
connection with the administration and any amendment, supplement, waiver or
smodification to (in each case, whether or not consummated), this Agreement, any
Loan Document and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including the reasonable and documented fees, costs and expenses of
outside counsel incurred by such Person with respect thereto; and
(b) pay or reimburse each Agent and each Lender promptly for all
reasonable and documented costs and expenses, including reasonable and
documented legal fees, costs and expenses, incurred by them in connection with
the enforcement, attempted enforcement, or preservation of any rights or
remedies under this Agreement or any other Loan Document during the existence of
an Event of Default or after acceleration of the Loans (including in connection
with any "workout" or restructuring regarding the Loans, and including in any
Insolvency Proceeding or appellate proceeding).
11.5. Borrower Indemnification. (a) Whether or not the transactions
contemplated hereby are consummated, the Borrower shall indemnify, defend and
hold each Agent, each Agent-Related Person, each Lender and each of their
respective officers, directors, trustees, employees and agents (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including reasonable and documented legal
fees, costs and expenses) of any kind or nature whatsoever which may at any time
(including at any time following repayment of the Loans, the termination of the
Letters of Credit, the maturity of the Acceptances and the termination,
resignation or replacement of the Administrative Agent or replacement of any
Lender) be imposed on, incurred by or asserted against any such Person in any
way relating to or arising out of this Agreement or any document contemplated by
or referred to herein, or the transactions contemplated hereby, or any action
taken or omitted by any such Person under or in connection with any of the
foregoing, including with respect to any investigation, litigation or proceeding
(including any Insolvency Proceeding or appellate proceeding) related to or
arising out of this Agreement or the Loans, Letters of Credit, the Acceptances
or the use of the proceeds thereof, whether or not the Borrower or any Affiliate
of the Borrower or any Indemnified Person is a party thereto (all the foregoing,
collectively, the "Indemnified Liabilities"); provided that the Borrower shall
have no obligation hereunder to any Indemnified Person with respect to
Indemnified Liabilities resulting from the gross negligence or willful
misconduct of such Indemnified Person or disputes among the Administrative
Agent, the Lenders and/or their transferees. The agreements in this Section
shall survive payment of all other Obligations.
(b) Survival. The obligations in this Section shall survive payment of
all other Obligations.
11.6. Marshalling; Payments Set Aside. Neither the Administrative Agent
nor the Lenders shall be under any obligation to marshall any assets in favor of
the Borrower or any other Person or against or in payment of any or all of the
Obligations. To the extent that the Borrower makes a payment to the
Administrative Agent or the Lenders, or the Administrative Agent or the Lenders
exercise their right of set-off, and such payment or the proceeds of such
set-off or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required (including
pursuant to any settlement entered into by the Administrative Agent or such
Lender in its discretion) to be repaid to a trustee, receiver or any other
party, in connection with any Insolvency Proceeding or
<PAGE>
99
otherwise, then (a) to the extent of such recovery the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such set-off had
not occurred and (b) each Lender severally agrees to pay to the Administrative
Agent upon demand its Pro Rata Share of any amount so recovered from or repaid
by the Administrative Agent.
11.7. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Lender.
11.8. Assignments, Participations, etc. (a) Any Lender may, with the
prior written consent of the Borrower and the Administrative Agent and, in the
case of Revolving Commitments and Special Facility Obligations, the Fronting
Lender, which consents shall not be unreasonably withheld, at any time assign
and delegate to one or more Eligible Assignees (provided that no consent of the
Borrower shall be required in connection with any assignment and delegation by a
Lender to an Eligible Assignee that is an Affiliate of such Lender) all or any
part of the Revolving Loans, the Tranche A Term Loans, the Tranche B Term Loans,
the Tranche C Term Loans, the Tranche D Term Loans, the Revolving Commitments
and the Special Facility Obligations and the other rights and obligations of
such Lender hereunder, in a minimum amount of the lesser of $5,000,000 (or such
lesser amount as may be agreed to by the Borrower and the Administrative Agent
in their sole and absolute discretion) and the full remaining amount of such
Lender's Revolving Loans, Tranche A Term Loans, Trance B Term Loans, Tranche C
Term Loans, Tranche D Term Loans, Revolving Commitments or Special Facility
Obligations (except that no such minimum shall be applicable on an assignment to
a Lender or an Affiliate of a Lender); provided, however, that the Borrower and
the Administrative Agent may continue to deal solely and directly with such
Lender in connection with the interest so assigned to an Eligible Assignee until
(i) written notice of such assignment, together with payment instructions,
addresses and related information with respect to the Eligible Assignee, shall
have been given to the Borrower and the Administrative Agent by such Lender and
the Eligible Assignee; (ii) such Lender and its Eligible Assignee shall have
delivered to the Borrower and the Administrative Agent an Assignment and
Acceptance substantially in the form of Exhibit J ("Assignment and Acceptance")
together with any Note or Notes subject to such assignment and (iii) the
assignor Lender or Eligible Assignee has paid to the Administrative Agent a
registration and processing fee in the amount of $3,000.
(b) Upon the request of the Eligible Assignee, solely to facilitate the
pledge or assignment of its Loans to any Federal Reserve Bank, the Borrower
shall issue Notes to the Eligible Assignee. Upon the request of the assignor
Lender, if applicable, solely to facilitate the pledge or assignment of its
Loans to any Federal Reserve Bank, the Borrower shall issue a reduced Note to
such assignor in exchange and replacement for its then existing Note.
(c) The Administrative Agent, on behalf of the Borrower, shall maintain
at the address of the Administrative Agent specified on Schedule 11.2 (or at
such other address as may be designated by the Administrative Agent from time to
time in accordance with Section 11.2) a copy of each
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100
Assignment and Acceptance delivered to it and a register (the "Register") for
the recordation of the names and addresses of the Lenders and the Commitment of
and principal amount of the Loans owing to each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Administrative Agent and the Lenders shall treat each
Person whose name is recorded in the Register as the owner of a Loan or other
obligation hereunder as the owner thereof for all purposes of this Agreement and
the other Loan Documents, notwithstanding any notice to the contrary. Any
assignment of any Loan or other obligation hereunder shall be effective only
upon appropriate entries with respect thereto being made in the Register. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Eligible Assignee (and consented to by the
Administrative Agent and, in the case of Revolving Commitments and Special
Facility Obligations, by the Fronting Lender and, in the case of an Eligible
Assignee that is not an Affiliate of the assigning Lender, by the Borrower (in
each case such consent not to be unreasonably withheld)) together with payment
to the Administrative Agent of the registration and processing fee described in
clause (a)(iii), the Administrative Agent shall record the information contained
therein in the Register and give notice of such acceptance and recordation to
the Lenders and the Borrower. Immediately upon the recordation of such
information in the Register, this Agreement shall be deemed to be amended to the
extent, but only to the extent, necessary to reflect the addition of the
Assignee and the resulting adjustment of the Commitments arising therefrom, and
(i) the Eligible Assignee thereunder shall be a party hereto and, to the extent
that rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, shall have the rights and obligations of a Lender
under the Loan Documents and (ii) the assignor Lender shall, to the extent that
rights and obligations hereunder and under the other Loan Documents have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Loan Documents. The Commitment
allocated to each Assignee shall reduce such Commitments of the assigning Lender
pro tanto.
(e) Any Lender may at any time sell to one or more commercial Lenders
or other Persons not Affiliates of the Borrower (a "Participant") participating
interests in any Loans, the Commitment of that Lender and the other interests of
that Lender (the "Originating Lender") hereunder and under the other Loan
Documents; provided, however, that (i) the Originating Lender's obligations
under this Agreement shall remain unchanged, (ii) the Originating Lender shall
remain solely responsible for the performance of such obligations, (iii) the
Borrower, the Fronting Lender and the Administrative Agent shall continue to
deal solely and directly with the Originating Lender in connection with the
Originating Lender's rights and obligations under this Agreement and the other
Loan Documents and (iv) no Lender shall transfer or grant any participating
interest under which the Participant has rights to approve any amendment to, or
any consent or waiver with respect to, this Agreement or any other Loan
Document, except to the extent such amendment, consent or waiver would require
the consent of the Originating Lender as an affected Lender as described in
clause (a)(i) of Section 11.1. In the case of any such participation, the
Participant shall be entitled to the benefit of Sections 4.1, 4.3 and 11.5 as
though it were also a Lender hereunder, but shall not be entitled to any greater
amount than would be payable to the original Lender if no participation had been
made and if amounts outstanding under
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101
this Agreement are due and unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement.
(f) Subject to Section 11.9, the Borrower authorizes each Lender to
disclose to any Eligible Assignee or Participant (each, a "Transferee") and any
prospective Transferee any and all financial information in such Lender's
possession concerning the Borrower and its Affiliates that has been delivered to
such Lender by or on behalf of the Borrower in connection with such Lender's
credit evaluation of the Borrower and its Affiliates prior to such Transferee or
prospective Transferee becoming a party to this Agreement; provided, however,
that neither the Administrative Agent nor any Lender shall provide to any
Transferee or prospective Transferee any of the Confidential Information unless
such person shall have previously executed a confidentiality agreement
containing substantially similar terms to the terms specified in Section 11.9.
(g) Notwithstanding any other provision in this Agreement, any Lender
may at any time create a security interest in, or pledge, all or any portion of
its rights under and interest in this Agreement and the Note held by it in favor
of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S.
Treasury Regulation 31 CFR ss.203.14, or any successor thereto, and such Federal
Reserve Bank may enforce such pledge or security interest in any manner
permitted under applicable law.
11.9. Confidentiality. Each Lender agrees to maintain, in accordance
with its customary procedures for handling confidential information, the
confidentiality of all information provided to it by or on behalf of the
Borrower or any Subsidiary, or by the Administrative Agent on the Borrower's or
such Subsidiary's behalf, under this Agreement or any other Loan Document
("Confidential Information"), and neither it nor any of its Affiliates shall use
any such information other than in connection with or in enforcement of this
Agreement and the other Loan Documents or in connection with other business now
or hereafter existing or contemplated with the Borrower or any Subsidiary,
except to the extent such information (i) was or becomes generally available to
the public other than as a result of disclosure by the Lender or (ii) was or
becomes available on a non-confidential basis from a source other than the
Borrower, provided that such source is not bound by a confidentiality agreement
with the Borrower known to the Lender; provided, however, that any Lender may
disclose such information (A) at the request or pursuant to any requirement of
any Governmental Authority to which the Lender is subject or in connection with
an examination of such Lender by any such Authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the
Administrative Agent, any Lender or their respective Affiliates may be party;
(E) to the extent reasonably required in connection with the exercise of any
remedy hereunder or under any other Loan Document; (F) to such Lender's
independent auditors and other professional advisors who have been advised that
such information is confidential pursuant to this Section 11.9; (G) to any
Participant or Assignee, actual or potential, provided that such Person shall
have agreed in writing to keep such information confidential to the
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102
same extent required of the Lenders hereunder; and (H) to its Affiliates who
have been advised that such information is confidential pursuant to this Section
11.9. Unless prohibited by applicable law or court order, each Lender and the
Administrative Agent shall notify the Borrower of any request by any
Governmental Authority (other than any request in connection with an examination
of the financial condition of such Lender) for disclosure of Confidential
Information prior to such disclosure; provided that in no event shall the
Administrative Agent or any Lender be obligated to return any materials
furnished by the Borrower or any of its Subsidiaries. This Section shall
supersede any confidentiality letter or agreement with respect to the Borrower
or the Facilities entered into prior to the date hereof.
11.10. Set-off. In addition to any rights and remedies of the Lenders
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Lender is authorized at any time and from time to time,
without prior notice to the Borrower, any such notice being waived by the
Borrower to the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held by, and other indebtedness, credits or claims (in each case, in any
currency and whether direct or indirect, absolute or contingent, matured or
unmatured) at any time owing by such Lender (or any branch or agency thereof) to
or for the credit or the account of the Borrower against any and all Obligations
then due and payable by the Borrower hereunder (whether at the stated maturity,
by acceleration or otherwise). Each Lender agrees promptly to notify the
Borrower and the Administrative Agent after any such set-off and application
made by such Lender; provided, however, that the failure to give such notice
shall not affect the validity of such set-off and application.
11.11. Notification of Addresses, Lending Offices, etc. Each Lender
shall notify the Administrative Agent in writing of any changes in the address
to which notices to the Lender should be directed, of addresses of any Lending
Office, of payment instructions in respect of all payments to be made to it
hereunder and of such other administrative information as the Administrative
Agent shall reasonably request.
11.12. Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
11.13. Severability. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
11.14. No Third Parties Benefited. This Agreement is made and entered
into for the sole protection and legal benefit of the Borrower, the Lenders,
each Agent and the Agent-Related Persons, and their permitted successors and
assigns, and no other Person shall be a direct or indirect legal beneficiary of,
or have any direct or indirect cause of action or claim in connection with, this
Agreement or any of the other Loan Documents.
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103
11.15. Governing Law and Jurisdiction. (a) THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
LOCATED IN THE COUNTY OF NEW YORK OF THE STATE OF NEW YORK OR OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH OF THE BORROWER, THE AGENTS AND THE LENDERS CONSENTS, FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF
THOSE COURTS. EACH OF THE BORROWER, THE AGENTS AND THE LENDERS IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE BORROWER, THE AGENTS AND THE
LENDERS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS,
WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW.
11.16. Waiver of Jury Trial. THE BORROWER, THE LENDERS AND THE AGENTS
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. THE BORROWER ACKNOWLEDGES
AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS
PROVISION (AND EACH OTHER PROVISION OF THIS AGREEMENT AND EACH OTHER LOAN
DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE AGENTS AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH
SUCH OTHER LOAN DOCUMENT.
11.17. Entire Agreement. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Borrower,
the Lenders and the Agents, and supersedes all prior or contemporaneous
agreements and understandings of such Persons, verbal or written, relating to
the subject matter hereof and thereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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104
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
E&S HOLDINGS CORPORATION, as the
Borrower
By /s/ W. Michael Kipphut
-----------------------------------
Name: W. Michael Kipphut
Title: Treasurer and Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent
By /s/ Eugene F. Martin
-----------------------------------
Name: Eugene F. Martin
Title: Vice President
MERRILL LYNCH CAPITAL
CORPORATION, as Documentation Agent
By /s/ E. T. Crook
-----------------------------------
Name: E. T. Crook
Title: Vice President
NATIONSBANK, N.A. (SOUTH), as
Syndication Agent
By /s/ Andrew M. Airheart
-----------------------------------
Name: Andrew M. Airheart
Title: Senior Vice President
<PAGE>
105
Co-Agents:
THE BANK OF NOVA SCOTIA
By /s/ Frank F. Sandler
-----------------------------------
Name: Frank F. Sandler
Title: Relationship Manager
BANKERS TRUST COMPANY
By /s/ Robert R. Teleseca
-----------------------------------
Name: Robert R. Telesca
Title: Assistant Vice President
CITIBANK, N.A.
By /s/ Thomas W. Ng
-----------------------------------
Name: Thomas W. Ng
Title: Attorney-in-Fact
FLEET NATIONAL BANK
By /s/ Paul Trefry
-----------------------------------
Name: Paul Trefry
Title: Managing Director
SOCIETE GENERALE
By /s/ David Brunson
-----------------------------------
Name: David Brunson
Title: First Vice President
<PAGE>
106
WELLS FARGO BANK, N.A.
By /s/ David Neumann
-----------------------------------
Name: David Neumann
Title: Vice President
Lead Managers:
--------------
CIBC, INC.
By /s/ Timothy E. Doyle
-----------------------------------
Name: Timothy E. Doyle
Title: Authorized Signatory
ROYAL BANK OF CANADA
By /s/ Sheryl L. Greenberg
-----------------------------------
Name: Sheryl L. Greenberg
Title: Manager
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By /s/ T. M. Molitor
-----------------------------------
Name: T. M. Molitor
Title: Vice President
<PAGE>
107
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By /s/ Teiji Teramoto
-----------------------------------
Name: Teiji Teramoto
Title: Vice President & Manager
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By /s/ Junri Oda
-----------------------------------
Name: Mr. Junri Oda
Title: Senior Vice President &
Senior Manager
LTCB TRUST COMPANY
By /s/ John J. Sullivan
-----------------------------------
Name: John J. Sullivan
Title: Executive Vice President
Lenders:
--------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ Eugene F. Martin
-----------------------------------
Name: Eugene F. Martin
Title: Vice President
MERRILL LYNCH CAPITAL
CORPORATION
<PAGE>
108
By /s/ E. T. Crook
-----------------------------------
Name: E. T. Crook
Title: Vice President
NATIONSBANK, N.A. (SOUTH)
By /s/ Andrew M. Airheart
-----------------------------------
Name: Andrew M. Airheart
Title: Senior Vice President
THE BANK OF NOVA SCOTIA
By /s/ Frank F. Sandler
-----------------------------------
Name: Frank F. Sandler
Title: Relationship Manager
BANKERS TRUST COMPANY
By /s/ Robert R. Telesca
-----------------------------------
Name: Robert R. Telesca
Title: Assistant Vice President
CITIBANK, N.A.
By /s/ Thomas W. Ng
-----------------------------------
Name: Thomas W. Ng
Title: Attorney-in-Fact
FLEET NATIONAL BANK
<PAGE>
109
By /s/ Paul Trefry
-----------------------------------
Name: Paul Trefry
Title: Managing Director
SOCIETE GENERALE
By /s/ David Brunson
-----------------------------------
Name: David Brunson
Title: First Vice President
WELLS FARGO BANK, N.A.
By /s/ David Neumann
-----------------------------------
Name: David Neumann
Title: Vice President
CIBC, INC.
By /s/ Timothy E. Doyle
-----------------------------------
Name: Timothy E. Doyle
Title: Authorized Signatory
ROYAL BANK OF CANADA
By /s/ Sheryl L. Greenberg
-----------------------------------
Name: Sheryl L. Greenberg
Title: Manager
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
<PAGE>
110
By /s/ Jeffrey W. Maillet
-----------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President &
Director
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By /s/ T. M. Molitor
-----------------------------------
Name: T. M. Molitor
Title: Vice President
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By /s/ Teiji Teramoto
-----------------------------------
Name: Teiji Teramoto
Title: Vice President & Manager
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By /s/ Junri Oda
-----------------------------------
Name: Mr. Junri Oda
Title: Senior Vice President &
Senior Manager
LTCB TRUST COMPANY
By /s/ John J. Sullivan
-----------------------------------
Name: John J. Sullivan
Title: Executive Vice President
<PAGE>
111
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By /s/ Andrew C. Dickey
-----------------------------------
Name: Andrew C. Dickey
Title: Managing Director
OAK HILL SECURITIES FUND, L.P.
By Oak Hill Securities GenPar, L.P.,
its General Partner
By Oak Hill Securities MGP, Inc.,
its General Partner
By /s/ Scott Krase
---------------
Name: Scott Krase
Title: Vice President
PRIME INCOME TRUST
By /s/ Rafael Scolari
-----------------------------------
Name: Rafael Scolari
Title: V.P. Portfolio Manager
PROTECTIVE LIFE INSURANCE
COMPANY
By /s/ James Dondero
-----------------------------------
Name: James Dondero
Title: President Protective
Asset Management, L.L.C.
<PAGE>
112
ABN AMRO BANK N.V.
By /s/ Steven Hipsman
-----------------------------------
Name: Steven Hipsman
Title: Vice President
By /s/ Robert Budnek
-----------------------------------
Name: Robert Budnek
Title: Assistant Vice President
BANK OF TOKYO -- MITSUBISHI TRUST
COMPANY
By /s/ D. C. McLaughlin
-----------------------------------
Name: D. C. McLaughlin
Title: Assistant Vice President
BANQUE PARIBAS
By /s/ Duane P. Helkowski
-----------------------------------
Name: Duane P. Helkowski
Title: Assistant Vice President
By /s/ Ann C. Pifer
-----------------------------------
Name: Ann C. Pifer
Title: Vice President
BAYBANK, N.A.
By /s/ Kathi L. Donahue
-----------------------------------
Name: Kathi L. Donahue
Title: Vice President
<PAGE>
113
BHF-BANK AKTIENGESELLSCHAFT
By /s/ Paul Travers
-----------------------------------
Name: Paul Travers
Title: Vice President
By /s/ Evon Contos
-----------------------------------
Name: Evon Contos
Title: Vice President
CAISSE NATIONALE DE CREDIT
AGRICOLE
By /s/ David Bouhl, F.V.P.
-----------------------------------
Name: David Bouhl, F.V.P.
Title: Head of Corporate Banking
Chicago
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By /s/ Brian O'Leary
-----------------------------------
Name: Brian O'Leary
Title: Vice President
By /s/ Sean Mounier
-----------------------------------
Name: Sean Mounier
Title: First Vice President
CREDIT LYONNAIS ATLANTA AGENCY
By /s/ David M. Cawrse
-----------------------------------
<PAGE>
114
Name: David M. Cawrse
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Frederick S. Haddad
-----------------------------------
Name: Frederick S. Haddad
Title: Senior Vice President
THE DAI-ICHI KANGYO BANK, LTD.
By /s/ Stephanie R. Rogers
-----------------------------------
Name: Stephanie R. Rogers
Title: Vice President
DLJ CAPITAL FUNDING, INC.
By /s/ Stephen P. Hickey
-----------------------------------
Name: Stephen P. Hickey
Title: Managing Director
GOLDMAN SACHS CREDIT PARTNERS
L.P.
By /s/ Edward C. Frost
-----------------------------------
Name: Edward C. Frost
Title: Authorized Signatory
LEHMAN COMMERCIAL PAPER INC.
By /s/ Michele Swanson
-----------------------------------
Name: Michele Swanson
Title: Authorized Signatory
<PAGE>
115
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By /s/ Hachiro Hosoda
-----------------------------------
Name: Hachiro Hosoda
Title: Senior Vice President
NATIONAL CITY BANK
By /s/ Timothy J. Lathe
-----------------------------------
Name: Timothy J. Lathe
Title: Senior Vice President
THE NIPPON CREDIT BANK, LTD.
By /s/ Clifford Abramsky
-----------------------------------
Name: Clifford Abramsky
Title: Senior Manager
THE SAKURA BANK, LIMITED
ATLANTA AGENCY
By /s/ Hiroyasu Imanishi
-----------------------------------
Name: Hiroyasu Imanishi
Title: V.P. & Senior Manager
STATE STREET BANK AND TRUST
COMPANY
By /s/ Greg J. Mann
-----------------------------------
<PAGE>
116
Name: Greg J. Mann
Title: Vice President
ALLSTATE LIFE INSURANCE COMPANY
By /s/ Charles D. Mires
-----------------------------------
Name: Charles D. Mires
Title: Authorized Signatory
By /s/ David A. Chalupnik
-----------------------------------
Name: David A. Chalupnik
Title: Authorized Signatory
INDOSUEZ CAPITAL ASSET ADVISORS,
INC.
By /s/ Andrew H. Marshak
-----------------------------------
Name: Andrew H. Marshak
Title: Authorized Signatory
By /s/ John G. Popp
-----------------------------------
Name: John G. Popp
Title: President
ING CAPITAL ADVISORS, INC., as Agent
for Bank Syndication Account
By /s/ Michael D. Hatley
-----------------------------------
Name: Michael D. Hatley
Title: Vice President & Portfolio
Manager
PILGRIM AMERICA PRIME RATE TRUST
By /s/ Howard Tiffen
-----------------------------------
Name: Howard Tiffen
<PAGE>
117
Title: Senior Vice President
PPM AMERICA, INC., as attorney in fact,
on behalf of Jackson National Life
Insurance Company
By /s/ Michael DiRe
-----------------------------------
Name: Michael DiRe
Title: Vice President/Head
High Yield Bank Loans
CHL HIGH YIELD LOAN PORTFOLIO (a
unit of Chase Manhattan Bank)
By /s/ Richard W. Stewart
-----------------------------------
Name: Richard W. Stewart
Title: Vice President
<PAGE>
EXHIBIT 10.2
GUARANTY
This GUARANTY, dated as of September 30, 1996, is made by each of the
signatories hereto and each other Person which may from time to time hereafter
become a party hereto pursuant to Section 13 (each, individually, an "Additional
Guarantor", and, collectively, the "Additional Guarantors", and, together with
each of the signatories hereto, each, individually, a "Guarantor", and,
collectively, the "Guarantors"), in favor of Bank of America National Trust and
Savings Association ("BofA"), as administrative agent (in such capacity, the
"Administrative Agent") for the various financial institutions from time to time
parties (collectively, the "Lenders") to that certain Credit Agreement, dated as
of September 30, 1996 (as amended, supplemented or otherwise modified from time
to time, the "Credit Agreement"), among E&S Holdings Corporation, a Delaware
corporation (the "Borrower"), the Lenders, BofA, as Swing Line Lender, as
Fronting Lender and as Administrative Agent for the Lenders, together with
Merrill Lynch Capital Corporation, as Documentation Agent for the Lenders,
Nationsbank, N.A. (South), as Syndication Agent for the Lenders, and the several
financial institutions specifically identified as Co-Agents on the signature
pages thereof, for the ratable benefit of the Secured Creditors (as defined
below).
W I T N E S S E T H:
WHEREAS, (a) pursuant to the Credit Agreement, the Lenders have severally
agreed to make Credit Extensions (such capitalized term, and other capitalized
terms used in these recitals, to have the meanings set forth, or defined by
reference in, Section 1) to the Borrower upon the terms and subject to the
conditions set forth therein and (b) one or more Lenders (including those of its
Affiliates that have appointed the Administrative Agent to act on such
Affiliate's behalf hereunder on terms substantially similar to those set forth
in Article X of the Credit Agreement, including the provisions relating to
exculpation and indemnification therein) may from time to time enter into Swap
Contracts with the Borrower (such Affiliates, together with such Lenders, being
referred to herein as "Secured Creditors");
WHEREAS, each Guarantor is a Subsidiary of the Borrower;
WHEREAS, the proceeds of the Credit Extensions will be used in part to
enable the Borrower to make valuable transfers to the Guarantors in connection
with the operation of their respective businesses;
WHEREAS, pursuant to the Credit Agreement, the Fronting Lender has agreed
to issue Letters of Credit and create Acceptances at the request, and for the
account, of the Borrower and other Account Parties (including the Guarantors);
WHEREAS, the Borrower and the Guarantors are engaged in related
businesses, and each Guarantor will derive substantial direct and indirect
benefit from the making of the Credit Extensions; and
<PAGE>
2
WHEREAS, it is a condition precedent to the obligation of the Lenders to
make their respective Credit Extensions to the Borrower under the Credit
Agreement that the Guarantors shall have executed and delivered this Guaranty to
the Administrative Agent for the ratable benefit of the Secured Creditors;
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective Credit Extensions to the Borrower
under the Credit Agreement and to induce one or more Secured Creditors to enter
into Swap Contracts with the Borrower, the Guarantors hereby agree with the
Administrative Agent, for the ratable benefit of the Secured Creditors, as
follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms defined in
the Credit Agreement and used herein shall have the meanings ascribed to them in
the Credit Agreement.
(b) As used herein, "Obligations" means the collective reference to (i)
the unpaid principal of and interest on the Loans and all other obligations and
liabilities (including the Special Facility Obligations and the Guaranteed
Obligations) of the Borrower to the Administrative Agent or any Lender
(including interest accruing at the then applicable rate provided in the Credit
Agreement after the maturity of the Loans and interest accruing at the then
applicable rate provided in the Credit Agreement after the filing of, or which
would have accrued but for the filing or commencement of, any Insolvency
Proceeding relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter incurred, that may arise under, out of, or in connection with, the
Credit Agreement, the other Loan Documents, the Letters of Credit, the
Acceptances or any other document made, delivered or given in connection
therewith, whether on account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses or otherwise (including all reasonable fees
and disbursements of counsel to the Administrative Agent or to the Lenders that
are required to be paid by the Borrower or any Guarantor pursuant to the terms
of the Credit Agreement or any other Loan Document) and (ii) all obligations and
liabilities of the Borrower to any Secured Creditor, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
incurred, that may arise under, out of, or in connection with, any Swap Contract
or any other document made, delivered or given in connection therewith.
(c) "Guaranty" means this Guaranty, as amended, amended and restated,
supplemented or otherwise modified from time to time.
(d) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Guaranty shall refer to this Guaranty as a whole and
not to any particular provision of this Guaranty, and Section references are to
Sections of this Guaranty unless otherwise specified. The word "including" is
not limiting and means "including without limitation".
<PAGE>
3
(e) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
2. Guaranty. (a) Subject to the provisions of Section 2(b), each of the
Guarantors hereby, jointly and severally, unconditionally and irrevocably,
guarantees to the Administrative Agent, for the ratable benefit of the Secured
Creditors and their respective successors, endorsees, transferees and assigns,
the prompt and complete payment and performance by the Borrower when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
(b) Anything herein or in any other Loan Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under the
other Loan Documents shall in no event exceed the amount that can be guaranteed
by such Guarantor under applicable federal and state laws relating to the
insolvency of debtors.
(c) Each Guarantor further agrees to pay any and all reasonable expenses
(including all reasonable fees and disbursements of counsel) that may be paid or
incurred by the Administrative Agent or any Secured Creditor in enforcing or
obtaining advice of counsel in respect of any rights with respect to, or
collecting, any or all of the Obligations and/or enforcing any rights with
respect to, or collecting against, such Guarantor under this Guaranty. This
Guaranty shall remain in full force and effect until the Obligations are paid in
full, the Commitments are terminated, the Letters of Credit are terminated or
expired and the Acceptances are matured, notwithstanding that from time to time
prior thereto the Borrower may be free from any Obligations.
(d) Each Guarantor agrees that the Obligations may at any time and from
time to time exceed the amount of the liability of such Guarantor hereunder
without impairing this Guaranty or affecting the rights and remedies of the
Administrative Agent or any Secured Creditor hereunder.
(e) No payment or payments made by the Borrower, any of the Guarantors,
any other guarantor or any other Person or received or collected by the
Administrative Agent or any Secured Creditor from the Borrower, any of the
Guarantors, any other guarantor or any other Person by virtue of any action or
proceeding or any set-off or appropriation or application at any time or from
time to time in reduction of or in payment of the Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder, which shall, notwithstanding any such payment or payments other than
payments made by such Guarantor in respect of the Obligations or payments
received or collected from such Guarantor in respect of the Obligations, remain
liable for the Obligations up to the maximum liability of such Guarantor
hereunder until the Obligations are paid in full, the Commitments are
terminated, no Letters of Credit remain outstanding and no Acceptance remain
unmatured.
(f) Each Guarantor agrees that whenever, at any time, or from time to
time, it shall make any payment to the Administrative Agent or any Secured
Creditor on account of its
<PAGE>
4
liability hereunder, it will notify the Administrative Agent in writing that
such payment is made under this Guaranty for such purpose.
3. Right of Contribution. Each Guarantor hereby agrees that to the extent
that a Guarantor shall have paid more than its proportionate share of any
payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder who has not paid its
proportionate share of such payment. Each Guarantor's right of contribution
shall be subject to the terms and conditions of Section 5. The provisions of
this Section 3 shall in no respect limit the obligations and liabilities of any
Guarantor to the Administrative Agent and the Secured Creditors, and each
Guarantor shall remain liable to the Administrative Agent and the Secured
Creditors for the full amount guaranteed by such Guarantor hereunder.
4. Right of Set-off. In addition to any rights and remedies of the
Administrative Agent and each Secured Creditor provided by law, if an Event of
Default exists or the Loans have been accelerated, each Guarantor hereby
irrevocably authorizes the Administrative Agent and each Secured Creditor at any
time and from time to time, without prior notice to such Guarantor, any such
notice being waived by such Guarantor to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held by, and other indebtedness, credits or
claims (in each case, in any currency and whether direct or indirect, absolute
or contingent, matured or unmatured) at any time owing by the Administrative
Agent or such Secured Creditor (or any branch or agency thereof) to or for the
credit or the account of such Guarantor against any and all Obligations then due
and payable by such Guarantor hereunder (whether at the stated maturity, by
acceleration or otherwise). Each Secured Creditor agrees to promptly notify the
Guarantor and the Administrative Agent after any such set-off and application
made by such Secured Creditor; provided, however, that the failure to give such
notice shall not affect the validity of such set-off and application.
5. Postponement of Subrogation, etc. Each Guarantor hereby expressly
waives, until the Obligations are paid in full, the Commitments are terminated,
all Letters of Credit are terminated or expired and all Acceptance are matured,
any rights which it may now have or hereafter acquire against the Borrower or
any Guarantor by way of subrogation, reimbursement, contribution or setoff by
virtue of any payment made pursuant to the terms hereof or otherwise and any
claim, right or remedy which such Guarantor may now have or hereafter acquire
against the Borrower or any Guarantor that arises from the existence or
performance by such Guarantor of its obligations hereunder, including any claim,
right or remedy of the Administrative Agent or any Secured Creditor against the
Borrower or any security which the Administrative Agent or any Secured Creditor
now have or hereafter acquire, whether or not such claim, right or remedy arises
in equity, under contract, by statute, under color of law or otherwise. If any
amount shall be paid to any Guarantor on account of such subrogation,
reimbursement, contribution, setoff or other rights at any time when all the
Obligations shall not have been paid in full, all the Commitments terminated,
all Letters of Credit terminated or expired and all Acceptances matured, such
amount shall be held by such Guarantor in trust for the benefit of the
Administrative Agent and the Secured Creditors, segregated from other funds of
such Guarantor, and shall, forthwith upon receipt by such
<PAGE>
5
Guarantor, be turned over to the Administrative Agent in the exact form received
by such Guarantor (duly indorsed by such Guarantor to the Administrative Agent,
if required) to be (after payment of any amounts payable to the Administrative
Agent pursuant to Section 11.4 and 11.5 of the Credit Agreement) applied by the
Administrative Agent for the ratable benefit of the Secured Creditors in the
following order: first, against Obligations consisting of unpaid and outstanding
interest on the Loans, second, ratably against Obligations consisting of unpaid
and outstanding principal of the Loans, Obligations then due and owing under all
outstanding Swap Contracts and Obligations consisting of unreimbursed and owing
Special Facility Obligations and other similar obligations, third, to
collateralize Obligations consisting of Special Facility Obligations and other
similar obligations, and fourth, against any other remaining Obligations. The
Administrative Agent may assume that no Obligations are outstanding with respect
to Swap Contracts unless it has received written notice thereof in accordance
with this Guaranty prior to any such application by it, and if so notified may
rely upon and deal with the Secured Creditor party to such Swap Contract as to
Obligations thereunder. Any surplus of such cash or cash proceeds held by the
Administrative Agent and remaining after payment in full of all the Obligations
(other than indemnities, costs and expenses that survive termination of a Loan
Document but as to which demand for payment has not then been made), the
termination of all Commitments, the termination or expiration of all Letters of
Credit and the maturity of all Acceptances shall be paid over to the Borrower or
to any other Person notified in writing to the Administrative Agent that may be
lawfully entitled to receive such surplus.
6. Amendments, etc. with Respect to the Obligations; Waiver of Rights.
Each Guarantor shall remain obligated hereunder notwithstanding that, without
any reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Obligations made
by the Administrative Agent or any Secured Creditor may be rescinded by such
party and any of the Obligations continued, and the Obligations, or the
liability of any other party upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Administrative
Agent or any Secured Creditor, and the Credit Agreement and the other Loan
Documents and any other documents executed and delivered in connection therewith
and the Swap Contracts and any other documents executed and delivered in
connection therewith may be amended, modified, supplemented or terminated, in
whole or in part, as the Administrative Agent (or the Majority Lenders, as the
case may be, or in the case of any Swap Contract, the Secured Creditor party
thereto) may deem advisable from time to time, and any collateral security,
guarantee or right of offset at any time held by the Administrative Agent or any
Secured Creditor for the payment of the Obligations may be sold, exchanged,
waived, surrendered or released. Neither the Administrative Agent nor any
Secured Creditor shall have any obligation to protect, secure, perfect or insure
any Lien at any time held by it as security for the Obligations or for this
Guaranty or any property subject thereto. When making any demand hereunder
against any of the Guarantors, the Administrative Agent or any Secured Creditor
may, but shall be under no obligation to, make a similar demand on the Borrower
or any other Guarantor or guarantor, and any failure by the Administrative Agent
or any Secured Creditor to make any such demand or to collect any payments from
the Borrower or any such other Guarantor or
<PAGE>
6
guarantor or any release of the Borrower or such other Guarantor or guarantor
shall not relieve any of the Guarantors in respect of which a demand or
collection is not made or any of the Guarantors not so released of their several
obligations or liabilities hereunder, and shall not impair or affect the rights
and remedies, express or implied, or as a matter of law, of the Administrative
Agent or any Secured Creditor against any of the Guarantors. For the purposes
hereof "demand" shall include the commencement and continuance of any legal
proceedings.
7. Guaranty Absolute and Unconditional. Each Guarantor waives any and all
notice of the creation, renewal, extension or accrual of any of the Obligations
and notice of or proof of reliance by the Administrative Agent or any Secured
Creditor upon this Guaranty or acceptance of this Guaranty; the Obligations (and
any of them) shall conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance upon this
Guaranty; and all dealings between the Borrower and any of the Guarantors, on
the one hand, and the Administrative Agent and the Secured Creditors, on the
other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon this Guaranty. Each Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Borrower or any of the Guarantors with respect to the Obligations.
Each Guarantor understands and agrees that this Guaranty shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to
(a) the genuineness, legality, validity, regularity or enforceability of the
Credit Agreement, any other Loan Document or any Swap Contract, any of the
Obligations or any other collateral security therefor or guarantee or right of
offset with respect thereto at any time or from time to time held by the
Administrative Agent or any Secured Creditor, (b) any defense, set-off or
counterclaim (other than a defense of payment or performance) that may at any
time be available to or be asserted by the Borrower against the Administrative
Agent or any Secured Creditor or (c) any other circumstance whatsoever (with or
without notice to or knowledge of the Borrower or such Guarantor) that
constitutes, or might be construed to constitute, an equitable or legal
discharge of the Borrower for the Obligations, or of such Guarantor under this
Guaranty, in bankruptcy or in any other instance. When pursuing its rights and
remedies hereunder against any Guarantor, the Administrative Agent and any
Secured Creditor may, but shall be under no obligation to, pursue such rights
and remedies as it may have against the Borrower or any other Person or against
any collateral security or guarantee for the Obligations or any right of offset
with respect thereto, and any failure by the Administrative Agent or any Secured
Creditor to pursue such other rights or remedies or to collect any payments from
the Borrower or any such other Person or to realize upon any such collateral
security or guarantee or to exercise any such right of offset, or any release of
the Borrower or any such other Person or any such collateral security, guarantee
or right of offset, shall not relieve such Guarantor of any liability hereunder,
and shall not impair or affect the rights and remedies, whether express, implied
or available as a matter of law, of the Administrative Agent and the Secured
Creditors against such Guarantor. This Guaranty shall remain in full force and
effect and be binding in accordance with and to the extent of its terms upon
each Guarantor and the successors and assigns thereof, and shall inure to the
benefit of the Administrative Agent and the Secured Creditors, and their
respective successors, endorsees, transferees and assigns, until all the
Obligations and the obligations of each Guarantor under this Guaranty shall have
been satisfied by payment in full, the
<PAGE>
7
Commitments are terminated, the Letters of Credit are terminated or expired and
the Acceptances are matured, notwithstanding that from time to time during the
term of the Credit Agreement and any Swap Contract the Borrower may be free from
any Obligations.
8. Reinstatement. This Guaranty shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Administrative Agent or any Secured Creditor in connection with an
Insolvency Proceeding of the Borrower or any Guarantor, including upon or as a
result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Borrower or any Guarantor or any substantial
part of its property, or otherwise, all as though such payments had not been
made.
9. Payments. Each Guarantor hereby guarantees that payments hereunder will
be paid to the Administrative Agent without set-off or counterclaim in Dollars
at the office of the Administrative Agent set forth in Schedule 11.2 to the
Credit Agreement.
10. Representations and Warranties; Covenants. (a) Each Guarantor hereby
represents and warrants that the representations and warranties set forth in
Article VI of the Credit Agreement as they relate to such Guarantor or the Loan
Documents, if any, to which such Guarantor is a party, each of which is hereby
incorporated herein by reference, are true and correct, and the Administrative
Agent and each Secured Creditor shall be entitled to rely on each of them as if
they were fully set forth herein.
(b) Each Guarantor hereby covenants and agrees with the Administrative
Agent and each Secured Creditor that, from and after the date of this Guaranty
until the Obligations are paid in full, the Commitments are terminated, the
Letters of Credit are terminated or expired and the Acceptances are matured,
such Guarantor shall take, or shall refrain from taking, as the case may be, all
actions that are necessary to be taken or not taken so that no violation of any
provision, covenant or agreement contained in Article VII or VIII of the Credit
Agreement, and so that no Default or Event of Default, is caused by any act or
failure to act of such Guarantor or any of its Subsidiaries.
11. Authority of Agent. Each Guarantor acknowledges that the rights and
responsibilities of the Administrative Agent under this Guaranty with respect to
any action taken by the Administrative Agent or the exercise or non-exercise by
the Administrative Agent of any option, right, request, judgment or other right
or remedy provided for herein or resulting or arising out of this Guaranty
shall, as between the Administrative Agent and the Secured Creditors, be
governed by the Credit Agreement and by such other agreements with respect
thereto as may exist from time to time among them, but, as between the
Administrative Agent and such Guarantor, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Secured Creditors with full
and valid authority so to act or refrain from acting, and no Guarantor shall be
under any obligation, or entitlement, to make any inquiry respecting such
authority.
12. Notices. All notices, requests and demands pursuant hereto shall be
made in accordance with Section 11.2 of the Credit Agreement, provided that any
such notice, request
<PAGE>
8
or demand to or upon any Guarantor shall be addressed to such Guarantor in care
of the Borrower in accordance with such Section.
13. Additional Guarantors. Upon the execution and delivery by any other
Person of an instrument in the form of Annex I hereto, such Person shall become
a "Guarantor" hereunder with the same force and effect as if originally named as
a Guarantor herein. The execution and delivery of any such instrument shall not
require the consent of any other Guarantor hereunder. The rights and obligations
of each Guarantor hereunder shall remain in full force and effect
notwithstanding the addition of any new Guarantor as a party to this Guaranty.
14. Counterparts. This Guaranty may be executed in any number of separate
counterparts, each of which, when so executed, shall be deemed an original, and
all of said counterparts taken together shall be deemed to constitute but one
and the same instrument. A set of the counterparts of this Guaranty signed by
all the Guarantors shall be lodged with the Administrative Agent.
15. Severability. Any provision of this Guaranty that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
16. Integration; Loan Document. This Guaranty represents the agreement of
each Guarantor with respect to the subject matter hereof and there are no
promises or representations by the Administrative Agent or any Secured Creditor
relative to the subject matter hereof not reflected herein or, to the extent
expressly referred to herein, in the other Loan Documents. This Guaranty
constitutes a Loan Document.
17. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of the
terms or provisions of this Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the affected
Guarantor(s) and the Administrative Agent in accordance with Section 11.1 of the
Credit Agreement.
(b) Neither the Administrative Agent nor any Secured Creditor shall by any
act (except by a written instrument pursuant to Section 17(a)), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Administrative Agent or any Secured
Creditor, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Administrative Agent or
any Secured Creditor of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy that the Administrative Agent
or such Secured Creditor would otherwise have on any future occasion.
<PAGE>
9
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
18. Section Headings. The Section headings used in this Guaranty are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
19. Successors and Assigns. This Guaranty shall be binding upon the
successors and assigns of each Guarantor and shall inure to the benefit of the
Administrative Agent and the Secured Creditors and their successors and assigns,
except that no Guarantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Administrative Agent.
20. WAIVER OF JURY TRIAL. EACH GUARANTOR AND THE ADMINISTRATIVE AGENT (ON
ITS BEHALF AND ON BEHALF OF THE SECURED CREDITORS) HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
21. Submission to Jurisdiction; Waivers. Each Guarantor hereby irrevocably
and unconditionally:
(a) submits for itself and its property in any legal action or proceeding
relating to this Guaranty or any other Loan Document, or for recognition and
enforcement of any judgement in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate courts
from any thereof.
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to such Guarantor in care
of the Borrower at the Borrower's address referred to in Section 11.2 of the
Credit Agreement or at such other address of which the Administrative Agent
shall have been notified pursuant to Section 11.2 of the Credit Agreement;
(d) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue in
any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it may
have to claim or recover in any legal action or proceeding referred to in this
Section any special, exemplary, punitive or consequential damages.
<PAGE>
10
22. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
11
IN WITNESS WHEREOF, each of the undersigned has caused this Guaranty to be
duly executed and delivered by its duly authorized officer as of the day and
year first above written.
SPALDING & EVENFLO COMPANIES,
INC., a Delaware corporation
By /s/ W. Michael Kipphut
--------------------------------------
Name: W. Michael Kipphut
Title: Treasurer and Vice President
EVENFLO COMPANY, INC., a Delaware
corporation
By /s/ W. Michael Kipphut
--------------------------------------
Name: W. Michael Kipphut
Title: Treasurer and Vice President
ETONIC WORLDWIDE CORPORATION,
a Delaware corporation
By /s/ W. Michael Kipphut
--------------------------------------
Name: W. Michael Kipphut
Title: Treasurer
S&E FINANCE CO., INC., a Delaware
corporation
By /s/ Paul L. Whiting
--------------------------------------
Name: Paul L. Whiting
Title: President and CEO
<PAGE>
12
LISCO, INC., a Delaware corporation
By /s/ W. Michael Kipphut
--------------------------------------
Name: W. Michael Kipphut
Title: Treasurer and Vice President
LISCO SPORTS, INC., a Delaware
corporation
By /s/ W. Michael Kipphut
--------------------------------------
Name: W. Michael Kipphut
Title: Treasurer and Vice President
LISCO FEEDING, INC., a Delaware
corporation
By /s/ W. Michael Kipphut
--------------------------------------
Name: W. Michael Kipphut
Title: Treasurer and Vice President
LISCO FURNITURE, INC., a Delaware
corporation
By /s/ W. Michael Kipphut
--------------------------------------
Name: W. Michael Kipphut
Title: Treasurer and Vice President
EWW LISCO, INC., a Delaware
corporation
By /s/ W. Michael Kipphut
--------------------------------------
Name: W. Michael Kipphut
Title: Treasurer and Vice President
<PAGE>
13
ACCEPTED BY:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
By /s/ Eugene F. Martin
---------------------------------
Name: Eugene F. Martin
Title: Vice President
<PAGE>
ANNEX I to
Guaranty
SUPPLEMENT NO. ___ dated as of _____________ ___,
_____ (this "Supplement"), to the Guaranty, dated as of
September 30, 1996 (as amended, supplemented, or otherwise
modified, from time to time, the "Guaranty"), among the
initial signatories thereto and each other Person which from
time to time thereafter became a party thereto pursuant to
Section 13 thereof (each, individually, a "Guarantor", and,
collectively, the "Guarantors"), in favor of Bank of America
National Trust and Savings Association, as Administrative
Agent (in such capacity, the "Administrative Agent") for the
ratable benefit of the Secured Creditors (as defined in the
Guaranty).
W I T N E S S E T H:
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Guaranty;
WHEREAS, the Guaranty provides that additional parties may become
Guarantors under the Guaranty by execution and delivery of an instrument in the
form of this Supplement;
WHEREAS, pursuant to the provisions of Section 13 of the Guaranty, the
undersigned is becoming an Additional Guarantor under the Guaranty; and
WHEREAS, the undersigned desires to become a Guarantor under the Guaranty
in order to induce the Lenders to continue to make and maintain Credit
Extensions under the Credit Agreement as consideration therefor;
NOW, THEREFORE, the undersigned agrees, for the benefit of the
Administrative Agent and Secured Creditors, as follows:
1. In accordance with the Guaranty, the undersigned by its signature below
becomes a Guarantor under the Guaranty with the same force and effect as if it
were an original signatory thereto as a Guarantor and the undersigned hereby (a)
agrees to all the terms and provisions of the Guaranty applicable to it as a
Guarantor thereunder and (b) represents and warrants that the representations
and warranties made by it as a Guarantor thereunder are true and correct on and
as of the date hereof. In furtherance of the foregoing, each reference to a
"Guarantor" or an "Additional Guarantor" in the Guaranty shall be deemed to
include the undersigned.
<PAGE>
2
2. The undersigned hereby represents and warrants that this Supplement has
been duly authorized, executed and delivered by the undersigned and the Guaranty
constitutes a legal, valid and binding obligation of the undersigned,
enforceable against it in accordance with its terms.
3. In the event any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Guaranty shall not in any way be affected or impaired.
4. Without limiting the provisions of the Credit Agreement (or any other
Loan Document, including the Guaranty), the undersigned agrees to reimburse the
Administrative Agent for its reasonable out-of-pocket expenses in connection
with this Supplement, including reasonable attorneys' fees and expenses of the
Administrative Agent.
5. WITHOUT LIMITING THE EFFECT OF SECTION 20 OF THE GUARANTY, THE
UNDERSIGNED AND THE ADMINISTRATIVE AGENT (ON ITS BEHALF AND ON BEHALF OF THE
SECURED CREDITORS) HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS SUPPLEMENT, THE GUARANTY OR ANY
OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
6. Without limiting the effect of Section 21 of the Guaranty, the
undersigned hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or proceeding
relating to this Supplement, the Guaranty or any other Loan Document, or for
recognition and enforcement of any judgement in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts from any thereof.
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the undersigned in care
of the Borrower at the Borrower's address referred to in Section 11.2 of the
Credit Agreement or at such other address of which the Administrative Agent
shall have been notified pursuant to Section 11.2 of the Credit Agreement;
(d) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue in
any other jurisdiction; and
<PAGE>
3
(e) waives, to the maximum extent not prohibited by law, any right it may
have to claim or recover in any legal action or proceeding referred to in this
Section any special, exemplary, punitive or consequential damages.
7. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
8. This Supplement hereby incorporates by reference the provisions of the
Guaranty, which provisions are deemed to be a part hereof, and this Supplement
shall be deemed to be a part of the Guaranty.
9. This Supplement is a Loan Document executed pursuant to the Credit
Agreement and the Guaranty.
<PAGE>
4
IN WITNESS WHEREOF, the undersigned has duly executed this Supplement to
the Supplement as of the day and year first above written.
[NAME OF ADDITIONAL
GUARANTOR]
By_____________________________
Name:
Title:
ACCEPTED BY:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
By________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.3
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of September 30, 1996, by E&S HOLDINGS
CORPORATION, a Delaware corporation (the "Borrower"), in favor of BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BofA"), as administrative agent
(in such capacity, the "Administrative Agent") for the various financial
institutions (the "Lenders") from time to time parties to the Credit Agreement,
dated as of September 30, 1996 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among the Borrower, the Lenders,
BofA, as Swing Line Lender, as Fronting Lender and as Administrative Agent for
the Lenders, together with Merrill Lynch Capital Corporation, as Documentation
Agent for the Lenders, Nationsbank, N.A. (South), as Syndication Agent for the
Lenders, and the several financial institutions specifically identified as
Co-Agents on the signature pages thereof, for the ratable benefit of the Secured
Creditors (as defined below).
W I T N E S S E T H:
WHEREAS, (a) pursuant to the Credit Agreement, the Lenders have severally
agreed to make Credit Extensions (such capitalized term, and other capitalized
terms used in these recitals, to have the meanings set forth, or defined by
reference, in Section 1) to the Borrower upon the terms of and subject to the
conditions set forth therein and (b) one or more Lenders (including those of its
Affiliates that have appointed the Administrative Agent to act on such
Affiliate's behalf hereunder on terms substantially similar to those set forth
in Article X of the Credit Agreement, including the provisions relating to
exculpation and indemnification therein) may from time to time enter into Swap
Contracts with the Borrower (such Affiliates, together with such Lenders, being
referred to herein as "Secured Creditors");
WHEREAS, it is a condition precedent to the obligation of the Lenders to
make their respective Credit Extensions to the Borrower under the Credit
Agreement that the Borrower shall have executed and delivered this Pledge
Agreement to the Administrative Agent for the ratable benefit of the Secured
Creditors; and
WHEREAS, the Borrower is the legal and beneficial owner of the shares of
stock (the "Pledged Shares") described on Schedule I hereto (as the same may be
supplemented from time to time in accordance with the requirements of the Credit
Agreement) and issued by the corporations named therein, which Pledged Shares
constitute the percentage of all the issued and outstanding shares of capital
stock of such corporations identified on such Schedule I;
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement and the
Secured Creditors to enter into Swap Contracts with the Borrower, the Borrower
hereby agrees with the Administrative Agent, for the ratable benefit of the
Secured Creditors, as follows:
<PAGE>
2
1. Defined Terms. (a) Unless otherwise defined herein, terms defined in
the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
(b) "Obligations" means, collectively, (i) the unpaid principal of and
interest on the Loans and all other obligations and liabilities of the Borrower
to the Administrative Agent or any Lender (including interest accruing at the
then-applicable rate provided in the Credit Agreement after the maturity of the
Loans and interest accruing at the then-applicable rate provided in the Credit
Agreement after, or which would have accrued but for, the filing or commencement
of, or which would have accrued but for the filing or commencement of, any
Insolvency Proceeding, relating to the Borrower, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding), whether
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter incurred, that may arise under, out of, or in connection with, the
Credit Agreement, the other Loan Documents, the Letters of Credit, the
Acceptances or any other document made, delivered or given in connection
therewith, whether on account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses or otherwise (including all reasonable fees
and other charges of counsel to the Administrative Agent or to the Lenders that
are required to be paid by the Borrower pursuant to the terms of the Credit
Agreement or any other Loan Document) and (ii) all obligations and liabilities
of the Borrower to any Secured Creditor, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter incurred, that may
arise under, out of, or in connection with, any Swap Contract or any other
document made, delivered or given in connection therewith.
(c) "Pledge Agreement" means this Pledge Agreement, as amended, amended
and restated, supplemented or otherwise modified from time to time.
(d) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Pledge Agreement shall refer to this Pledge Agreement
as a whole and not to any particular provision of this Pledge Agreement, and
Section references are to Sections of this Pledge Agreement unless otherwise
specified. The word "including" is not limiting and means "including without
limitation".
(e) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
2. Grant of Security. The Borrower hereby transfers, assigns and pledges
to the Administrative Agent for the ratable benefit of the Secured Creditors,
and hereby grants to the Administrative Agent for the ratable benefit of the
Secured Creditors, a security interest in, the following, whether now owned or
existing or hereafter acquired or existing (collectively, the "Collateral"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares, any other issued and outstanding shares of the "issuers" listed on
Schedule I, and any interest of the Borrower in the entries on the books of any
financial intermediary pertaining to the Pledged Shares or any such other
shares, and all dividends, cash, warrants, rights, instruments and
<PAGE>
3
other property or proceeds from time to time received, receivable or otherwise
distributed in respect or of in exchange for any or all of the Pledged Shares
and any such other shares; and
(b) to the extent not covered by clause (a) above all proceeds of any or
all of the foregoing Collateral. For purposes of this Pledge Agreement, the term
"proceeds" includes whatever is receivable or received when Collateral or
proceeds are sold, exchanged, collected or otherwise disposed of, whether such
disposition is voluntary or involuntary, and includes, without limitation,
proceeds of any indemnity or guaranty payable to the Borrower or the
Administrative Agent from time to time with respect to any of the Collateral.
3. Security for Obligations. This Pledge Agreement secures the payment of
all Obligations of the Borrower. Without limiting the generality of the
foregoing, this Pledge Agreement secures the payment of all amounts that
constitute part of the Obligations and would be owed by the Borrower to the
Administrative Agent or the Secured Creditors under the Loan Documents and any
Swap Contracts but for the fact that they are unenforceable or not allowable due
to the existence of an Insolvency Proceeding involving the Borrower.
4. Delivery of the Collateral. All certificates or instruments, if any,
representing or evidencing the Collateral shall be promptly delivered to and
held by or on behalf of the Administrative Agent pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
undated instruments of transfer or assignment in blank, all in form and
substance reasonably satisfactory to the Administrative Agent. The
Administrative Agent shall have the right, at any time after the occurrence and
during the continuance of an Event of Default and without notice to the
Borrower, to transfer to or to register in the name of the Administrative Agent
or any of its nominees any or all of the Pledged Shares.
5. Representations and Warranties. The Borrower represents and warrants as
follows:
(a) The Pledged Shares set forth on Schedule I hereto represent on the
date hereof the percentage of all the issued and outstanding capital stock of
each direct Subsidiary of the Borrower as identified on such Schedule I.
(b) The Borrower is the legal and beneficial owner of the Collateral, as
indicated on Schedule I, pledged or assigned by the Borrower hereunder free and
clear of any Lien, except for the lien and security interest created by this
Pledge Agreement or liens permitted under Section 8.
(c) As of the date of this Pledge Agreement, the Pledged Shares pledged by
the Borrower hereunder have been duly authorized and validly issued and are
fully paid and non-assessable.
(d) The execution and delivery by the Borrower of this Pledge Agreement
and the pledge of the Collateral pledged by the Borrower hereunder pursuant
hereto create a valid and perfected first priority security interest in the
Collateral, securing the payment of the Obligations.
<PAGE>
4
(e) The Borrower has full power, authority and legal right to pledge all
the Collateral pledged by the Borrower pursuant to this Pledge Agreement and
will defend its and the Administrative Agent's title or interest thereto or
therein (and in the proceeds thereof) against any and all Liens (other than the
Lien of this Pledge Agreement), however arising, and all persons whomsoever.
(f) The Borrower has furnished to the Administrative Agent true and
complete copies as of the date hereof of the charter and/or other organizational
documents of, and the bylaws of, each Subsidiary any of the shares of capital
stock of which constitute Pledged Shares, and the Borrower is not a party as of
the date hereof to any shareholder agreement or other arrangement affecting the
voting rights of any capital stock of any such Subsidiary.
6. Further Assurances. The Borrower agrees that at any time and from time
to time, at the expense of the Borrower, it will promptly execute and deliver
all further instruments and documents, and take all further action, that may be
necessary, or that the Administrative Agent may reasonably request, in order to
perfect and protect any pledge, assignment or security interest granted or
purported to be granted hereby or to enable the Administrative Agent to exercise
and enforce its rights and remedies hereunder with respect to any Collateral.
7. Voting Rights; Dividends and Distributions; Etc. (a) So long as no
Event of Default shall have occurred and be continuing:
(i) The Borrower shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Collateral or any part thereof for
any purpose not prohibited by the terms of this Pledge Agreement or the other
Loan Documents.
(ii) The Administrative Agent shall execute and deliver (or cause to
be executed and delivered) to the Borrower (at the Borrower's expense) all such
proxies and other instruments as the Borrower may reasonably request for the
purpose of enabling the Borrower to exercise the voting and other rights that it
is entitled to exercise pursuant to paragraph (i) above.
(b) Subject to paragraph (c) below, the Borrower shall be entitled to
receive and retain and use, free and clear of the Lien of this Pledge Agreement,
any and all dividends, distributions and interest paid in respect of the
Collateral; provided, however, that any and all dividends and other
distributions in equity securities included in the Collateral shall be, and
shall be forthwith delivered to the Administrative Agent to hold as, Collateral
and shall, if received by the Borrower, be received in trust for the benefit of
the Administrative Agent, be segregated from the other property or funds of the
Borrower and be forthwith delivered to the Administrative Agent as Collateral in
the same form as so received (with any necessary endorsement).
(c) Upon written notice to the Borrower by the Administrative Agent
following the occurrence and during the continuance of an Event of Default:
<PAGE>
5
(i) all rights of the Borrower to exercise or refrain from
exercising the voting and other consensual rights that it would otherwise be
entitled to exercise pursuant to Section 7(a)(i) shall cease, and all such
rights shall thereupon become vested in the Administrative Agent, which shall
thereupon have the sole right to exercise or refrain from exercising such voting
and other consensual rights during the continuance of such Event of Default;
(ii) all rights of the Borrower to receive the dividends,
distributions, principal and interest payments that the Borrower would otherwise
be authorized to receive and retain pursuant to Section 7(b) shall cease, and
all such rights shall thereupon become vested in the Administrative Agent, which
shall thereupon have the sole right to receive and hold as Collateral such
dividends and interest payments during the continuance of such Event of Default;
(iii) all dividends, principal and interest payments that are
received by the Borrower contrary to the provisions of Section 7(b) shall be
received in trust for the benefit of the Administrative Agent, shall be
segregated from other funds of the Borrower and shall forthwith be paid over to
the Administrative Agent as Collateral in the same form as so received (with any
necessary endorsements); and
(iv) in order to permit the Administrative Agent to receive all
dividends and other distributions to which it may be entitled under Section
7(b), to exercise the voting and other consensual rights that it may be entitled
to exercise pursuant to Section 7(c)(i), and to receive all dividends,
distributions, principal and interest payments and other distributions that it
may be entitled to receive under Section 7(c)(ii), the Borrower shall, if
necessary, upon written notice from the Administrative Agent, from time to time
execute and deliver to the Administrative Agent, appropriate proxies, dividend
payment orders and other instruments as the Administrative Agent may reasonably
request.
8. Transfers and Other Liens; Additional Collateral; Documents; Etc. The
Borrower shall:
(a) not (i) except as permitted by the Credit Agreement, sell or otherwise
dispose of, or grant any option or warrant with respect to, any of the
Collateral or (ii) create or suffer to exist any consensual Lien upon or with
respect to any of the Collateral, except for the Lien under this Pledge
Agreement, provided that in the event the Borrower sells assets permitted by the
Credit Agreement in accordance with the terms of the Credit Agreement and such
assets are or include Collateral, the Administrative Agent shall (at the expense
of the Borrower) release such Collateral to the Borrower free and clear of the
lien and security interest under this Pledge Agreement concurrently with the
consummation of such sale;
(b) (i) except as may be permitted by the Credit Agreement, cause each
issuer of Pledged Shares not to issue any stock or other securities in
substitution for the Pledged Shares issued by such issuer, except to the
Borrower, (ii) pledge hereunder, immediately upon the issuance thereof, any and
all additional shares of stock or other securities of each such issuer of
Pledged Shares and (iii) not permit the issuance of any additional shares of
stock of such
<PAGE>
6
issuer unless permitted by the Credit Agreement and, if so permitted, any
proceeds thereof required to be applied under the Credit Agreement are so
applied in accordance therewith or, if any such additional shares are issued to
the Borrower, such additional shares are immediately pledged hereunder upon the
issuance thereof; and
(c) not amend, supplement or otherwise modify, and shall not permit the
amendment, supplementation or other modification of, the charter or other
organizational documents or the bylaws of any Subsidiary any of the capital
stock of which constitute Pledged Shares in any respect that would be materially
adverse to the interests or position of the Administrative Agent or the Secured
Creditors hereunder or in connection herewith, and shall not, and shall not
permit any Subsidiary any of the capital stock of which constitutes Pledged
Shares to, enter into or agree to any shareholder or other agreement that would
be materially adverse to the interests or position of the Administrative Agent
or the Secured Creditors hereunder or in connection herewith;
provided, however, that, notwithstanding any provision to the contrary contained
herein or in any other Loan Document, the Borrower shall, at all times during
the period from the date hereof until the payment in full in cash of the
Obligations, the termination of all Commitments, the termination or expiration
of all Letters of Credit and Swap Contracts and the maturing of all Acceptances,
have pledged to the Administrative Agent for the ratable benefit of the Secured
Creditors pursuant to the terms of this Pledge Agreement all of the outstanding
shares of the capital stock of each direct Restricted Subsidiary of the
Borrower, provided that, in the event such Subsidiary is a Foreign Subsidiary,
the Borrower shall not be required to have so pledged to the Administrative
Agent more than 65% of the outstanding shares of the capital stock of such
Subsidiary.
9. Administrative Agent Appointed Attorney-in-Fact. The Borrower hereby
irrevocably appoints the Administrative Agent as the Borrower's
attorney-in-fact, with full authority in the place and stead of the Borrower and
in the name of the Borrower or otherwise to take any action and to execute any
instrument, in each case after the occurrence and during the continuance of an
Event of Default, that the Administrative Agent may deem reasonably necessary or
advisable to accomplish the purposes of this Pledge Agreement, including to
receive, endorse and collect all instruments made payable to the Borrower
representing any dividend, interest payment or other distribution in respect of
the Collateral or any part thereof and to give full discharge for the same and
otherwise to collect on any Collateral or enforce the rights of the
Administrative Agent with respect thereto. The Borrower hereby acknowledges,
consents and agrees that this power of attorney is irrevocable and coupled with
an interest.
10. The Administrative Agent's Duties. The powers conferred on the
Administrative Agent hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Administrative
Agent shall have no duty as to any Collateral, as to ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relative to any Pledged Shares, whether or not the Administrative
Agent or any Secured
<PAGE>
7
Creditor has or is deemed to have knowledge of such matters, or as to the taking
of any necessary steps to preserve rights against any parties or any other
rights pertaining to any Collateral. The Administrative Agent shall be deemed to
have exercised reasonable care in the custody and preservation of any Collateral
in its possession if such Collateral is accorded treatment substantially equal
to that which the Administrative Agent accords its own property or if the
Administrative Agent decides to take any action for such purpose that has been
requested by the Borrower (it being understood and agreed that the failure of
the Administrative Agent to comply with any such request at any time shall not
in itself be deemed a failure to exercise reasonable care and that the
Administrative Agent is not obligated to comply with any such request unless
otherwise required to do so hereunder or under the Credit Agreement).
11. Remedies. If any Event of Default shall have occurred and be
continuing:
(a) The Administrative Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured creditor upon default under the
Uniform Commercial Code in effect in the State of New York at such time (the
"UCC") and also may without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any exchange broker's board or at any of the Administrative Agent's offices
or elsewhere, for cash, on credit or for future delivery, at such price or
prices and upon such other terms as are commercially reasonable irrespective of
the impact of any such sales on the market price of the Collateral. Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of the Borrower, and the Borrower hereby waives (to
the extent permitted by law) all rights of redemption, stay and/or appraisal
which it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. The Borrower agrees that, to the
extent notice of sale shall be required by law, at least ten days' notice to the
Borrower of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. The
Administrative Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Administrative Agent may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. To the extent permitted by law,
the Borrower hereby waives any claim against the Administrative Agent arising by
reason of the fact that the price at which any Collateral may have been sold at
such a private sale was less than the price that might have been obtained at a
public sale, even if the Administrative Agent accepts the first offer received
and does not offer such Collateral to more than one offeree.
(b) All cash proceeds received by the Administrative Agent in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral shall be applied (after payment of any amounts payable to the
Administrative Agent pursuant to Section 11.4 and 11.5 of the Credit Agreement)
by the Administrative Agent for the ratable benefit of the Secured Creditors in
the following order: first, against Obligations consisting of unpaid and
outstanding interest on the Loans, second, ratably against Obligations
consisting of unpaid and outstanding principal of the Loans, Obligations then
due and owing under all outstanding
<PAGE>
8
Swap Contracts and Obligations consisting of unreimbursed and owing Special
Facility Obligations and other similar obligations, third, to collateralize
Obligations consisting of Special Facility Obligations and other similar
obligations, and fourth, against any other remaining Obligations. The
Administrative Agent may assume that no Obligations are outstanding with respect
to Swap Contracts unless it has received written notice thereof in accordance
with this Pledge Agreement prior to any such application by it, and if so
notified may rely upon and deal with the Secured Creditor party to such Swap
Contract as to Obligations thereunder. Any surplus of such cash or cash proceeds
held by the Administrative Agent and remaining after payment in full of all the
Obligations (other than indemnities, costs and expenses that survive termination
of a Loan Document but as to which demand for payment has not then been made),
the termination of all Commitments, the termination or expiration of all Letters
of Credit and the maturity of all Acceptances shall be paid over to the Borrower
or to any other Person notified in writing to the Administrative Agent that may
be lawfully entitled to receive such surplus.
(c) The Administrative Agent may exercise any and all rights and remedies
of the Borrower in respect of the Collateral.
(d) All payments received by the Borrower after the occurrence and during
the continuance of an Event of Default in respect of the Collateral shall be
received in trust for the benefit of the Administrative Agent, shall be
segregated from other funds of the Borrower and, upon written notice to the
Borrower from the Administrative Agent, shall be forthwith paid over to the
Administrative Agent in the same form as so received (with any necessary
endorsement).
(e) The Borrower shall remain liable to the extent of any deficiency.
(f) The Borrower agrees that in any sale of any of the Collateral in the
exercise of remedies hereunder whenever an Event of Default shall have occurred
and be continuing, the Administrative Agent is hereby authorized to comply with
any limitation or restriction in connection with such sale as it may be advised
by counsel is reasonably necessary in order to avoid any violation of applicable
law (including compliance with such procedures as may restrict the number of
prospective bidders and purchasers, require that such prospective bidders and
purchasers have certain qualifications, and restrict such prospective bidders
and purchasers to persons who will represent and agree that they are purchasing
for their own account for investment and not with a view to the distribution or
resale of such Collateral), or in order to obtain any required approval of the
sale or of the purchaser by any governmental regulatory authority or official,
and the Borrower further agrees that such compliance shall not result in such
sale being considered or deemed not to have been made in a commercially
reasonable manner, nor shall the Administrative Agent be liable nor accountable
to the Borrower for any discount allowed by reason of the fact that such
Collateral is sold in compliance with any such limitation or restriction.
12. Amendments, etc. with Respect to the Obligations; Waiver of Rights.
The Borrower shall remain obligated hereunder notwithstanding that, without any
reservation of rights against the Borrower and without notice to or further
assent by the Borrower, any
<PAGE>
9
demand for payment of any of the Obligations made by the Administrative Agent or
any Secured Creditor may be rescinded by such party and any of the Obligations
continued, and the Obligations, or the liability of any other party upon or for
any part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Administrative Agent or any Secured Creditor, and
the Credit Agreement and the other Loan Documents and any other documents
executed and delivered in connection therewith and the Swap Contracts and any
other documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Administrative
Agent (or the required Lenders under the terms of the Credit Agreement, as the
case may be, or, in the case of any Swap Contracts, the Secured Creditor party
thereto) may deem advisable from time to time (in accordance with the Credit
Agreement or such Swap Contract, as applicable), and any collateral security,
guarantee or right of offset at any time held by the Administrative Agent or any
Secured Creditor for the payment of the Obligations may be sold, exchanged,
waived, surrendered or released. Neither the Administrative Agent nor any
Secured Creditor shall have any obligation to protect, secure, perfect or insure
any Lien at any time held by it as security for the Obligations or for this
Pledge Agreement or any property subject thereto. When making any demand
hereunder against the Borrower, the Administrative Agent or any Secured Creditor
may, but shall be under no obligation to, make a similar demand on any other
pledgor, or any other provider of collateral or guarantor, and any failure by
the Administrative Agent or any Secured Creditor to make any such demand or to
collect any payments from the Borrower or any other pledgor, provider of
collateral or guarantor, and any release of the Borrower or any other pledgor,
provider of collateral or guarantor shall not relieve the Borrower of its
obligations or liabilities hereunder, and shall not impair or affect the rights
and remedies, express or implied, or as a matter of law, of the Administrative
Agent or any Secured Creditor against the Borrower. For the purposes hereof
"demand" shall include the commencement and continuance of any legal
proceedings.
13. Continuing Security Interest, Assignments Under the Credit Agreement.
This Pledge Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the payment in
full in cash of the Obligations (other than indemnities, costs and expenses that
survive termination of a Loan Document but as to which demand for payment has
not then been made), the termination of all Commitments, the termination or
expiration of all Letters of Credit and the maturing of all Acceptances,
notwithstanding that from time to time prior thereto the Borrower may be free
from any Obligations, (b) be binding upon the Borrower, its successors and
assigns and (c) inure, together with the rights and remedies of the
Administrative Agent hereunder, to the benefit of the Administrative Agent, the
Secured Creditors and their respective successors, transferees and assigns.
Without limiting the foregoing clause (c), any Secured Creditor may assign or
otherwise transfer (in whole or in part) any Note, Loan or other Obligation held
by it to any other Person, and such other Person shall thereupon become vested
with all the rights and benefits in respect thereof granted to such Secured
Creditor under any Loan Document (including this Pledge Agreement) or otherwise,
subject, however, to any contrary provisions in such
<PAGE>
10
assignment or transfer, and to the provisions of Section 11.8 and Article X of
the Credit Agreement.
14. Reinstatement. This Pledge Agreement shall continue to be effective,
or be reinstated, as the case may be, if at any time payment, or any part
thereof, of any of the Obligations is rescinded or must otherwise be restored or
returned by the Administrative Agent or any Secured Creditor upon the filing or
commencement of any Insolvency Proceeding in respect of the Borrower, or upon or
as a result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Borrower or any substantial part of its
property, or otherwise, all as though such payments had not been made.
15. Notices. All notices, requests and demands pursuant hereto shall be
made in accordance with Section 11.2 of the Credit Agreement.
16. Counterparts. This Pledge Agreement may be executed by the Borrower
and the Administrative Agent on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the counterparts of this Pledge Agreement signed by the
Borrower and the Administrative Agent shall be lodged with the Administrative
Agent and the Borrower.
17. Severability. Any provision of this Pledge Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
18. Integration; Loan Document. This Pledge Agreement represents the
entire agreement of the Borrower and the Administrative Agent with respect to
the subject matter hereof and there are no agreements relative to the subject
matter hereof not reflected herein or, to the extent expressly referred to
herein, in the other Loan Documents. This Pledge Agreement constitutes a Loan
Document and, as such, is subject to the provisions of Section 11.15 of the
Credit Agreement (Governing Law and Jurisdiction) and Section 11.16 of the
Credit Agreement (Waiver of Jury Trial).
19. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of the
terms or provisions of this Pledge Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Borrower and the Administrative Agent in accordance with Section 11.1 of the
Credit Agreement.
(b) Neither the Administrative Agent nor any Secured Creditor shall by any
act (except by a written instrument pursuant to Section 19(a)), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Administrative Agent or any Secured
Creditor, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall
<PAGE>
11
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Administrative Agent or any Secured
Creditor of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy that the Administrative Agent or such
Secured Creditor would otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
20. Section Headings. The Section headings used in this Pledge Agreement
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
21. Successors and Assigns. This Pledge Agreement shall be binding upon
the successors and assigns of the Borrower and shall inure to the benefit of the
Administrative Agent and the Secured Creditors and their successors and assigns,
except that the Borrower may not assign, transfer or delegate any of its rights
or obligations under this Pledge Agreement without the prior written consent of
the Administrative Agent.
22. Protection of Collateral. The Administrative Agent may from time to
time take any action which the Administrative Agent reasonably deems necessary
for the maintenance, preservation or protection of any of the Collateral or of
its security interest therein, and at any time after and during the continuance
of an Event of Default, the Administrative Agent may from time to time, at its
option and at the expense of the Borrower, perform any act which the Borrower
agrees hereunder to perform and which the Borrower shall fail to perform.
23. GOVERNING LAW. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
12
IN WITNESS WHEREOF, each of the undersigned has caused this Pledge
Agreement to be duly executed and delivered by its duly authorized officer as of
the day and year first above written.
E&S HOLDINGS CORPORATION
By /s/ W. Michael Kipphut
------------------------------------
Name: W. Michael Kipphut
Title: Treasurer and Vice President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION, as Administrative
Agent
By /s/ Eugene F. Martin
------------------------------------
Name: Eugene F. Libra
Title: Vice President
<PAGE>
13
SCHEDULE I
TO THE PLEDGE AGREEMENT
PLEDGED SHARES
Percentage
Class of Stock Number of
Stock/Par Certificate of Outstanding
Issuer Value No(s) Shares Shares
- ----------------------------- ----------- ----------- ------- -----------
Spalding & Evenflo Companies, Common C 2 190,000 100%
Inc. Stock/$1.00
<PAGE>
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of September 30, 1996 (the
"Agreement"), by and between E&S Holdings Corporation, a Delaware corporation
(the "Company") Strata Associates, L.P., a Delaware limited partnership ("Strata
Associates") and KKR Partners II, L.P., a Delaware limited partnership ("KKR
Partners II" and, together with Strata Associates, the "Common Stock
Partnerships").
RECITALS
WHEREAS, pursuant to a Recapitalization and Stock Purchase Agreement, dated
as of August 15, 1996 (the "Recapitalization Agreement"), among Abarco N.V
("Abarco"), the Company and Strata Associates, Strata Associates has agreed to
purchase $221 million of newly issued common stock of the Company subject to the
terms and conditions set forth in the Recapitalization Agreement; and
WHEREAS, pursuant to the Recapitalization Agreement, Strata Associates has
assigned a portion of its rights and obligations to KKR Partners II to purchase
newly issued common stock of the Company;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements contained in this Agreement, the parties agree as
follows:
1. Definitions. As used in this Agreement, the following capitalized terms
shall have the following respective meanings:
"Common Stock": the common stock, par value $.01 per share, of the
Company and its successors, including, without limitation, the common stock
of any company into which the Common Stock may be converted by merger,
consolidation or other similar transaction.
"Common or Common Equivalent Registrable Securities": Registrable
Securities which are (i) Common Stock or (ii) securities that are
convertible into or exchangeable or exercisable for Common Stock.
"Demand Party": (a) Strata Associates, (b) KKR Partners II or (c) any
other Holder or Holders, including, without limitation, any present or
future general or limited partner of either Common Stock Partnership, or
(c) any general or limited partner of any general or limited partner
thereof, that may become an assignee of such Common Stock Partnership's
rights hereunder; provided that to be a Demand Party under this clause (c),
a Holder or Holders must either individually or in aggregate with all other
Holders with whom it is acting together to demand registration own at least
1% of the total number of Registrable Securities.
"Exchange Act": The Securities Exchange Act of 1934, as amended, or
any similar federal statute then in effect, and a reference to a particular
section thereof
<PAGE>
shall be deemed to include a reference to the comparable section, if any,
of any such similar federal statute.
"Holder": Each Common Stock Partnership and any other holder of
Registrable Securities (including any direct or indirect transferees of the
Common Stock Partnership) who agrees in writing to be bound by the
provisions of this Agreement.
"Person": Any individual, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or
agency thereof.
"Registrable Securities": Any Common Stock acquired by a Common Stock
Partnership from the Company or any affiliate of the Company, whether as a
result of the purchase of Common Stock by a Common Stock Partnership or
upon the conversion of any convertible security or otherwise, and any
Common Stock or convertible security which may be issued or distributed in
respect thereof by way of stock dividend or stock split or other
distribution, recapitalization or reclassification. As to any particular
Registrable Securities, once issued, such Registrable Securities shall
cease to be Registrable Securities when (i) a registration statement with
respect to the sale by the Holder 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 distributed to the public pursuant to Rule 144
(or any successor provision) under the Securities Act, (iii) such
securities shall have been otherwise transferred, new certificates for such
securities not bearing a legend restricting further transfer shall have
been delivered by the Company and subsequent disposition of such securities
shall not require registration or qualification of such securities under
the Securities Act or any state securities or blue sky law then in force,
or (iv) such securities shall have ceased to be outstanding.
"Registration Expenses": Any and all expenses incident to performance
of or compliance with this Agreement, including, without limitation, (i)
all SEC and stock exchange or National Association of Securities Dealers,
Inc. (the "NASD") registration and filing fees (including, if applicable,
the fees and expenses of any "qualified independent underwriter," as such
term is defined in Schedule E to the By-laws of the NASD, and of its
counsel), (ii) all fees and expenses of complying with securities or blue
sky laws (including 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) all fees and
expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange pursuant to clause (viii) of Section
4 and all rating agency fees, (v) the fees and disbursements of counsel for
the Company and of its independent public accountants, including the
expenses of any special audits and/or "cold comfort" letters required by or
incident to such performance and compliance, (vi) the reasonable fees and
disbursements of counsel selected pursuant to Section 7 hereof by the
Holders of the Registrable Securities being registered to represent such
Holders in connection with each such registration, (vii) any fees and
disbursements of underwriters customarily paid by the
-2-
<PAGE>
issuers or sellers of securities, including liability insurance if the
Company so desires or if the underwriters so require, and the reasonable
fees and expenses of any special experts retained in connection with the
requested registration, but excluding underwriting discounts and
commissions and transfer taxes, if any, and (viii) other reasonable
out-of-pocket expenses of Holders (provided that such expenses shall not
include expenses of counsel other than those provided for in clause (vi)
above).
"Securities Act": The Securities Act of 1933, as amended, or any
similar federal statute then in effect, and a reference to a particular
section thereof shall be deemed to include a reference to the comparable
section, if any, of any such similar federal statute.
"SEC": The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act or the Exchange Act.
2. Incidental Registrations. (a) Right to Include Common or Common
Equivalent Registrable Securities. If the Company at any time after the date
hereof proposes to register its Common Stock (or any security which is
convertible into or exchangeable or exercisable for Common Stock) under the
Securities Act (other than a registration on Form S-4 or S-8, or any successor
or other forms promulgated for similar purposes), whether or not for sale for
its own account, in a manner which would permit registration of Common or Common
Equivalent Registrable Securities for sale to the public under the Securities
Act, it will, at each such time, give prompt written notice to all Holders of
Common or Common Equivalent Registrable Securities of its intention to do so and
of such Holders' rights under this Section 2. Upon the written request of any
such Holder made within 15 days after the receipt of any such notice (which
request shall specify the Common or Common Equivalent Registrable Securities
intended to be disposed of by such Holder), the Company will use its best
efforts to effect the registration under the Securities Act of all Common or
Common Equivalent Registrable Securities which the Company has been so requested
to register by the Holders thereof, to the extent requisite to permit the
disposition of the Common or Common Equivalent Registrable Securities so to be
registered; provided that (i) if, at any time after giving written notice of its
intention to register any securities 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 proceed with the proposed registration of
the securities to be sold by it, the Company may, at its election, give written
notice of such determination to each Holder of Common or Common Equivalent
Registrable Securities and, thereupon, shall be relieved of its obligation to
register any Common or Common Equivalent Registrable Securities in connection
with such registration (but not from its obligation to pay the Registration
Expenses in connection therewith), and (ii) if such registration involves an
underwritten offering, all Holders of Common or Common Equivalent Registrable
Securities requesting to be included in the Company's registration must sell
their Common or Common Equivalent Registrable Securities to the underwriters
selected by the Company on the same terms and conditions as apply to the
Company, with such differences, including any with respect to indemnification
and liability insurance, as may be customary or appropriate in combined primary
and secondary offerings. If a registration requested pursuant to this Section
2(a) involves an underwritten public offering, any Holder of Common or Common
-3-
<PAGE>
Equivalent Registrable Securities requesting to be included in such registration
may elect, in writing prior to the effective date of the registration statement
filed in connection with such registration, not to register such securities in
connection with such registration. Nothing in this Section 2(a) shall operate to
limit the right of Holder to (i) request the registration of Common Stock
issuable upon conversion or exercise of convertible securities held by such
Holder notwithstanding the fact that at the time of request such Holder holds
only convertible securities or (ii) request the registration at one time of both
Common Stock and securities convertible into Common Stock.
(b) Expenses. The Company will pay all Registration Expenses in connection
with each registration of Common or Common Equivalent Registrable Securities
requested pursuant to this Section 2.
(c) Priority in Incidental Registrations. If a registration pursuant to
this Section 2 involves an underwritten offering and the managing underwriter
advises the Company in writing that, in its opinion, the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering, so as to be likely to have an adverse effect on the
price, timing or distribution of the Securities offered in such offering as
contemplated by the Company (other than the Common or Common Equivalent
Registrable Securities), then the Company will include in such registration (i)
first, 100% of the securities the Company proposes to sell and (ii) second, to
the extent of the number of Common or Common Equivalent Registrable Securities
requested to be included in such registration which, in the opinion of such
managing underwriter, can be sold without having the adverse effect referred to
above, the number of Common or Common Equivalent Registrable Securities which
the Holders have requested to be included in such registration, such amount to
be allocated pro rata among all requesting Holders on the basis of the relative
number of shares of Common or Common Equivalent Registrable Securities then held
by each such Holder (provided that any shares thereby allocated to any such
Holder that exceed such Holder's request will be reallocated among the remaining
requesting Holders in like manner).
3. Registration on Request. (a) Request by the Demand Party. At any time,
upon the written request of the Demand Party requesting that the Company effect
the registration under the Securities Act of all or part of such Demand Party's
Registrable Securities and specifying the amount and intended method of
disposition thereof, the Company will promptly give written notice of such
requested registration to all other Holders of such Registrable Securities, and
thereupon will, as expeditiously as possible, use its best efforts to effect the
registration under the Securities Act of:
(i) such Registrable Securities (including, if such request relates to
a security which is convertible into shares of Common Stock, the shares of
Common Stock issuable upon such conversion) which the Company has been so
requested to register by the Demand Party; and
(ii) all other Registrable Securities of the same class or series as
are to be registered at the request of a Demand Party and which the Company
has been
-4-
<PAGE>
requested to register by any other Holder thereof by written request given
to the Company within 15 days after the giving of such written notice by
the Company (which request shall specify the amount and intended method of
disposition of such Registrable Securities),
all to the extent necessary to permit the disposition (in accordance with the
intended method thereof as aforesaid) of the Registrable Securities so to be
registered; provided, that with respect to any Demand Party other than the
Common Stock Partnership, the Company shall not be obligated to effect any
registration of Registrable Securities under this Section 3(a) unless such
Demand Party requests that the Company register at least 1% of the total number
of Registrable Securities; and provided, further, that, unless Holders of a
majority of the shares of Registrable Securities held by Holders consent thereto
in writing, the Company shall not be obligated to file a registration statement
relating to any registration request under this Section 3(a) (x) within a period
of nine months after the effective date of any other registration statement
relating to any registration request under this Section 3(a) which was not
effected on Form S-3 (or any successor or similar short-form registration
statement) or relating to any registration effected under Section 2, or (y) if
with respect thereto the managing underwriter, the SEC, the Securities Act or
the rules and regulations thereunder, or the form on which the registration
statement is to be filed, would require the conduct of an audit other than the
regular audit conducted by the Company at the end of its fiscal year, in which
case the filing may be delayed until the completion of such regular audit
(unless the Holders of the Registrable Securities to be registered agree to pay
the expenses of the Company in connection with such an audit other than the
regular audit). Nothing in this Section 3 shall operate to limit the right of
Holder to (i) request the registration of Common Stock issuable upon conversion
or exercise of convertible securities held by such Holder notwithstanding the
fact that at the time of request such Holder holds only convertible securities
or (ii) request the registration at one time of both Common Stock and securities
convertible into Common Stock.
(b) Registration Statement Form. If any registration requested pursuant to
this Section 3 which is proposed by the Company to be effected by the filing of
a registration statement on Form S-3 (or any successor or similar short-form
registration statement) shall be in connection with an underwritten public
offering, and if the managing underwriter shall advise the Company in writing
that, in its opinion, the use of another form of registration statement is of
material importance to the success of such proposed offering, then such
registration shall be effected on such other form.
(c) Expenses. The Company will pay all Registration Expenses in connection
with the first six (6) registrations of each class or series of Registrable
Securities pursuant to this Section 3 upon the written request of any of the
Holders, provided that, for purposes hereof, a request to register Common Stock
into which a convertible security is convertible in conjunction with a
registration of such convertible security shall be deemed to be one request for
registration of a class or series of Registrable Securities. All expenses for
any subsequent registrations of Registrable Securities pursuant to this Section
3 shall be paid pro rata by the Company and all other Persons (including the
Holders) participating in such registration on
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the basis of the relative number of shares of Common Stock of each such person
whose Registrable Securities are included in such registration.
(d) Effective Registration Statement. A registration requested pursuant to
this Section 3 will not be deemed to have been effected unless it has become
effective and all of the Registrable Securities registered thereunder have been
sold; provided that if, within 180 days after it has become effective, the
offering of Registrable Securities pursuant to such registration is interfered
with by any stop order, injunction or other order or requirement of the SEC or
other governmental agency or court, such registration will be deemed not to have
been effected.
(e) Selection of Underwriters. If a requested registration pursuant to this
Section 3 involves an underwritten offering, the Holders of a majority of the
shares of Registrable Securities which are held by Holders and which the Company
has been requested to register shall have the right to select the investment
banker or bankers and managers to administer the offering; provided, however,
that such investment banker or bankers and managers shall be reasonably
satisfactory to the Company.
(f) Priority in Requested Registrations. If a requested registration
pursuant to this Section 3 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
securities requested to be included in such registration (including securities
of the Company which are not Registrable Securities) exceeds the number which
can be sold in such offering, the Company will include in such registration only
the Registrable Securities requested to be included in such registration. In the
event that the number of Registrable Securities requested to be included in such
registration exceeds the number which, in the opinion of such managing
underwriter, can be sold, the number of such Registrable Securities to be
included in such registration shall be allocated pro rata among all requesting
Holders on the basis of the relative number of shares of Registrable Securities
then held by each such Holder (provided that any shares thereby allocated to any
such Holder that exceed such Holder's request shall be reallocated among the
remaining requesting Holders in like manner). In the event that the number of
Registrable Securities requested to be included in such registration is less
than the number which, in the opinion of the managing underwriter, can be sold,
the Company and the other holders who may have piggyback registration rights,
may include in such registration the securities they propose to sell up to the
number of securities that, in the opinion of the underwriter, can be sold.
(g) Additional Rights. If the Company at any time grants to any other
holders of Common Stock any rights to request the Company to effect the
registration under the Securities Act of any such shares of Common Stock on
terms more favorable to such holders than the terms set forth in this Section 3,
the terms of this Section 3 shall be deemed amended or supplemented to the
extent necessary to provide the Holders such more favorable rights and benefits.
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4. Registration Procedures. If and whenever the Company is required to use
its best efforts to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Agreement, the Company
will, as expeditiously as possible:
(i) prepare and, in any event within 120 days after the end of the
period within which a request for registration may be given to the Company,
file with the SEC a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective, provided, however, that the Company may discontinue any
registration of its securities which is being effected pursuant to Section
2 at any time prior to the effective date of the registration statement
relating thereto;
(ii) 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 a
period not in excess of 270 days and to comply with the provisions of the
Securities Act, the Exchange Act and the rules and regulations of the SEC
thereunder with respect to the disposition of all securities covered by
such registration statement during such period in accordance with the
intended methods of disposition by the seller or sellers thereof set forth
in such registration statement; provided that before filing a registration
statement or prospectus, or any amendments or supplements thereto, the
Company will furnish to counsel selected pursuant to Section 7 hereof by
the Holders of the Registrable Securities covered by such registration
statement to represent such Holders, copies of all documents proposed to be
filed, which documents will be subject to the review of such counsel;
(iii) furnish to each seller of such Registrable Securities such
number of copies of such registration statement and of each amendment and
supplement thereto (in each case including all exhibits filed therewith,
including any documents incorporated by reference), 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 in order to facilitate the disposition of the
Registrable Securities by such seller;
(iv) use its best efforts to register or qualify such Registrable
Securities covered by such registration in such jurisdictions as each
seller shall reasonably request, and do any and all other acts and things
which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the Registrable
Securities owned by such Seller, except that the Company shall not for any
such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction where, but for the requirements of this
clause (iv), it would not 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;
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(v) use its best efforts to cause such Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(vi) notify each seller of any such Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act within the appropriate
period mentioned in clause (ii) of this Section 4, of the Company's
becoming aware that the prospectus included in such registration statement,
as then in effect, 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
then existing, and at the request of any such seller, prepare and furnish
to such seller a reasonable number of copies of an amended or supplemental
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable (but not more than eighteen
months) after the effective date of the registration statement, an earnings
statement which shall satisfy the provisions of Section 11(a) of the
Securities Act and the rules and regulations promulgated thereunder;
(viii) (A) if such Registrable Securities are Common Stock (including
Common Stock issuable upon conversion of a convertible security), use its
best efforts to list such Registrable Securities on any securities exchange
on which the Common Stock is then listed if such Registrable Securities are
not already so listed and if such listing is then permitted under the rules
of such exchange; (B) if such Registrable Securities are convertible
securities, upon the reasonable request of sellers of a majority of shares
of such Registrable Securities, use its best efforts to list the
convertible securities and, if requested, the Common Stock underlying the
convertible securities, notwithstanding that at the time of request such
sellers hold only convertible securities, on any securities exchange so
requested, if such Registrable Securities are not already so listed, and if
such listing is then permitted under the rules of such exchange; (C) and
use its best efforts to provide a transfer agent and registrar for such
Registrable Securities covered by such registration statement not later
than the effective date of such registration statement;
(ix) enter into such customary agreements (including an underwriting
agreement in customary form), which may include indemnification provisions
in favor of underwriters and other persons in addition to, or in
substitution for the provisions of Section 5 hereof, and take such other
actions as sellers of a majority of shares of such
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Registrable Securities or the underwriters, if any, reasonably requested in
order to expedite or facilitate the disposition of such Registrable
Securities;
(x) obtain a "cold comfort" letter or letters from the Company's
independent public accounts in customary form and covering matters of the
type customarily covered by "cold comfort" letters as the seller or sellers
of a majority of shares of such Registrable Securities shall reasonably
request (provided that Registrable Securities constitute at least 25% of
the securities covered by such registration statement);
(xi) make available for inspection by any seller of such Registrable
Securities covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of the Company, and cause all of the Company's officers, directors and
employees to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with such
registration statement;
(xii) notify counsel (selected pursuant to Section 7 hereof) for the
Holders of Registrable Securities included in such registration statement
and the managing underwriter or agent, immediately, and confirm the notice
in writing (i) when the registration statement, or any post-effective
amendment to the registration statement, shall have become effective, or
any supplement to the prospectus or any amendment prospectus shall have
been filed, (ii) of the receipt of any comments from the SEC, (iii) of any
request of the SEC to amend the registration statement or amend or
supplement the prospectus or for additional information, and (iv) of the
issuance by the SEC of any stop order suspending the effectiveness of the
registration statement or of any order preventing or suspending the use of
any preliminary prospectus, or of the suspension of the qualification of
the registration statement for offering or sale in any jurisdiction, or of
the institution or threatening of any proceedings for any of such purposes;
(xiii) make every reasonable effort to prevent the issuance of any
stop order suspending the effectiveness of the registration statement or of
any order preventing or suspending the use of any preliminary prospectus
and, if any such order is issued, to obtain the withdrawal of any such
order at the earliest possible moment;
(xiv) if requested by the managing underwriter or agent or any Holder
of Registrable Securities covered by the registration statement, promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or agent or such Holder reasonably
requests to be included therein, including, without limitation, with
respect to the number of Registrable Securities being sold by such Holder
to such underwriter or agent, the purchase price being paid therefor by
such underwriter or agent and with respect to any other terms of the
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<PAGE>
underwritten offering of the Registrable Securities to be sold in such
offering; and make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after being notified of the
matters incorporated in such prospectus supplement or post-effective
amendment;
(xv) cooperate with the Holders of Registrable Securities covered by
the registration statement and the managing underwriter or agent, if any,
to facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing securities to be sold under
the registration statement, and enable such securities to be in such
denominations and registered in such names as the managing underwriter or
agent, if any, or such Holders may request;
(xvi) obtain for delivery to the Holders of Registrable Securities
being registered and to the underwriter or agent an opinion or opinions
from counsel for the Company in customary form and in form, substance and
scope reasonably satisfactory to such Holders, underwriters or agents and
their counsel; and
(xvii) cooperate with each seller of Registrable Securities and each
underwriter or agent participating in the disposition of such Registrable
Securities and their respective counsel in connection with any filings
required to be made with the NASD.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish the Company with such information
regarding such seller and pertinent to the disclosure requirements relating to
the registration and the distribution of such securities as the Company may from
time to time reasonably request in writing.
Each Holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
clause (vi) of this Section 4, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by clause (vi) of this
Section 4, and, if so directed by the Company, such Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event the
Company shall give any such notice, the period mentioned in clause (ii) of this
Section 4 shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to clause (vi) of this
Section 4 and including the date when each seller of Registrable Securities
covered by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by clause (vi) of this Section
4.
5. Indemnification. (a) Indemnification by the Company. In the event of any
registration of any securities of the Company under the Securities Act pursuant
to Section 2 or 3, the Company will, and it hereby does, indemnify and hold
harmless, to the extent
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permitted by law, the seller of any Registrable Securities covered by such
registration statement, each affiliate of such seller and their respective
directors and officers or general and limited partners (including any director,
officer, affiliate, employee, agent and controlling Person of any of the
foregoing), each other Person who participates as an underwriter in the offering
or sale of such securities and each other Person, if any, who controls such
seller or any such underwriter within the meaning of the Securities Act
(collectively, the "Indemnified Parties"), against any and all losses, claims,
damages or liabilities, joint or several, and expenses (including reasonable
attorney's fees and reasonable expenses of investigation) to which such
Indemnified Party may become subject under the Securities Act, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof, whether or not such Indemnified Party is a party
thereto) arise out of or are based upon (a) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, or (b) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in light of the circumstances under which
they were made) not misleading, and the Company will reimburse such Indemnified
Party for any legal or any other expenses reasonably incurred by it in
connection with investigating or defending against any such loss, claim,
liability, action or proceeding; provided that the Company shall not be liable
to any Indemnified Party in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement or amendment
or supplement thereto or in any such preliminary, final or summary prospectus in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller specifically stating
that it is for use in the preparation thereof. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such seller or any Indemnified Party and shall survive the transfer of such
securities by such seller.
(b) Indemnification by the Seller. The Company may require, as a condition
to including any Registrable Securities in any registration statement filed in
accordance with Section 4 herein, that the Company shall have received an
undertaking reasonably satisfactory to it from the prospective seller of such
Registrable Securities or any underwriter to indemnify and hold harmless (in the
same manner and to the same extent as set forth in this Section 5) the Company
and all other prospective sellers with respect to any untrue statement or
alleged untrue statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement, if such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by such seller or underwriter specifically stating that
it is for use in the preparation of such registration statement, preliminary,
final or summary prospectus or amendment or supplement, or a document
incorporated by reference into any of the foregoing. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
the Company or any of the prospective sellers, or any of their respective
affiliates, directors, officers or controlling Persons and shall survive the
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transfer of such securities by such seller. In no event shall the liability of
any selling Holder of Registrable Securities hereunder be greater in amount than
the dollar amount of the proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified party
hereunder of written notice of the commencement of any action or proceeding with
respect to which a claim for indemnification may be made pursuant to this
Section 5, such Indemnified Party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of the
commencement of such action; provided that the failure of the Indemnified Party
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under the preceding subdivisions of this Section 5, except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an Indemnified Party,
unless in such Indemnified Party's reasonable judgment a conflict of interest
between such Indemnified Party and indemnifying parties may exist in respect of
such claim, the indemnifying party will be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such Indemnified Party, and after notice from the indemnifying party to such
Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party will consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof, the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
(d) Contribution. If the indemnification provided for in this Section 5
from the indemnifying party is unavailable to an Indemnified Party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
herein, then the indemnifying party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and Indemnified Parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and Indemnified Parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
Indemnified Parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party under this Section 5(d) as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method
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of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. 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.
(e) Other Indemnification. Indemnification similar to that specified in
this Section 5 (with appropriate modifications) shall be given by the Company
and each seller of Registrable Securities with respect to any required
registration or other qualification of securities under any federal or state law
or regulation or governmental authority other than the Securities Act.
(f) Non-Exclusivity. The obligations of the parties under this Section 5
shall be in addition to any liability which any party may otherwise have to any
other party.
6. Rule 144. The Company covenants that it will file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any Holder of
Registrable Securities, make publicly available such information), and it will
take such further action as any Holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such Holder to
sell shares of Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (ii) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of any
Holder of Registrable Securities, the Company will deliver to such Holder a
written statement as to whether it has complied with such requirements.
Notwithstanding anything contained in this Section 6, the Company may deregister
under Section 12 of the Exchange Act if it then is permitted to do so pursuant
to the Exchange Act and the rules and regulations thereunder.
7. Selection of Counsel. In connection with any registration of Registrable
securities pursuant to Sections 2 and 3 hereof, the Holders of a majority of the
Registrable Securities covered by any such registration may select one counsel
to represent all Holders of Registrable Securities covered by such registration;
provided, however, that in the event that the counsel selected as provided above
is also acting as counsel to the Company in connection with such registration,
the remaining Holders shall be entitled to select one additional counsel to
represent all such remaining Holders.
8. Miscellaneous. (a) Other Investors. The Company may enter into
agreements with other purchasers of Common Stock who are then employees of the
Company (or its successor) or any of its subsidiaries, making them parties
hereto (and thereby giving them all, or a portion, of the rights, preferences
and privileges of an original party hereto) with respect to additional shares of
Common Stock (the "Supplemental Agreements"); provided, however, that pursuant
to any such Supplemental Agreement, such purchaser expressly agrees to be bound
by all of the terms, conditions and obligations of this Agreement as if such
purchaser were an original party hereto. All shares of Common Stock issued or
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issuable pursuant to such Supplemental Agreements shall be deemed to be
Registrable Securities.
(b) Holdback Agreement. If any such registration shall be in connection
with an underwritten public offering, each Holder of Registrable Securities
agrees not to effect any public sale or distribution, including any sale
pursuant to Rule 144 under the Securities Act, of any equity securities 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 7 days before or such period not to exceed
180 days as the underwriting agreement may require (or such lesser period as the
managing underwriters may permit) after the effective date of such registration
(except as part of such registration), and the Company hereby also so agrees and
agrees to cause each other holder of any equity security, or of any security
convertible into or exchangeable or exercisable for any equity security, of the
Company purchased from the Company (at any time other than in a public offering)
to so agree.
(c) Amendments and Waivers. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the Holders of
a majority of the Registrable Securities then outstanding; provided, however,
that no amendment, waiver or consent to the departure from the terms and
provisions of this Agreement that is adverse to the Common Stock Partnership or
any of its successors and assigns shall be effective as against any such Person
for so long as such Person holds any Registrable Securities unless consented to
in writing by such Person. Each Holder of any Registrable Securities at the time
or thereafter outstanding shall be bound by any consent authorized by this
Section 8(c), whether or not such Registrable Securities shall have been marked
to indicate such consent.
(d) Successors, Assigns and Transferees. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties hereto other than the Company shall also be for the benefit of
and enforceable by any subsequent Holder of any Registrable Securities, subject
to the provisions contained herein. Without limitation to the foregoing, in the
event that either Common Stock Partnership distributes or otherwise transfers
any shares of the Registrable Securities to any of its present or future general
or limited partners, the Company hereby acknowledges that the registration
rights granted pursuant to this Agreement shall be transferred to such partner
or partners on a pro rata basis, and that at or after the time of any such
distribution or transfer, any such partner or group of partners may designate a
Person to act on its behalf in delivering any notices or making any requests
hereunder.
(e) Business Combinations. Without the prior written consent of the Common
Stock Partnership or its successor or assignee, the Company shall not
consolidate with or enter into any merger, consolidation or other business
combination transaction (for the purposes of this Section 8(e), a "business
combination") with another Person (whether or not
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the Company is the surviving entity) or transfer (by lease, assignment, sale or
otherwise) (for the purposes of this Section 8(e), a "transfer") all or
substantially all of its assets or earning power, in a single transaction or
through a series of related transactions, to another Person or group of
affiliated Persons or permit any of its subsidiaries to enter into any such
transaction or transactions, where the business combination or transfer involves
the payment by any Person of any securities to, or the exchange by any Person of
any securities with, the Company or any of the holders of Common Stock of the
Company, unless (x) such securities, if any, to be received by the Common Stock
Partnership have been registered under the Securities Act in a manner which
would permit the sale to the public of such securities under the Securities Act
or (y) the issuer of such securities agrees to be bound by the terms of this
registration rights agreement with the Common Stock Partnerships relating to
such securities or otherwise agrees to enter into a new registration rights
agreement which shall contain terms substantially similar to this Agreement
(with appropriate modifications) and shall otherwise be in a form satisfactory
to Strata Associates. Notwithstanding the foregoing, the provisions of this
Section 8(e) shall not apply if at the time of any business combination or
transfer the Common Stock Partnerships own in the aggregate less than 5% of the
outstanding Common Stock, calculated on a fully diluted basis.
(f) Notices. All notices and other communications provided for hereunder
shall be in writing and shall be sent by first class mail, telex, telecopier or
hand delivery:
(i) if to the Company, to:
E&S Holdings Corporation
601 South Harbour Island Blvd.
Suite 200
Tampa, Florida 33602
Attention: Paul Whiting
(ii) if to either Common Stock Partnership, to it in care of:
Kohlberg Kravis Roberts & Co.
9 West 57th Street
New York, New York 10019
Attention: Michael T. Tokarz
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Charles I. Cogut, Esq
(iii) if to any other holder of Registrable Securities, to the address
of such other holder as shown in the stock record book of the Company, or
to such other address as any of the above shall have designated in writing
to all of the other above.
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All such notices and communications shall be deemed to have been given or
made (1) when delivered by hand, (2) five business days after being deposited in
the mail, postage prepaid, (3) when telexed answer-back received or (4) when
telecopied, receipt acknowledged.
(g) Descriptive Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein.
(h) Severability. In the event that any one or more of the provisions,
paragraphs, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the remaining provisions, paragraphs,
words, clauses, phrases or sentences hereof shall not be in any way impaired, it
being intended that all rights, powers and privileges of the parties hereto
shall be enforceable to the fullest extent permitted by law.
(i) Counterparts. This Agreement may be executed in counterparts, and by
different parties on separate counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute one and the same
instrument.
(j) Governing Law; Submission to Jurisdiction. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of New York applicable to contracts made and to be performed therein. The
parties to this Agreement hereby agree to submit to the jurisdiction of the
courts of the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts from any thereof in any
action or proceeding arising out of or relating to this Agreement.
(k) Specific Performance. The parties hereto acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Accordingly, it is agreed that they shall be entitled to an
injunction or injunctions to prevent breaches of the provision of this Agreement
and to enforce specifically the terms and provisions hereof in any court of
competent jurisdiction in the United States or any state thereof, in addition to
any other remedy to which they may be entitled at law or in equity.
-16-
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or
caused this Agreement to be duly executed on its behalf as of the date first
written above.
E&S HOLDINGS CORPORATION
By:______________________________________
Title:
STRATA ASSOCIATES, L.P.
By:______________________________________
Title:
KKR PARTNERS II, L.P.
By:______________________________________
Title:
-17-
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
EAC Holdings Corporation(1)
EAC Acquisition Corporation(1)
Etonic Worldwide Corporation
EWW Lisco, Inc.
Spalding & Evenflo Companies, Inc.
Evenflo Company, Inc.
S&E Finance Co., Inc.
Spalding Sports Centers, Inc.
Lisco, Inc.
Lisco Feeding, Inc.
Lisco Furniture, Inc.
Lisco Sports, Inc.
*S&E Sales Corporation (incorporated in Barbados)
*Spalding Australia Pty. Ltd.
*Spalding & Evenflo Canada Inc.
*Spalding International GmbH
*Spalding Italia S.r.l.
*Spalding Japan K.K.
*Spalding Mexico, S.A. de C.V.
*Spalding New Zealand Limited
*Spalding Sweden AB
*Spalding Sports UK Limited
*Evenflo Mexico, S.A. de C.V.
- --------
(1) Immediately after closing, EAC Holdings Corporation and EAC Acquisition
Corporation will be merged out of existence.
* Denotes foreign subsidiary.
<PAGE>
2
*Evenflo (Philippines), Inc.
*Evenflo Products de Venezuela C.A.
*Muebles Para Ninos de Baja, S.A. de C.V.
*R.B.D. de Mexico, S.A.
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
E & S Holdings Corporation
We consent to the use in this Registration Statement of E & S Holdings
Corporation and subsidiaries on Form S-4 of our report dated August 30, 1996,
appearing in the Prospectus, which is a part of this Registration Statement, and
to the references to us under the heading "Independent Auditors" in such
Prospectus.
DELOITTE & TOUCHE LLP
Tampa, Florida
October 21, 1996
<PAGE>
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
__________
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
__________
Marine Midland Bank
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, N.Y. 10005-1180
(212) 658-1000 (Zip Code)
(Address of principal executive offices)
Eric Parets
Senior Vice President
Marine Midland Bank
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-6560
(Name, address and telephone number of agent for service)
E & S HOLDINGS CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 59-2439656
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
601 South Harbour Island Boulevard
Suite 200
Tampa, Florida 33602-3141
(813) 204-5200 (Zip Code)
(Address of principal executive offices)
10 3/8% Series B Senior Notes due 2006
(Title of Indenture Securities)
<PAGE>
2
General
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System, Washington,
D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
<PAGE>
3
Item 16. List of Exhibits.
Exhibit
- -------
T1A(i) * - Copy of the Organization
Certificate of Marine Midland
Bank.
T1A(ii) * - Certificate of the State of New
York Banking Department dated
December 31, 1993 as to the
authority of Marine Midland Bank
to commence business.
T1A(iii) - Not applicable.
T1A(iv) * - Copy of the existing By-Laws of
Marine Midland Bank as adopted
on January 20, 1994.
T1A(v) - Not applicable.
T1A(vi) * - Consent of Marine Midland Bank
required by Section 321(b) of the
Trust Indenture Act of 1939.
T1A(vii) - Copy of the latest report of
condition of the trustee (June 30,
1996), published pursuant to law or
the requirement of its supervisory
or examining authority.
T1A(viii) - Not applicable.
T1A(ix) - Not applicable.
* Exhibits previously filed with the Securities and Exchange Commission
with Registration No. 33-53693 and incorporated herein by reference
thereto.
<PAGE>
4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Marine Midland Bank, a banking corporation and trust company organized under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York on the 18th day of October 1996.
MARINE MIDLAND BANK
By: /s/ Frank J. Godino
--------------------
Frank J. Godino
Assistant Vice President
<PAGE>
Exhibit T1A (vii)
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
Expires March 31, 1999
Federal Financial Institutions Examination Council
- --------------------------------------------------------------------------------
-----
This financial information has not been reviewed, or confirmed 1
for accuracy or relevance, by the Federal Reserve System. _____
Please refer to page i,
Table of Contents, for
the required disclosure
of estimated burden.
- --------------------------------------------------------------------------------
Consolidated Reports of Condition and Income for A Bank With Domestic and
Foreign Offices--FFIEC 031
Report at the close of business June 30, 1996
This report is required by law; 12 U.S.C. ss.324 (State
member banks); 12 U.S.C. ss. 1817 (State nonmember
banks); and 12 U.S.C. ss.161 (National banks).
(950630)
(RCRI 9999)
This report form is to be filed by banks with branches and
consolidated subsidiaries in U.S. territories and possessions,
Edge or Agreement subsidiaries, foreign branches, consoli-
dated foreign subsidiaries, or International Banking Facilities.
- --------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be
signed by an authorized officer and the Report of Condition
must be attested to by not less than two directors (trustees)
for State nonmember banks and three directors for State
member and National Banks.
I, Gerald A. Ronning, Executive VP & Controller
-------------------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and are true
to the best of my knowledge and believe.
/s/ Gerald A. Ronning
-----------------------------------------
Signature of Officer Authorized to Sign Report
7/25/96
- -----------------------
Date of Signature
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in some
cases differ from generally accepted accounting principles.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/ Henry J. Nowak
------------------
Director (Trustee)
/s/ Bernard J. Kennedy
----------------------
Director (Trustee)
/s/ Northrup R. Knox
--------------------
Director (Trustee)
- --------------------------------------------------------------------------------
For Banks Submitting Hard Copy Report Forms:
State Member Bank: Return the original and one copy to
the appropriate Federal Reserve District Bank.
State Nonmember Banks: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
National Banks: Return the original only in the special
return address envelope provided. If express mail is used in
lieu of the special return address envelope, return the original only to the
FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114.
- --------------------------------------------------------------------------------
FDIC Certificate Number 0 0 5 8 9
--------------------------
(RCRI 9030)
<PAGE>
6
For Banks Submitting Hard Copy Report Forms:
State Member Bank: Return the original and one copy to
the appropriate Federal Reserve District Bank.
State Nonmember Banks: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
National Banks: Return the original only in the special
return address envelope provided. If express mail is used in
lieu of the special return address envelope, return the original only to the
FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114.
- --------------------------------------------------------------------------------
FDIC Certificate Number 0 0 5 8 9
--------------------------
(RCRI 9030)
<PAGE>
7
NOTICE
This form is intended to assist institutions with state publication
requirements. It has not been approved by any state banking authorities. Refer
to your appropriate state banking authorities for your state publication
requirements.
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
Marine Midland Bank of Buffalo
Name of Bank City
in the state of New York, at the close of business
June 30, 1996
ASSETS
Thousands
of dollars
Cash and balances due from depository institutions:
Noninterest-bearing balances
currency and coin.................................. $1,133,237
Interest-bearing balances ......................... 1,117,267
Held-to-maturity securities........................ 0
Available-for-sale securities...................... 3,312,291
Federal Funds sold and securities purchased
under agreements to resell in domestic
offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs:
Federal funds sold................................. 555,000
Securities purchased under
agreements to resell............................... 421,771
Loans and lease financing receivables:
Loans and leases net of unearned
income............................... 14,765,000
LESS: Allowance for loan and lease
losses............................... 456,646
LESS: Allocated transfer risk reserve 0
Loans and lease, net of unearned
income, allowance, and reserve.................... 14,308,354
Trading assets.................................... 871,466
Premises and fixed assets (including
capitalized leases)............................... 181,721
Other real estate owned.............................. 4,643
Investments in unconsolidated
subsidiaries and associated companies................ 0
Customers' liability to this bank on
<PAGE>
8
acceptances outstanding............................. 23,253
Intangible assets................................... 164,521
Other assets........................................ 460,618
Total assets........................................ 22,554,142
LIABILITIES
Deposits:
In domestic offices.............................. 14,788,828
Noninterest-bearing.................. 3,061,906
Interest-bearing..................... 11,726,922
In foreign offices, Edge, and Agreement
subsidiaries, and IBFs.............................. 3,485,266
Noninterest-bearing.................. 0
Interest-bearing..................... 3,485,266
Federal funds purchased and securities sold
under agreements to repurchase in domestic
offices of the bank and its Edge and
Agreement subsidiaries, and in IBFs:
Federal funds purchased.......................... 859,455
Securities sold under agreements to
repurchase....................................... 324,584
Demand notes issued to the U.S. Treasury 246,051
Trading Liabilities................................. 415,593
Other borrowed money:
With original maturity of one year
or less.......................................... 32,459
With original maturity of more than
one year......................................... 0
Mortgage indebtedness and obligations
under capitalized leases............................ 34,193
Bank's liability on acceptances
executed and outstanding............................ 23,253
Subordinated notes and debentures................... 225,000
Other liabilities................................... 326,680
Total liabilities................................... 20,761,362
Limited-life preferred stock and
related surplus..................................... 0
EQUITY CAPITAL
Perpetual preferred stock and related
surplus............................................. 0
Common Stock........................................ 185,000
Surplus............................................. 1,633,098
Undivided profits and capital reserves.............. (23,953)
Net unrealized holding gains (losses)
on available-for-sale securities.................... (1,365)
Cumulative foreign currency translation
adjustments......................................... 0
Total equity capital................................ 1,792,780
Total liabilities, limited-life
<PAGE>
9
preferred stock, and equity capital..................... 22,554,142
