<PAGE>
As filed with the Securities and Exchange Commission on January 30, 1997
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
--------------------
Commemorative Brands, Inc.
(Exact name of registrant as specified in its charter)
Delaware 3911 13-3915801
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
7211 Circle S Road
Austin, Texas 78745
(512) 444-0571
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
--------------------
Jeffrey H. Brennan
President and Chief Executive Officer
7211 Circle S Road
Austin, Texas 78745
(512) 444-0571
(Name, address, including zip code, and telephone number
including area code, of agent for service)
--------------------
Please send copies of all communications to:
Janet C. Walden, Esq.
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
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Approximate date of commencement of proposed sale of securities to the public:
As soon as practicable after the Registration Statement becomes effective.
--------------------
If the only 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, please check the following box: |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Each Amount Proposed Maximum Proposed Maximum
Class of Securities to be Offering Price Aggregate Offering Amount of
to be Registered Registered per Note Price(1) Registration Fee
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<S> <C> <C> <C> <C>
11% Senior Subordinated
Notes due 2007 ....... $90,000,000 100% $90,000,000 $27,275
=================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the amount of 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 the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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COMMEMORATIVE BRANDS, INC.
--------------------
Cross Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Form S-4 Number and Caption Location in Prospectus
- - ----------------------------------------------- -------------------------------
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus ............................... Forepart of the Registration
Statement; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus ........................... Inside Front and Outside Back
Cover Pages of Prospectus;
Available Information; Table
of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information ............ Prospectus Summary; Risk
Factors; Summary Historical
Financial and Other
Data--ArtCarved; Summary
Historical Financial and Other
Data-Balfour; Summary Pro
Forma Combined Financial and
Other Data
4. Terms of the Transaction .................. Prospectus Summary; Risk
Factors; The Exchange Offer;
Description of the Notes
5. Pro Forma Financial Information ........... Prospectus Summary;
Capitalization; Summary Pro
Forma Combined Financial and
Other Data
6. Material Contracts with the Company
Being Acquired ........................... *
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters ................ *
8. Interests of Named Experts and Counsel .... *
9. Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities .......................... *
10. Information with Respect to S-3
Registrants .............................. *
11. Incorporation of Certain Information
by Reference ............................. *
12. Information with Respect to S-2 or
S-3 Registrants .......................... *
13. Incorporation of Certain Information
by Reference ............................. *
14. Information with Respect to Registrants
other than S-3 or S-2 Registrants ........ Cover Page of Registration
Statement; Available
Information; Prospectus
Summary; Risk Factors; Use of
Proceeds; Capitalization;
Selected Financial Data:
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations; Business;
Management; The Transactions;
Description of the Bank Credit
Facility; Description of
Notes; Financial Statements
15. Information with Respect to S-3 Companies.. *
16. Information with Respect to S-2 or S-3
Companies ................................ *
17. Information with Respect to Companies
other than S-2 or S-3 Companies .......... *
18. Information if Proxies, Consents or
Authorizations are to be Solicited ....... *
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer .................. Management; Certain
Relationships and Related
Transactions; Security
Ownership of Certain
Beneficial Owners and
Management; The Transactions;
Financial Statements
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* Item is omitted because answer is negative or the item is inapplicable.
<PAGE>
Information contained herein is subject to completion or amendment. This
Prospectus shall not constitute an offer to sell or the solicitation of any
offer to buy nor shall there be any sale of these securities in any jurisdiction
in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
jurisdiction.
PRELIMINARY PROSPECTUS
Subject to Completion
Preliminary Prospectus Dated January 30, 1997.
Commemorative Brands, Inc.
Offer to exchange $90,000,000 of new
11% Senior Subordinated Notes due 2007
for $90,000,000 of any and all outstanding
11% Senior Subordinated Notes due 2007
Commemorative Brands, Inc. (formerly known as "Scholastic Brands, Inc."),
a Delaware corporation ("CBI" or the "Company"), hereby offers to exchange (the
"Exchange Offer"), upon the terms and conditions set forth in this Prospectus
(the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), up to $90,000,000 in aggregate principal amount of its 11% Senior
Subordinated Notes due 2007 (the "Exchange Notes") for $90,000,000 in aggregate
principal amount of its 11% Senior Subordinated Notes due 2007 (the "Initial
Notes" and, together with the Exchange Notes, the "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
Initial Notes for which they may be exchanged pursuant to the Exchange Offer,
except that the Exchange Notes will generally be freely transferable by Holders
(as defined) thereof (except as provided in the next paragraph below), and are
not subject to any covenant of the Company regarding registration. The Exchange
Notes will be issued under the indenture governing the Initial Notes. For a
complete description of the terms of the Exchange Notes, see "Description of
Notes."
Interest on the Exchange Notes will be payable semi-annually on January 15
and July 15 of each year, commencing July 15, 1997. The Notes will be redeemable
at the option of the Company, in whole or in part, at any time on or after
January 15, 2002, at the redemption prices set forth herein, plus accrued and
unpaid interest and Liquidated Damages (as defined), if any, thereon to the date
of redemption. In addition, at any time prior to January 15, 2000, the Company
may, in its discretion, redeem up to 33-1/3% of the original principal amount of
the Notes at a redemption price equal to 111% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
date of redemption, with the net proceeds of one or more Public Equity Offerings
(as defined); provided that at least 66-2/3% of the original principal amount of
the Notes remains outstanding immediately after each such redemption. The
Exchange Notes will not be subject to any mandatory sinking fund. In the event
of a Change of Control (as defined), each holder of the Notes will have the
right to require the Company to purchase all or any part of such holder's Notes
at a purchase price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase. See "Description of Notes." There can be no
assurance that the Company will have the financial resources necessary to
purchase the Exchange Notes upon a Change of Control. The Notes will be general
unsecured obligations of the Company and will be subordinated in right of
payment to all existing and future Senior Indebtedness (as defined) of the
Company. As of December 16, 1996, the Company had approximately $36.2 million of
Senior Indebtedness outstanding (exclusive of an unused commitment of up to
$23.8 million under the Bank Credit Facility). See "Description of
Notes--Subordination" and "Capitalization."
The Initial Notes were issued and sold on December 16, 1996, in a
transaction (the "Initial Offering") not registered under the Securities Act of
1933, as amended (the "Securities Act"), in reliance upon the exemptions
provided in Section 4(2) of the Securities Act, and Rule 144A, Regulation D and
Regulation S under the Securities Act. Accordingly, the Initial Notes may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange Notes
are being offered hereunder in order to satisfy certain of the obligations of
the Company under a registration rights agreement relating to the Initial Notes.
See "The Exchange Offer--Purposes of the Exchange Offer." The Company is making
the Exchange Offer in reliance upon an interpretation by the staff of the
Commission set forth in a series of no-action letters issued to third parties.
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 Commission
would make a similar determination with respect to the Exchange Offer. See "The
Exchange Offer--Tender Procedure."
The Initial Notes are designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market. The Exchange
Notes constitute new issues of securities for which there is no
<PAGE>
established trading market. Any Initial Notes not tendered and accepted in the
Exchange Offer will remain outstanding. To the extent Initial Notes are tendered
and accepted in the Exchange Offer, a Holder's ability to sell untendered, and
tendered but unaccepted, Initial Notes could be adversely affected. Following
consummation of the Exchange Offer, the Holders of Initial Notes will continue
to be subject to the existing restrictions on transfer thereof and the Company
will have no further obligations to such Holders to provide for the registration
under the Securities Act of the Initial Notes. No assurance can be given as to
the liquidity of the trading market for either the Initial Notes or the Exchange
Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Initial Notes being tendered for exchange. The Exchange Offer will
expire at 5:00 p.m., New York City time, on ___________, 1997, unless extended
by the Company at its sole discretion (the "Expiration Date"). The date of
acceptance for exchange of the Initial Notes (the "Exchange Date") will be the
first business day following the Expiration Date. Initial Notes tendered
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date; otherwise such tenders are irrevocable. There will be no cash
proceeds to the Company from the Exchange Offer.
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 for Initial Notes where such Initial Notes were acquired for its own
account as a result of market-making activities or other trading activities. The
Company will make copies of this Prospectus available to any broker-dealer for
use in connection with any such resale.
--------------------
See "Risk Factors" for a description of certain factors that should be
considered by participants in the Exchange Offer
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is January 30, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Exchange Notes being offered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain portions of which have been omitted
pursuant to the rules and regulations of the Commission. Statements made in this
Prospectus as to any contract, agreement or other document are summaries of the
material terms of such contracts, agreements or other documents and are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement is qualified in its entirety by such reference.
The Company intends, and is required by the terms of the Indenture, dated
as of December 16, 1996 (the "Indenture"), between the Company and Marine
Midland Bank, as trustee (the "Trustee"), under which the Initial Notes were
issued and under which the Exchange Notes are to be issued, so long as any of
the Notes are outstanding, to furnish, and if applicable, to cause certain
subsidiaries of the Company ("Subsidiary Guarantors") to furnish, to the Holders
of the Notes, within 15 days after they are or would have been required to file
such with the Commission, (i) all quarterly and annual financial information
that would be required to be contained in filings with the Commission on Forms
10-Q and 10-K if the Company and/or any Subsidiary Guarantor was required to
file such forms, including "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to annual consolidated
financial statements and schedules only, a report thereon by the independent
auditors of the Company and/or any Subsidiary Guarantor, and (ii) all
information that would be required to be contained in filings with the
Commission on Form 8-K if the Company and/or any Subsidiary Guarantor was
required to file such form. In addition, whether or not required by the rules
and regulations of the Commission, the Company shall file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, for so
long as any of the Initial Notes remain outstanding, the Company has agreed to
make available to any Holder of Initial Notes or any prospective transferee of
any such Holder any information concerning the Company (including financial
statements) necessary in order to permit such Holder to sell or transfer Initial
Notes in compliance with Rule 144A under the Securities Act.
Reports and other information filed by the Company with the Commission,
and the registration statement and the exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and will also be available for inspection and copying at the regional
offices of the Commission at 7 World Trade Center, 13th Floor, New York, New
York 10048 and at Northwestern Atrium Center, 500 West Madison Street (suite
1400), Chicago, Illinois 60661. Copies of such materials may also be obtained
from the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Also, the Company files such reports
and other information with the Commission pursuant to the Commission's EDGAR
system. The Commission maintains a Web site that contains reports and other
information regarding registrants that file electronically with the Commission
pursuant to the EDGAR system. The address of the Commission's Web site is
http://www.sec.gov.
<PAGE>
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PROSPECTUS SUMMARY
This following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless the context otherwise requires, (i) the
term "CBI" refers to Commemorative Brands, Inc. (formerly known as Scholastic
Brands, Inc.) prior to the consummation of the acquisitions referred to below
(the "Acquisitions"), (ii) the term "ArtCarved" refers to those assets,
businesses and operations of CJC Holdings, Inc. ("CJC") acquired by CBI, (iii)
the term "Balfour" refers to those assets, businesses and operations of L.G.
Balfour Company, Inc. acquired by CBI, (v) the term "the Company" refers to CBI
as combined with ArtCarved and Balfour after giving effect to the Acquisitions,
(v) the term "Management" refers to the management team of the Company, and (vi)
the term "Pro Forma Fiscal 1996" refers to the unaudited pro forma combined
operations of ArtCarved and Balfour for the twelve months ended August 31, 1996.
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. Discussions containing
such forward-looking statements may be found in the material set forth below and
under "Risk Factors," "Unaudited Pro Forma Combined Financial Statements and
Other Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" as well as in the Prospectus generally.
Actual events or results may differ materially from those discussed in the
forward-looking statements as a result of various factors, including, without
limitation, the factors set forth below and the other matters set forth in the
Prospectus generally.
The Company
The Company is the second largest manufacturer of class rings in the
United States based on net sales and is a supplier of graduation-related
scholastic products for the high school and college markets. The Company is the
only class ring manufacturer with a strong national presence in the three
primary sales channels for class rings and scholastic products. Management
attributes the Company's leading market position in the class rings market to
the Company's emphasis on the quality of its products, the caliber of its sales
force, its customer service and its comprehensive distribution network. In
combining ArtCarved and Balfour, the Company joined together two of the most
widely recognized and most respected names in the scholastic products market in
the United States. The Company also manufactures and markets recognition and
affinity jewelry designed to commemorate significant events, achievements and
affiliations.
Management believes the Company benefits from the combination of the
complementary strengths of ArtCarved's leading high school in-store and college
on-campus sales channels for scholastic products and Balfour's strong presence
in the high school in-school sales channel for scholastic products. In addition,
Management expects that the combination of ArtCarved and Balfour will enable the
Company to introduce a complementary range of products through the Company's
distribution network and realize significant cost savings arising from the
consolidation of the Company's operations. As a result of the Acquisitions and
the combination of the two companies, Management believes the Company has the
requisite ownership commitment, financial resources and strategic focus to
enhance its businesses profitably.
For Pro Forma Fiscal 1996, the Company had net sales of $142.1 million and
EBITDA of $22.8 million, which does not include $3.1 million of the $7.4 million
Annual Cost Savings (as defined). See "Unaudited Pro Forma Combined Financial
Statements And Other Data."
The Company's scholastic product line consists of high school and college
class rings (the Company's largest product offering) and graduation-related fine
paper products such as announcements, name cards and diplomas. The Company's
independent sales representatives also sell or distribute caps and gowns,
yearbooks, memory books, and other graduation apparel and accessories
manufactured by others. The Company markets and distributes its scholastic
products, which represented approximately 85% of net sales in Pro Forma Fiscal
1996, through three distinct sales channels: (i) the high school "in-store"
channel of retailers, including approximately 5,100 independent retail jewelers,
approximately 21 of the nation's 40 largest retail jewelry chains (representing
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1
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approximately 1,200 stores throughout the United States) and approximately 2,200
Wal-Mart and 2,100 Kmart stores nationwide; (ii) the high school "in-school"
channel of independent sales representatives, who sell directly to students in
approximately 4,500 high schools throughout the United States; and (iii) the
college "on-campus" sales organization, which sells to students in approximately
1,700 colleges and universities throughout the United States. Management
believes that this comprehensive distribution network distinguishes the Company
from its competitors and enables it to offer its products through a wider array
of formats and locations throughout the year, thereby providing customers with
the convenience of availability and choice of location for purchasing scholastic
products.
The Company has three national competitors, none of which has a strong
nationwide presence in all three primary sales channels for scholastic products.
Management estimates that the market for high school and college class rings is
approximately $350 million per year, of which the high school segment represents
approximately 70% of the market and the college segment represents approximately
30% of the market. Management also estimates that within the high school
segment, 65% of the high school class rings sold are sold through the in-school
sales channel with the remaining 35% being sold through the in-store sales
channel. College class rings are sold primarily through on-campus bookstores
and, to a lesser extent, through local bookstores.
The Company's recognition and affinity product line consists primarily of
rings, pins and other jewelry designed to enable individuals to show pride in
their affiliations with or support for their favorite organizations and sports
teams. The Company's recognition and affinity product line is comprised of four
major product categories: (i) licensed consumer sports jewelry, consisting of
rings and other jewelry, intended for fans who wish to express their affinity
and support for their favorite professional, amateur and collegiate sports
teams, historically including all of the teams in the National Football League,
Major League Baseball, the National Basketball Association and the National
Hockey League; (ii) sports championship jewelry and related products for the
members of championship teams to commemorate their achievements, such as Super
Bowl rings for the San Francisco 49ers in 1995 and World Series trophies for the
members of the 1996 New York Yankees, and rings for individuals who bowl an
American Bowling Congress-sanctioned perfect game; (iii) personalized family
jewelry, consisting primarily of rings, bracelets, necklaces and other jewelry
designed to commemorate family and significant life events such as births and
baptisms and other family celebrations and holidays such as Mother's Day and
Valentine's Day; and (iv) corporate recognition and reward jewelry, consisting
of rings, pins and other jewelry, designed to commemorate employees'
anniversaries with or accomplishments on behalf of various corporations,
including The Coca-Cola Company, McDonalds Corp., and Xerox Corp.
Business Strategy
Management's primary objective is to increase profitability through the
growth of the Company's sales and the realization of identified operational
improvements following the combination of the operations of ArtCarved and
Balfour (the "Combination"). Management intends to build on the Company's
leading market position in class rings and the strong brand recognition of the
ArtCarved(R) and Balfour(R) brand names. Management seeks to achieve these
objectives by: (i) capitalizing on cost reduction opportunities presented by the
Combination; (ii) marketing a broader array of products by utilizing the
Company's comprehensive distribution network to cross-market existing products
and by continuing to develop and acquire new products and expand product lines;
and (iii) strengthening the Company's in-school sales channel through the
addition of independent sales representatives.
Capitalize on Cost Reduction Opportunities. In connection with the
Acquisitions, Management has developed a detailed consolidation plan that
Management believes will enable the Company to achieve approximately $7.4
million of annual cost savings relative to the historical cost structures of the
Company's predecessors (the "Annual Cost Savings"). Of the $7.4 million in
Annual Cost Savings, Management expects the Company to realize $4.3 million from
the elimination of duplicative personnel, occupancy and fixed overhead costs and
$3.1 million as a result of the lower prevailing wage rates in Austin, Texas and
the elimination of other duplicative costs resulting from the closure of Balfour
facilities and the consolidation of Balfour's operations into existing ArtCarved
operations in Austin, Texas. The Annual Cost Savings do not reflect
non-recurring severance and relocation costs of approximately $5.5 million and
incremental capital expenditures of approximately $1.9 million, each related to
the Combination.
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2
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o Manufacturing Integration. Management intends to consolidate the
operations of the Balfour jewelry manufacturing facilities in Attleboro and
North Attleboro, Massachusetts, into existing ArtCarved operations in Austin,
Texas. During Pro Forma Fiscal 1996, Balfour's Massachusetts jewelry facilities
operated at approximately 50% of their aggregate manufacturing capacity.
ArtCarved and Balfour use compatible manufacturing processes at their
facilities, and ArtCarved's Austin, Texas facilities have capacity to
accommodate additional production. Management estimates that as a result of the
Combination the Company will realize cost savings from the elimination of
occupancy costs associated with the Balfour manufacturing facilities, the
elimination of specifically identified duplicative personnel and related
expenses, the relocation of other functional positions to Austin, Texas at lower
prevailing wage rates, and the higher productivity rate at the Austin, Texas
manufacturing facilities.
o Selling, General and Administrative Cost Reductions. Management believes
that a significant portion of the selling, general and administrative ("SG&A")
services currently performed by Balfour can be performed using ArtCarved's
existing infrastructure and personnel. Management estimates that the Company
will realize substantial savings resulting from reduced SG&A expenses,
attributable to the elimination of specifically identified duplicative personnel
and related expenses, the relocation of other functional positions to Austin,
Texas at lower prevailing wage rates, and the elimination of occupancy costs
associated with the Balfour administrative facility in North Attleboro,
Massachusetts.
Management intends to begin the consolidation of the Company's operations
to Austin, Texas as soon as practicable and expects that the consolidation of
operations will be completed during the fiscal year ending August 30, 1997.
Management expects that a portion of the Annual Cost Savings will be realized
during the fiscal year ending August 30, 1997 and that all of such savings will
be realized during the fiscal year ending August 29, 1998. There can be no
assurance that the Company will complete its consolidation by the end of its
fiscal year ending August 30, 1997 or that the Annual Cost Savings will be
realized by the end of its fiscal year ending August 29, 1998, or at all.
The following is a summary of the Annual Cost Savings that details (i) the
portion of the Annual Cost Savings that are reflected in the adjustments to the
unaudited pro forma combined financial statements, and (ii) the balance of the
Annual Cost Savings that Management expects to achieve in connection with the
Combination (dollars in thousands):
Cost of
Sales SG&A Total
----- ---- -----
Elimination of duplicative personnel........... $1,304 $1,974 $3,278
Elimination of occupancy and fixed overhead.... 939 74 1,013
------ ------ ------
Pro forma adjustments........................ 2,243 2,048 4,291
------ ------ ------
Wage rate differential......................... 1,752 605 2,357
Elimination of other duplicative costs......... 416 339 755
------ ------ ------
Additional cost savings...................... 2,168 944 3,112
------ ------ ------
Total Annual Cost Savings...................... $4,411 $2,992 $7,403
====== ====== ======
Market Broader Array of Products. The Company's comprehensive distribution
network and highly effective sales organization provide the Company with broad
market coverage and strong customer relations, which Management believes present
opportunities to increase net sales without incurring significant incremental
sales and distribution costs. To achieve this objective, Management will
implement the following programs:
Cross-Market Existing Products. Management believes there are
significant growth opportunities in selling Balfour's fine paper products
to college students through ArtCarved's existing on-campus sales channel
and selling Balfour's licensed consumer sports jewelry through ArtCarved's
existing retail sales channel, including independent retail jewelers,
retail jewelry chains and mass merchants. ArtCarved's leading position in
the sale of college class rings through on-campus college bookstores
provides a strong platform to market simultaneously Balfour's fine paper
products to the same student population without incurring any material
incremental selling or marketing expenses. Additionally, beginning in
September 1995, Balfour's licensed consumer sports jewelry was
test-marketed in 15 J.C. Penney stores in the San
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3
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Francisco metropolitan area. As a result of the success of this program,
as of January 15, 1997, J.C. Penney offered this line of jewelry in over
400 J.C. Penney stores nationwide. Management believes that Balfour's
licensed consumer sports jewelry is well-suited for the ArtCarved retail
sales channel, and has plans to introduce these products to such retailers
during the fiscal year ending August 30, 1997.
Develop and Acquire New Products and Expand Product Lines.
Management intends to pursue growth by penetrating new markets with new
and existing products and to expand the Company's presence in existing
markets by introducing product line extensions and new products. In April
1996, ArtCarved introduced its Celebrations of Life(R) selection of rings,
which are personalized with children's names, birthdates and birthstones
to commemorate parenthood to approximately 2,000 independent and chain
jewelers. The Company plans to further expand this product line to include
other jewelry designed to commemorate other significant life events and
other family celebrations and holidays. In order to leverage its
comprehensive distribution network, the Company has developed other lines
of ArtCarved's personalized family jewelry for the retail sales channel,
primarily mass merchants. For example, in September 1996, ArtCarved
introduced its Nameosake(TM) selection of personalized family jewelry to
approximately 1,350 Wal-Mart stores nationwide, and Management expects to
expand this product line to all Wal-Mart stores nationwide by March 1997.
In addition, the Company plans to expand Balfour's line of licensed
consumer sports jewelry to include additional styles and products, such as
charms, pendants, earrings and cufflinks.
Strengthen In-School Sales Channel. Management intends to strengthen its
presence in the in-school sales channel to increase the number of students in
each school who purchase the Company's products, expand school coverage in
geographic areas where the Company is under-represented and extend its
scholastic product lines. In July 1996 the Company introduced a simplified
marketing program for its in-school sales channel to stimulate demand for the
Company's scholastic products in-school. Management also plans to expand the
geographic presence of the Company's in-school independent sales representatives
beyond its primary focus in the Eastern, Southern and Midwestern sections of the
United States by adding additional independent sales representatives in selected
strategic regions to augment its in-school sales channel. Additionally,
Management believes that the improvements in the Company's product offerings,
customer service and financial resources that it believes will result from the
Combination will enable the Company to attract additional in-school independent
sales representatives. Specifically, because of ArtCarved's modern manufacturing
techniques and resulting accelerated product cycles, the Company's Balfour
in-school independent sales representatives will be able to deliver rings in
approximately one-half the time as was previously capable from Balfour's
production facilities. This production cycle time improvement is expected to
enhance in-school customer relations by providing quicker order turnaround,
thereby enabling the Balfour independent sales representatives to market
merchandise in the schools more frequently during each selling season, thereby
providing the potential for increased sales. Lastly, through increased joint
marketing efforts with other scholastic product companies and selective product
line acquisitions, Management intends to enlarge the Company's product offerings
to become a single source supplier of scholastic products to its customers.
Although Management believes that it will be able to implement its
strategy as set forth above, there can be no assurance that improvements will be
realized, or that there will not be delays in achieving such improvements or
that results will not, in fact, decline.
The Transactions
The Acquisitions. Pursuant to asset purchase agreements with CJC and with
Town & Country Corporation ("Town & Country"), and its subsidiary, L.G. Balfour
Company, Inc. ("L.G. Balfour Company"), each dated as of May 20, 1996 and
amended as of November 21, 1996 and December 16, 1996 (as so amended, the
"ArtCarved Purchase Agreement" and the "Balfour Purchase Agreement,"
respectively), CBI acquired substantially all of the assets relating to the
scholastic and recognition and affinity businesses of each of CJC (the
"ArtCarved Acquisition") and Balfour (the "Balfour Acquisition" and together
with the ArtCarved Acquisition, the "Acquisitions") effective as of December 16,
1996. In consideration for ArtCarved, CBI paid (the "ArtCarved Purchase Price")
CJC in cash the sum of $97.8 million plus $17.0 million, representing the
estimated Adjusted
- - --------------------------------------------------------------------------------
4
<PAGE>
- - --------------------------------------------------------------------------------
Working Capital (as defined in the ArtCarved Purchase Agreement) of ArtCarved as
of the closing date, subject to adjustment upon final determination of the
Adjusted Working Capital. In consideration for Balfour, CBI paid (the "Balfour
Purchase Price") Town & Country and L.G. Balfour Company in cash the sum of
$23.8 million plus $23.6 million, representing the estimated Adjusted Working
Capital (as defined in the Balfour Purchase Agreement) of Balfour as of the
closing date, subject to adjustment upon final determination of the Adjusted
Working Capital. In addition, CBI purchased the gold on consignment to Balfour
as of the closing date ("Balfour Gold") for a cash purchase price equal to the
fair market value of the estimated Balfour Gold balance as of the closing date
(the "Balfour Gold Purchase Price") of approximately $4.9 million, subject to
adjustment upon final determination of the Balfour Gold balance as of the
closing date.
On September 6, 1996, CBI, Castle Harlan Partners II, L.P., a Delaware
limited partnership and private equity investment fund ("CHP II"), and Town &
Country and L.G. Balfour Company entered into an Agreement Containing Consent
Order (the "Consent Agreement") and an Interim Agreement (the "Interim
Agreement") with the Federal Trade Commission (the "FTC"), which subsequently
became a final order of the FTC on December 20, 1996. Pursuant to the Final
Order, CBI has agreed, among other things, not to acquire any assets of or
interest in Gold Lance, Inc. ("Gold Lance"), another class ring manufacturing
subsidiary of Town & Country, the assets of which CBI had originally contracted
to buy together with Balfour. Also pursuant to the Final Order, Town & Country
and Gold Lance agreed, among other things, not to sell any assets to or acquire
any interest in CBI, other than the sale of the Balfour assets to CBI on the
terms set forth in the Balfour Purchase Agreement.
CBI was formed in March 1996 by CHP II for the purpose of acquiring
ArtCarved and Balfour and until December 16, 1996 engaged in no business other
than in connection with the Acquisitions and the financing thereof. The Company
changed its name from "Scholastic Brands, Inc." to "Commemorative Brands, Inc."
immediately following consummation of the Transactions. CHP II together with its
affiliates (collectively, the "Castle Harlan Group") own and control 100% of the
Company's outstanding voting securities. The Company's principal executive
offices are located at 7211 Circle S Road, Austin, Texas 78745, and its
telephone number is (512) 444-0571.
The Financing. The funds required to finance the Acquisitions and to pay
related fees and expenses (the "Financing") were provided by (i) an equity
investment of $50.0 million by the Castle Harlan Group in CBI (the "Castle
Harlan Investment"); (ii) the proceeds from the sale of the Initial Notes; (iii)
borrowings by CBI of $25.0 million under a bank term loan facility (the "Term
Loan Facility"); and (iv) borrowings by CBI of $5.2 million under a $35.0
million bank revolving credit facility (the "Revolving Credit Facility") and
gold facility (the "Gold Facility" and together with the Revolving Credit
Facility, the "Revolving Credit and Gold Facilities") (together with the Term
Loan Facility, the "Bank Credit Facility"). See "Capitalization," "Use of
Proceeds," "Principal Stockholders," "Description of Capital Stock,"
"Description of the Bank Credit Facility" and "Description of Notes."
The following table illustrates the estimated sources and uses of funds in
connection with the Transactions based on the estimated Adjusted Working Capital
and Balfour Gold balance on the date of closing. However, the final calculation
of the Adjusted Working Capital and Balfour Gold balance at closing and the
resulting purchase prices for each of ArtCarved, Balfour and Balfour Gold may
differ from the estimates assumed below.
(Dollars in thousands)
----------------------
Sources
Revolving Credit and Gold Facilities....... $ 11,201
Term Loan Facility......................... 25,000
11% Senior Subordinated Notes due 2007..... 90,000
Preferred Stock(1)......................... 47,500
Common Stock............................... 2,500
--------
Total Sources of Funds............ $176,201
========
- - --------------------------------------------------------------------------------
5
<PAGE>
- - --------------------------------------------------------------------------------
Uses
ArtCarved Acquisition...................... $114,829
Balfour Acquisition........................ 52,287
Transaction fees and expenses(2)........... 9,085
--------
Total Uses of Funds............... $176,201
========
- - ----------
(1) Includes $10.0 million of Series A Preferred Stock of the Company ("Series
A Preferred") and $37.5 million of Series B Preferred Stock of the Company
("Series B Preferred"). See "Description of Capital Stock" and
"Description of Notes--Certain Covenants--Restricted Payments."
(2) This amount represents partial transaction fees and expenses and the total
amount is expected to be approximately $9.8 million.
- - --------------------------------------------------------------------------------
6
<PAGE>
- - --------------------------------------------------------------------------------
The Exchange Offer
Exchange Offer: The Company is offering to exchange pursuant to
the Exchange Offer up to $90,000,000 in
aggregate principal amount of its new 11% Senior
Subordinated Notes due 2007 (the "Exchange
Notes") for up to $90,000,000 in aggregate
principal amount of its outstanding 11% of
Senior Subordinated Notes due 2007 (the "Initial
Notes" and, together with the Exchange Notes,
the "Notes") that were issued and sold on
December 16, 1996 in a transaction exempt from
registration under the Securities Act of 1933,
as amended (the "Securities Act"). Initial Notes
may be exchanged only in integral multiples of
$1,000. The terms of the Exchange Notes are
identical in all material respects (including
principal amount, interest rate, maturity and
ranking) to the terms of the Initial Notes for
which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes
will have been registered under the Securities
Act and therefor will be generally freely
transferable by Holders thereof (except as
provided herein--see "The Exchange Offer--Terms
of the Exchange" and "The Exchange Offer--Terms
and Conditions of the Letter of Transmittal"),
and are not subject to any covenant of the
Company regarding registration. The Company has
agreed to make the Exchange Offer in order to
satisfy its obligations under a registration
rights agreement (the "Registration Rights
Agreement"), dated as of December 16, 1996,
among the Company and Lehman Brothers Inc. and
BT Securities Corporation (together, the
"Initial Purchasers") relating to the Initial
Notes.
Interest Payments: Interest on the Exchange Notes shall accrue from
_______________, 1997.
Expiration Date: The Exchange Offer will expire at 5:00 p.m., New
York City time, on [ ], 1997, unless extended by
the Company at its sole discretion. Any Notes
not accepted for exchange for any reason will be
returned without expense to the tendering
Holders thereof as promptly as practicable after
the expiration or termination of the Exchange
Offer.
Exchange Date: The date of acceptance for exchange of the
Initial Notes (the "Exchange Date") will be the
first business day following the Expiration
Date.
Conditions of the The Exchange Offer is subject to certain
Exchange Offer: conditions. See "The Exchange Offer--Conditions
to the Exchange Offer." The Exchange Offer is
not conditioned upon any minimum aggregate
principal amount of Initial Notes being tendered
for exchange.
Withdrawal Rights: The tender of Initial Notes pursuant to the
Exchange Offer may be withdrawn at any time
prior to the Expiration Date.
Procedures for See "The Exchange Offer--Tender Procedure."
Tendering:
Certain Federal Income The exchange of Initial Notes for Exchange Notes
Tax Consequences: should not be a taxable event to the Holders and
the Holders should not recognize any taxable
gain or loss or any interest income as a result
of such exchange. See "Certain Federal Income
Tax Considerations."
- - --------------------------------------------------------------------------------
7
<PAGE>
- - --------------------------------------------------------------------------------
Effect on Holders of Initial As a result of the making of, and upon
Notes: acceptance for exchange of all validly tendered
Initial Notes pursuant to the terms of, this
Exchange Offer, the Company will have fulfilled
a covenant contained in the Registration Rights
Agreement and, accordingly, the Holders of the
Initial Notes will have no further registration
or other rights under the Registration Rights
Agreement. Holders of the Initial Notes who do
not tender their Initial Notes in the Exchange
Offer or whose Initial Notes are not accepted
for exchange will continue to hold such Initial
Notes and will be entitled to all the rights and
preferences and will be subject to the
limitations applicable thereto set forth in the
Indenture except for any such rights or
limitations which, by their terms, terminate or
cease to be effective as a result of the making
of, and the acceptance for exchange of all
validly tendered Initial Notes pursuant to, the
Exchange Offer. All untendered, and tendered but
unaccepted, Initial Notes will continue to be
subject to the restrictions on transfer provided
therein and in the Indenture. To the extent that
Initial Notes are tendered and accepted in the
Exchange Offer, the trading market for
untendered, and tendered but unaccepted, Initial
Notes could be adversely affected.
Use of Proceeds: There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
Exchange Agent: Marine Midland Bank will serve as Exchange Agent
in connection with the Exchange Offer.
Consequence of Failure to Holders of Initial Notes who do not exchange
Exchange: their Initial Notes for Exchange Notes pursuant
to the Exchange Offer will continue to be
subject to the restrictions on transfer of such
Initial Notes as set forth in the legend thereon
as a consequence of the offer or sale of the
Initial Notes pursuant to exemptions from, or in
transactions not subject to, the registration
requirements of the Securities Act and
applicable state securities laws. In general,
the Initial Notes may not be offered or sold
unless registered under the Securities Act and
applicable state securities laws, 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 intend to register the Initial
Notes under the Securities Act and, after
consummation of the Exchange Offer, will not be
obligated to do so.
Resales: Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Initial Notes may be
offered for resale, resold and 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
Exchange Notes are acquired in the ordinary
course of such Holders' business, such Holders
have no arrangement with any person to
participate in the distribution of such Exchange
Notes and neither such Holders nor any such
other person is engaging in or intends to engage
in a distribution of such Exchange Notes. Each
broker-dealer that receives Exchange Notes for
its own account in exchange for Initial Notes,
where such Initial Notes were acquired by such
broker-dealer as a result of market-making or
other activities, must
- - --------------------------------------------------------------------------------
8
<PAGE>
- - --------------------------------------------------------------------------------
acknowledge that it will deliver a prospectus in
connection with any sale of such Exchange Notes.
Any broker-dealer that participates in a
distribution of the Exchange Notes may not
participate in the Exchange Offer and will be
deemed to be an underwriter for purposes of the
Securities Act. Any Holder who is an affiliate
of the Company or who uses the Exchange Offer to
participate in a distribution of the Exchange
Notes to be acquired in the Exchange Offer may
not 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 resales of such Exchange Notes. See
"Plan of Distribution."
- - --------------------------------------------------------------------------------
9
<PAGE>
- - --------------------------------------------------------------------------------
Terms of the Notes
The Exchange Offer applies to all $90,000,000 aggregate principal amount
of the Initial Notes. The form and terms of the Exchange Notes are the same as
the form and terms of the Initial Notes, except that the Exchange Notes have
been registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof. The Exchange Notes will evidence the same debt
as the Initial Notes and will be entitled to the benefits of the Indenture. See
"Description of Notes."
Securities Offered: $90,000,000 principal amount of 11% Senior
Subordinated Notes due 2007.
Maturity Date: January 15, 2007.
Interest Payment Dates: January 15 and July 15, commencing July 15,
1997.
Optional Redemption: The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after January 15, 2002 at the redemption prices
set forth herein, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon
to the date of redemption. In addition, at any
time prior to January 15, 2000, the Company may,
in its discretion, redeem up to 33-1/3% of the
original principal amount of the Notes at a
redemption price equal to 111% of the principal
amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the
date of redemption, with the net proceeds of one
or more Public Equity Offerings (as defined);
provided that at least 66-2/3% of the original
principal amount of the Notes remains
outstanding immediately after each such
redemption.
Sinking Fund: None.
Change of Control: In the event of a Change of Control (as
defined), each holder of the Notes will have the
right to require the Company to purchase all or
any part of such holder's Notes at a purchase
price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase.
Certain Covenants: The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its restricted subsidiaries to (i)
incur additional indebtedness and issue
preferred stock, (ii) pay dividends or make
certain other restricted payments, (iii) enter
into transactions with affiliates, (iv) create
certain liens, (v) make certain asset
dispositions and (vi) merge or consolidate with,
or transfer substantially all of its assets to,
another person. In addition, the Company is
obligated, under certain circumstances, to offer
to repurchase Notes at a purchase price equal to
100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date
of purchase, with the net cash proceeds of
certain sales or other dispositions of assets.
See "Description of Notes--Covenants."
- - --------------------------------------------------------------------------------
10
<PAGE>
- - --------------------------------------------------------------------------------
Summary Pro Forma Combined Financial and Other Data
The following table presents summary unaudited pro forma combined
financial and other data and should be read in conjunction with the financial
statements of ArtCarved and the financial statements of Balfour and the
respective related notes thereto, the "Unaudited Pro Forma Combined Financial
Statements and Other Data" and the notes thereto and "Management's Discussions
and Analysis of Financial Condition and Results of Operations" included
elsewhere herein. The pro forma combined balance sheet was prepared as if the
Transactions had occurred on November 30, 1996, and the unaudited pro forma
combined statements of income and other data were prepared as if the
Transactions occurred on August 27, 1995. The summary pro forma combined
financial and other data assume the consummation of the Acquisitions and the
financing thereof. The summary pro forma combined financial and other data do
not purport to be indicative of the financial position or results of operations
that would have been reported had the Transactions been effected on the dates
indicated, or that may be reported in the future. The summary pro forma combined
financial and other data are based on the estimated Adjusted Working Capital and
Balfour Gold balance on the date of closing. However, the final calculation of
the Adjusted Working Capital and Balfour Gold balance at closing and the
resulting purchase prices for each of ArtCarved, Balfour and Balfour Gold may
differ from the estimates assumed below.
The summary pro forma combined financial statements and other data reflect
the fact that CBI did not purchase certain Balfour facilities but instead will
relocate the Balfour jewelry manufacturing operations and related sales, general
and administrative functions to existing ArtCarved facilities in Austin, Texas.
Consequently, the pro forma adjustments reflect the realization of $4.3 million
of the Annual Cost Savings relating to the elimination of duplicative personnel,
occupancy and fixed overhead costs resulting from the closure of these Balfour
facilities. However, the pro forma adjustments do not reflect $3.1 million of
the Annual Cost Savings resulting from lower prevailing wage rates in Austin,
Texas and the elimination of other duplicative costs. The pro forma adjustments
related to the Annual Cost Savings described above do not reflect non-recurring
severance and relocation costs of approximately $5.5 million and incremental
capital expenditures of approximately $1.9 million, each related to the
Combination.
Management intends to begin the consolidation of the Company's operations
to Austin, Texas as soon as practicable and expects that the consolidation will
be completed during the fiscal year ending August 30, 1997. Management expects
that a portion of the Annual Cost Savings will be realized during the fiscal
year ending August 30, 1997 and that all of such savings will be realized during
the fiscal year ending August 29, 1998. There can be no assurance that the
Company will complete its consolidation by the end of its fiscal year ending
August 30, 1997 or that the Annual Cost Savings will be realized by the end of
its fiscal year ending August 29, 1998, or at all.
Twelve Months Ended Three Months Ended
August 31, 1996 November 30, 1996
------------------- ------------------
(Dollars in thousands, except ratios)
Statement of Income Data:
Net sales............................. $142,062 $41,498
Gross profit.......................... 77,105 23,745
Selling, general and
administrative expenses............. 60,340 18,088
Operating income ..................... 16,765 5,657
Interest expense, net................. 13,739 3,435
Net income ........................... 1,785 1,311
- - --------------------------------------------------------------------------------
11
<PAGE>
- - --------------------------------------------------------------------------------
Twelve Months Ended Three Months Ended
August 31, 1996 November 30, 1996
------------------- ------------------
(Dollars in thousands, except ratios)
Other Data:
EBITDA(1)(2).......................... $22,832 $ 7,174
Depreciation and amortization......... 6,067 1,517
Capital expenditures(3)............... 1,480 370
Ratio of EBITDA to cash interest
expense(4).......................... 1.7x 2.2x
Balance Sheet Data (at end of
period):
Total assets.......................... $206,399
Total debt............................ 126,201
Stockholders' equity.................. 50,000
- - ----------
(1) EBITDA represents operating income (loss) before depreciation,
amortization and restructuring charges. EBITDA does not represent cash
flows as defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all of the
Company's cash needs. EBITDA should not be considered in isolation or as a
substitute for net income (loss), cash flows from operating activities or
other measures of liquidity determined in accordance with generally
accepted accounting principles.
(2) The summary pro forma combined financial and other data and pro forma
combined EBITDA do not give effect to $3.1 million of the Annual Cost
Savings, $2.4 million of which are related to lower prevailing wage rates
in Austin, Texas and $0.7 million of which are related to other
duplicative costs resulting from the closure of the Balfour facilities and
the consolidation of Balfour's operations into existing ArtCarved
operations in Austin, Texas. The effect of the additional $3.1 million of
the Annual Cost Savings on the pro forma combined EBITDA is summarized
below:
Twelve Months Ended Three Months Ended
August 31, 1996 November 30, 1996
------------------- ------------------
(Dollars in thousands, except ratios)
Pro forma combined EBITDA............. $22,832 $7,174
------- ------
Supplemental adjustments:
Wage rate differential.............. 2,357 589
Elimination of other
duplicative costs................ 755 189
------- ------
Additional cost savings............... 3,112 778
------- ------
Adjusted pro forma combined
EBITDA.............................. $25,944 $7,952
======= ======
Ratio of Adjusted pro forma
combined EBITDA to cash
interest expense(4)(5).............. 2.0x 2.4x
(3) The pro forma combined capital expenditure level is not indicative of the
expected capital expenditure level for the Company's fiscal year ending
August 30, 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality, Liquidity and Capital
Resources."
(4) Cash interest expense represents pro forma combined interest less
amortization of capitalized financing fees.
(5) Ratios for the three months ended November 30, 1996 are not indicative of
the full year results due to the seasonal nature of the business.
- - --------------------------------------------------------------------------------
12
<PAGE>
- - --------------------------------------------------------------------------------
Summary Historical Financial and Other Data--ArtCarved
The following table presents summary historical financial and other data
for ArtCarved and should be read in conjunction with the financial statements of
ArtCarved and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein. The
following information with respect to ArtCarved as of and for the years ended
August 27, 1994; August 26, 1995; and August 31, 1996 has been derived from the
audited financial statements of ArtCarved, which have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report dated
November 13, 1996 included elsewhere herein. The ArtCarved data as of August 31,
1993 are derived from the audited financial statements of ArtCarved, which have
been audited by Arthur Andersen LLP and are not included herein. The ArtCarved
data as of August 31, 1992 and the three months ended on, and as of, November
25, 1995 and November 30, 1996 are derived from the unaudited financial
statements of ArtCarved. The results for the three months ended November 30,
1996 are not necessarily indicative of the results to be expected for the full
fiscal year. The information presented below does not include adjustments
related to the ArtCarved Acquisition.
<TABLE>
<CAPTION>
Three Months
Fiscal Year Ended(1) Ended(1)
------------------------------------------------------ ------------------
Aug. 31, Aug. 31, Aug. 27, Aug. 26, Aug. 31, Nov. 25, Nov. 30,
1992 1993 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales.............................. $ 63,847 $ 63,955 $ 69,820 $ 71,994 $ 70,671 $21,923 $21,963
Cost of sales.......................... 26,993 25,290 30,572 32,879 32,655 9,209 9,626
-------- -------- -------- -------- -------- ------- -------
Gross profit........................... 36,854 38,665 39,248 39,115 38,016 12,714 12,337
Selling, general and administrative 26,920 27,016 26,618 28,224 27,940 8,484 8,110
expenses...............................
Restructuring charges(2)............... -- -- -- 3,244 -- -- --
-------- -------- -------- -------- -------- ------- -------
Operating income....................... $ 9,934 $ 11,649 $ 12,630 $ 7,647 $ 10,076 $ 4,230 $ 4,227
======== ======== ======== ======== ======== ======= =======
Other Data:
EBITDA(3).............................. $ 15,548 $ 17,046 $ 17,324 $ 16,505 $ 15,091 $ 5,494 $ 5,691
Depreciation and amortization.......... 5,614 5,397 4,694 5,614 5,015 1,264 1,464
Capital expenditures(4)................ 862 1,344 1,186 1,120 844 420 182
Balance Sheet Data (at end of period):
Total assets........................... $ 79,698 $ 76,008 $ 78,900 $ 75,955 $ 74,542 $83,393
Total long-term debt(5)................ 107,783 98,485 98,728 99,900 91,221 80,144
Advances in equity (deficit)(5)........ (32,989) (27,931) (51,504) (53,186) (28,524) (7,909)
</TABLE>
- - ----------
(1) During the periods presented, ArtCarved was not operated or accounted for
as a separate entity. As a result, allocations for certain accounts of CJC
were reflected in the financial statements of ArtCarved. Selling, general
and administrative expenses for ArtCarved represent all the expenses
incurred by CJC excluding only the expenses directly related to the
non-ArtCarved operations of CJC. Since CJC intends to use the proceeds
from the sale of ArtCarved to repay its outstanding debt obligations, the
statement of income data, other data, and the balance sheet data include
all of CJC's debt and related interest expense.
(2) For the fiscal year ended August 26, 1995, the restructuring charges of
$3.2 million consisted of the write-off of $2.9 million of capitalized
financing costs incurred in 1990 by CJC and $0.3 million of related
professional advisory fees incurred by CJC. The balance sheet data include
all of CJC's debt and related interest expense, and therefore all of the
restructuring charges are allocated to ArtCarved assets.
(3) EBITDA represents operating income (loss) before depreciation,
amortization, and restructuring charges. EBITDA does not represent cash
flows as defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all of
ArtCarved's cash needs. EBITDA should not be considered in isolation or as
a substitute for net income (loss), cash flows from operating activities
or other measures of liquidity determined in accordance with generally
accepted accounting principles.
(4) Historical capital expenditure levels are not necessarily indicative of
the expected capital expenditure level for the Company's fiscal year
ending August 30, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality, Liquidity and
Capital Resources."
(5) The changes in total long-term debt and advances in equity (deficit) from
August 31, 1996 to November 30, 1996 are due to the sale of CJC's
non-ArtCarved operations.
- - --------------------------------------------------------------------------------
13
<PAGE>
- - --------------------------------------------------------------------------------
Summary Historical Financial and Other Data--Balfour
The following table presents summary historical financial and other data
for Balfour and should be read in conjunction with the financial statements of
Balfour and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein. The
following information with respect to Balfour as of and for the years ended
February 27, 1994; February 26, 1995; and February 25, 1996 has been derived
from the audited financial statements of Balfour, which have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report dated September 30, 1996 included elsewhere herein. The following
information with respect to Balfour as of and for the years ended February 29,
1992 and February 28, 1993 and the nine months ended on, and as of, November 26,
1995 and November 24, 1996 has been derived from the unaudited financial
statements of Balfour. In Management's opinion, the data as of and for the years
ended February 29, 1992 and February 28, 1993 and the nine months ended on, and
as of, November 26, 1995 and November 24, 1996 reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation.
The results for the nine months ended November 24, 1996 are not necessarily
indicative of the results that could be expected for the full fiscal year. The
information presented below does not include adjustments related to the Balfour
Acquisition.
<TABLE>
<CAPTION>
Fiscal Year Ended (1) Nine Months Ended(1)
----------------------------------------------------- -------------------
Feb 29, Feb. 28, Feb. 27, Feb. 26, Feb. 25, Nov. 26, Nov. 24,
1992 1993 1994 1995 1996 1995 1996
------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales........................ $ 91,681 $ 83,938 $ 85,304 $ 77,491 $ 71,300 $53,413 $55,521
Cost of sales.................... 55,607 47,130 35,860 35,406 35,598 27,160 27,021
-------- -------- -------- -------- -------- ------- -------
Gross profit..................... 36,074 36,808 49,444 42,085 35,702 26,253 28,500
Selling, general and administrative
expenses...................... 42,481 43,856 43,350 51,743 33,496 25,831 27,910
Restructuring charge(2).......... -- 14,500 -- -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Operating income (loss).......... $ (6,407) $(21,548) $ 6,094 $ (9,658) $ 2,206 $ 422 $ 590
======== ======== ======== ======== ======== ======= =======
Other Data:
EBITDA(3)........................ $ (3,376) $ (3,983) $ 7,993 $ (7,680) $ 4,232 $ 1,970 $ 2,050
Depreciation and amortization.... 3,031 3,065 1,899 1,978 2,026 1,548 1,460
Capital expenditures(4).......... 620 826 1,820 1,274 530 320 252
Adjusted net sales(5)............ 59,600 56,315 61,784 64,891 70,111 52,537 54,672
Balance Sheet Data
(at end of period):
Total assets..................... $ 70,086 $ 44,795 $ 47,989 $ 45,236 $ 42,563 $ 45,050
Total long-term debt(6).......... 66,924 1,801 6,136 15,136 13,166 19,405
Stockholders' equity (deficit)... (20,127) 20,278 24,966 14,024 13,888 12,602
</TABLE>
- - ----------
(1) During the periods presented, Balfour was operated as a wholly-owned
subsidiary of Town & Country and Town & Country administered certain
programs (such as health insurance, workmen's compensation, and gold
consignment) and charged all directly identifiable costs to Balfour.
Indirect costs were not allocated to Balfour; however, Balfour's
management believes these amounts are not significant for the periods
presented.
(2) For the fiscal year ended February 28, 1993, Balfour's management decided
to make changes with respect to certain of its operations. As a result of
this decision, Balfour sold or disposed of certain inventory and equipment
no longer considered necessary to its modified business and recorded a
restructuring charge associated with such disposal of assets.
(3) EBITDA represents operating income (loss) before depreciation,
amortization, and restructuring charges. EBITDA does not represent cash
flows as defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all of
Balfour's cash needs. EBITDA should not be considered in isolation or as a
substitute for net income (loss), cash flows from operating activities or
other measures of liquidity determined in accordance with generally
accepted accounting principles.
- - --------------------------------------------------------------------------------
14
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- - --------------------------------------------------------------------------------
(4) Historical capital expenditure levels are not necessarily indicative of
the expected capital expenditure level for the Company's fiscal year
ending August 30, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality, Liquidity and
Capital Resources."
(5) Adjusted net sales represents, for all periods presented, net sales
excluding results from: (i) the direct distribution of licensed consumer
sports jewelry, which was discontinued in February 1995; (ii) the
fraternity jewelry product line, which was sold in March 1994; and (iii)
the service award recognition product line, which was sold in April 1993.
Although Balfour sold substantially all of the service award recognition
product line, Balfour continues to have sales of service award recognition
products, which Management believes will not be a significant percentage
of net sales in future periods. See footnote (6) of "Selected Historical
Financial and Other Data--Balfour."
(6) The change in total long-term debt from February 25, 1996 to November 24,
1996 is due to the seasonal nature of Balfour's operations.
- - --------------------------------------------------------------------------------
15
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RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Initial Notes for the Exchange Notes offered hereby, Holders of
the Initial Notes should review carefully the specific considerations set forth
below:
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. Discussions containing
such forward-looking statements may be found in the material set forth and under
"Prospectus summary," "Unaudited Pro Forma Combined Financial Statements and
Other Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" as well as in the Prospectus generally.
Actual events or results may differ materially from those discussed in the
forward-looking statements as a results of various factors, including, without
limitation, the risk factors set forth below and the other matters set forth in
the Prospectus generally.
Substantial Leverage and Debt Service
The Company incurred substantial indebtedness in connection with the
acquisitions of the businesses and operations of ArtCarved and Balfour. As of
December 16, 1996, the Company's pro forma total indebtedness and stockholders'
equity were $126.2 million and $50.0 million, respectively. The Company's sales
tend to be seasonal, with peak borrowings under the Company's Bank Credit
Facility expected to occur during the months of October through December. See
"--Seasonality" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality, Liquidity and Capital
Resources."
The Company's ability to meet its debt service obligations and to reduce
its total debt will depend upon its future performance, which, in turn, is
subject to general economic conditions, particularly in the scholastic products
market and the recognition and affinity products market, and to financial,
business and other factors affecting the operations of the Company, many of
which are beyond its control. Based upon current levels of operations and
anticipated Annual Cost Savings, Management believes that the Company's cash
flow from operations and amounts available under its Revolving Credit and Gold
Facilities will be adequate to meet its anticipated requirements for working
capital, capital expenditures, interest payments and scheduled principal
payments. There can be no assurance, however, that the Company's business will
generate cash flow at or above anticipated levels, that the Company will be able
to borrow sufficient funds under its Revolving Credit and Gold Facilities or
that the anticipated Annual Cost Savings will be realized. See "--Risks of
Achieving Estimated Cost Savings; Risk of Implementing the Post-Acquisition
Strategy" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Recent Developments." If the Company is unable to
generate sufficient cash flow from operations or to borrow sufficient funds in
the future to service its debt, it may be required to sell assets, reduce
capital expenditures, refinance all or a portion of its existing debt (including
the Notes) or obtain additional financing. There can be no assurance that any
such refinancing would be possible or that any additional financing could be
obtained, particularly in view of the Company's high level of debt, the
restrictions on the Company's ability to incur additional debt under the Bank
Credit Facility and the Indenture, and the fact that substantially all of the
Company's assets will be pledged to secure obligations under the Bank Credit
Facility.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including that: (i) the Company's ability
to obtain additional financing for working capital, capital expenditures,
acquisitions or other purposes, may be impaired; (ii) a substantial portion of
the Company's cash flow from operations must be dedicated to the payment of
principal and interest on indebtedness; and (iii) the Company's leverage may
make it more vulnerable to industry-related or general economic downturns and
may limit its ability to withstand competitive pressures. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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<PAGE>
Integration of Operations
The integration of the administrative, finance and manufacturing
operations of ArtCarved and Balfour, the coordination of each company's sales
and marketing organizations and implementation of appropriate operational,
financial and management systems and controls will require substantial attention
from the newly-integrated management team and will result in the diversion of
management attention from managing the Company's core businesses. Any inability
of the Company to integrate these companies successfully in a timely and
efficient manner could have an adverse effect on the Company's financial
position or results of operations. There can be no assurance that the
post-acquisition strategy will be implemented successfully or on a timely basis
or that it will not require unanticipated costs in its implementation. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments."
Risks of Achieving Estimated Cost Savings; Risks of Implementing the
Post-Acquisition Strategy
The Company's post-acquisition strategy is premised upon realizing
substantial cost savings from the integration of the operations of ArtCarved and
Balfour. Management's estimates of cost savings are based upon a number of
assumptions and are subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the control of the
Company. While Management believes the estimated cost savings are based upon
reasonable assumptions and estimates, actual results may vary and such
variations may be material.
Competition
The Company's businesses are highly competitive, with the Company facing
competition in each of its product lines. In the scholastic products business,
there are three national competitors, including the Company, in the sale of both
class rings and fine paper products, one additional national competitor in the
sale of class rings, and several additional national competitors in the sale of
fine paper products. In addition, in the scholastic products business the
Company faces several regional competitors, which have been successful in the
past at taking market share from the national competitors (including ArtCarved
and Balfour). The Company's recognition and affinity products compete with those
produced and sold by a broad range of companies, including certain of the
Company's competitors in the scholastic product line and certain other regional
and local companies. The Company's ability to compete in the high school
in-school market depends on its ability to recruit and maintain a high quality
sales force. There can be no assurance that the Company will be able to maintain
its sales force or to continue to compete successfully with other competitors,
some of which may have greater resources, including financial resources, than
the Company. See "Business--Competition."
Customers and Sales Channel
Management believes that the percentage of high school graduates who
purchase high school class rings has declined for a period of at least five
years. In addition, the Company's volume of high school class rings sold during
this time has declined, and Management believes that the Company's market share
has declined as well. There can be no assurance that such trends will not
continue or that the Company will not experience similar trends in the college
market for class rings. See "Business--Industry."
In addition, a significant portion of the Company's business activity is
with independent and chain jewelry retailers and mass merchants, many of which
are not only subject to the risks generally associated with the effects of an
economic downturn on retailers of discretionary, consumer goods, but also tend
to be highly leveraged. Over the past several years, mass merchants have
accounted for a growing portion of the Company's sales. The Company does not
have exclusive arrangements with these mass merchants and would be adversely
affected if it were no longer able to market its products through such mass
merchants.
The Company has sold college rings primarily through on-campus bookstores,
most of which also offer class ring products distributed by one or more of the
Company's major competitors, and, to a lesser extent, through local bookstores.
Historically, on-campus bookstores have been owned and operated by the colleges
and universities;
17
<PAGE>
however, during the last several years an increasing number of campus bookstores
have been leased to companies engaged in retail bookstore operations, primarily
Barnes & Noble Bookstores, Inc. and Follet Corporation, which together dominate
that industry. If either the colleges or universities or these bookstores were
to grant exclusive rights to one of the Company's competitors, or if for any
other reason the Company were unable to continue selling its products through
these bookstores, the Company's business could be adversely affected. If the
schools or the operators of college on-campus bookstores were to grant exclusive
rights to the Company's competitors, in order to maintain its college class ring
sales the Company would be required to establish successfully alternative
channels, such as direct marketing, off-campus bookstores and retail jewelry
stores, for the distribution of class rings at colleges serviced by such
bookstores.
Subordination and Ranking of the Notes
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company, including all indebtedness under the Bank Credit Facility. By
reason of such subordination, in the event of the insolvency, liquidation,
reorganization, dissolution or other winding-up of the Company, the Senior
Indebtedness must be paid in full before the principal of, premium, if any, and
interest or Liquidated Damages (if any) on, the Notes may be paid. As of
December 16, 1996, the Company had approximately $36.2 million of Senior
Indebtedness (exclusive of an unused commitment of up to $23.8 million under the
Bank Credit Facility). The Indenture under which the Notes are issued permits
the Company to incur additional Senior Indebtedness if certain conditions are
met. See "Capitalization," "Description of the Bank Credit Facility" and
"Description of Notes--Certain Covenants."
The Company may not pay principal of, premium, if any, or interest or
Liquidated Damages (if any) on, the Notes, or repurchase, redeem or otherwise
retire the Notes if any Senior Indebtedness is not paid when due or any default
on Senior Indebtedness occurs and the maturity of such Senior Indebtedness is
accelerated in accordance with its terms unless, in either case, the default has
been cured or waived, any such acceleration has been rescinded or such Senior
Indebtedness has been paid in full, except that the Company may make payments
with respect to the Notes with the approval of certain holders of the Senior
Indebtedness. Upon any payment or distribution of assets of the Company upon a
total or partial liquidation, dissolution, reorganization or similar proceeding,
the holders of Senior Indebtedness will be entitled to receive payment in cash
or cash equivalents in full before the holders of the Notes are entitled to
receive any payment. Accordingly, there may be insufficient assets remaining
after such payments to pay principal of, or interest or Liquidated Damages (if
any) on, the Notes. See "Description of Notes--Subordination."
The Indenture contemplates that the Company may, during the term of Notes,
conduct its business through one or more subsidiaries. Except as otherwise
provided in the Indenture, such subsidiaries may not incur indebtedness. Except
to the extent that the Company may itself be a trade creditor with recognized
claims against its subsidiaries, the claims of creditors of such subsidiaries,
including trade creditors, will have priority over the Company with respect to
the assets and earnings of such subsidiaries. Therefore, the Notes will be
effectively subordinated to all indebtedness incurred by subsidiaries of the
Company, even though such indebtedness is not Senior Indebtedness.
Restrictive Covenants
The Indenture contains covenants that restrict, among other things, the
ability of the Company to incur additional indebtedness, pay dividends or make
certain other Restricted Payments (as defined therein), enter into transactions
with affiliates, allow its subsidiaries to make certain payments, create certain
liens, make certain asset dispositions and merge or consolidate with, or
transfer substantially all of its assets to, another person, or engage in
certain change of control transactions. In addition, the Bank Credit Facility
contains other and more restrictive covenants and prohibits the Company from
prepaying certain of its indebtedness, including the Notes. Under the Bank
Credit Facility, the Company is also required to maintain specified financial
ratios, including maintaining specified Minimum Interest Coverage, Maximum
Senior Debt to EBITDA ratios, and Minimum EBITDA (each as defined in the Bank
Credit Facility). The failure by the Company to maintain such financial ratios
or to comply with the restrictions contained in the Bank Credit Facility or the
Indenture could result in a default thereunder, which in turn could cause such
indebtedness (and by reason of cross-default provisions, other indebtedness) to
18
<PAGE>
become immediately due and payable. No assurance can be given that the Company's
future operating results will be sufficient to enable compliance with such
covenants, or in the event of default, to remedy such default. See "Description
of the Bank Credit Facility" and "Description of Notes--Certain Covenants."
Seasonality
The Company's scholastic product sales tend to be seasonal. Class ring
sales (and therefore the Company's borrowing needs) are highest during October
through December and fine paper sales are highest during February through April.
Management does not expect sales of the Company's recognition and affinity
products to be seasonal in any material respect. The Company has historically
experienced operating losses during the summer months, and its working capital
requirements tend to exceed its operating cash flows from July through December.
Management projects that the Company will have sufficient availability under the
Bank Credit Facility to meet its borrowing needs during this period, although
the Company will be subject to certain financial coverage tests in order to draw
down funds under such facility. See "Description of the Bank Credit Facility."
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality, Liquidity and Capital Resources."
Source of Semiprecious and Synthetic Gems; Fluctuations in Prices of Raw
Materials
The Company purchases substantially all synthetic and semiprecious stones
from a single supplier, located in Germany, which supplies synthetic stones to
almost all of the class ring manufacturers in the United States. The Company
believes that the loss of this source of synthetic and semiprecious stones would
adversely affect its business during the time period in which alternate sources
adapted production capabilities to meet increased demand. See "Business--Raw
Materials." Gold also constitutes a significant raw material for the Company's
operations. Although the Company has a consignment arrangement for the purchase
of gold and engages in certain hedging transactions to reduce the effect of
fluctuations in the price of gold, there can be no assurance that the Company
would not be adversely affected by a significant change in the price of gold.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Raw Material Price Fluctuations."
Change of Control
The Indenture provides that, upon the occurrence of a Change of Control
(as defined therein), the Company will be required to make an offer to purchase
all of the Notes issued and then outstanding under the Indenture at a purchase
price equal to 101% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages (if any) thereon to the date of purchase. Any
Change of Control under the Indenture would constitute a default under the Bank
Credit Facility. Therefore, upon the occurrence of a Change in Control, the
lenders under the Bank Credit Facility would have the right to accelerate their
loan and the holders of the Notes would have the right to require the Company to
purchase their Notes. Upon such event, such lenders would be entitled to receive
payment of all outstanding obligations under the Bank Credit Facility before the
Company may purchase any of the Notes tendered pursuant to such an offer. See
"Description of the Bank Credit Facility." If a Change of Control were to occur,
it is unlikely that the Company would be able to repay all of its obligations
under the Bank Credit Facility and the Notes, unless it could obtain alternate
financing. There can be no assurance that the Company would be able to obtain
any such financing on commercially reasonable terms or at all, and consequently
no assurance can be given that the Company would be able to purchase any of the
Notes tendered pursuant to such an offer.
Voting Control of the Company
The Castle Harlan Group owns and controls 100% of the Company's
outstanding voting capital stock. Accordingly, it has the ability to elect the
entire Board of Directors of the Company and, in general, to determine the
outcome of any other matter submitted to the stockholders for approval,
including the power to determine the outcome of all corporate transactions, such
as mergers, consolidations, and the sale of all or substantially all of the
assets of the Company. See "Principal Stockholders."
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<PAGE>
Fraudulent Transfer
The Company's obligations under the Notes may be subject to review under
federal or state fraudulent transfer laws if the Company becomes a debtor in a
subsequent bankruptcy case or otherwise has financial difficulties. In that
event, if a court in a lawsuit by an unpaid creditor or by a representative of
creditors (such as a trustee in a bankruptcy or a debtor-in-possession) were to
find that the Company received less than fair consideration or reasonably
equivalent value for incurring the indebtedness represented by the Notes and (i)
was insolvent, (ii) was rendered insolvent by reason of such transaction, (iii)
was engaged in a business or transaction, or was about to be engaged in a
business or transaction, for which its remaining assets constituted unreasonably
small capital, or (iv) intended to incur, or believed or reasonably should have
believed that it would incur, debts beyond its ability to pay such debts as they
matured, such court could void the Company's obligations under the Notes and
direct the return of any amounts paid thereunder to the Company or to a fund for
the benefit of its creditors. The measure of insolvency for purposes of the
foregoing will vary depending upon the law of the jurisdiction being applied.
Management believes that at the time the Initial Notes were issued, the Company
received fair consideration and reasonably equivalent value in exchange for its
obligations thereunder, was solvent, had sufficient capital for the business in
which it is engaged and will not incur debts beyond its ability to pay such
debts as they mature. There can be no assurance, however, as to what standard a
court would apply in making such determinations or whether a court would agree
with such assessments. In addition, if either of the prior owners of ArtCarved
or Balfour were to become a debtor in a subsequent bankruptcy case or otherwise
were to have financial difficulties, a court might review the applicable
Acquisition under Federal or state fraudulent transfer laws and could apply a
similar analysis with respect to such Acquisition and such court could void the
prior owners' obligations under the ArtCarved Purchase Agreement or Balfour
Purchase Agreement, as the case may be. Management believes that the ArtCarved
Purchase Price and the Balfour Purchase Price represented fair consideration for
ArtCarved and Balfour, respectively. There can be no assurance, however, as to
what standard a court would apply in making such determinations or whether a
court would agree with such assessments. See "--Substantial Leverage and Debt
Service" above.
Consequences Of Exchange And Failure To Exchange
Holders of Original Notes who do not exchange their Initial Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Initial Notes as set forth in the legend
thereon as a consequence of the issuance of the Initial Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Initial Notes may not be offered or sold, unless registered under
the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. Except under certain limited circumstances, the Company
does not intend to register the Initial Notes under the Securities Act. In
addition, any holder of Initial Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes may be deemed
to have received restricted securities and, if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. To the extent Initial Notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for the
Initial Notes could be adversely affected. See "The Exchange Offer" and
"Description of Notes -- Registration Rights; Liquidated Damages."
Absence Of A Public Market For The Notes; Possible Volatility Of Note Price
The Exchange Notes are new securities for which there is currently no
market. The Company does not intend to apply for listing of the Exchange Notes
on any securities exchange or for the inclusion of the Exchange Notes in any
automated quotation system and there can be no assurance as to the development
or liquidity of any market for the Exchange Notes. If a market for the Exchange
Notes were to develop, the Exchange Notes could trade at prices that may be
higher or lower than their initial offering price depending upon many factors,
including prevailing interest rates, the Company's operating results and the
markets for similar securities. Historically, the market for non-investment
grade debt has been subject to disruptions that have caused substantial
volatility in the prices of securities similar to the Exchange Notes. There can
be no assurance that, if a market for the Exchange Notes were to develop, such a
market would not be subject to similar disruptions.
20
<PAGE>
USE OF PROCEEDS
There will be no proceeds to the Company from any exchange pursuant to the
Exchange Offer. The net proceeds to the Company (after discounts, commissions
and estimated fees and expenses in an aggregate amount of approximately $3.8
million related to the Initial Offering) from the sale of the Initial Notes in
the Initial Offering were approximately $86.2 million. Such proceeds, together
with the proceeds of the Bank Credit Facility and proceeds from the Castle
Harlan Investment, were used to pay (i) the ArtCarved Purchase Price, (ii) the
Balfour Purchase Price, (iii) the Balfour Gold Purchase Price, (iv) the fees and
expenses incurred in connection with the Transactions, and (v) the ongoing
working capital requirements of the Company. See "The Acquisitions" and
"Description of the Bank Credit Facility."
THE EXCHANGE OFFER
Purpose of the Exchange Offer
The Initial Notes were originally issued and sold on December 16, 1996 in
the Initial Offering. The Initial Offering was not registered under the
Securities Act in reliance upon the exemptions provided by Section 4(2) of the
Securities Act, and Rule 144A, Regulation D and Regulation S under the
Securities Act. In connection with the sale of the Initial Notes, the Company
agreed to use best efforts to file with the Commission a registration statement
relating to an exchange offer (the "Exchange Offer Registration Statement")
pursuant to which a new series of senior subordinated notes of the Company
covered by such Exchange Offer Registration Statement and containing terms
identical in all material respects to the terms of the Initial Notes would be
offered in exchange for Initial Notes tendered at the option of the Holders
thereof or, if applicable interpretations of the staff of the Commission did not
permit the Company to effect such an exchange offer (after the Company complies
with certain procedures set forth in the Registration Rights Agreement relating
to seeking a favorable decision from the Commission allowing the Company to
effect such registration), or, if any Holder of Initial Notes that is a
"qualified institutional buyer" (as defined in Rule 144A under the Securities
Act) or an "accredited investor" (as defined in Rule 501 (A)(1), (2), (3) or (7)
under the Securities Act) shall notify the Company within 20 business days after
the Exchange Offer is consummated (A) that such Holder is prohibited by
applicable law or Commission policy from participating in the Exchange Offer or
(B) that such Holder may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and that the
Prospectus contained in this Registration Statement is not appropriate or
available for such resales by such Holder or (C) that such Holder is a
Broker-Dealer and holds Notes acquired directly from the Company or one of its
affiliates, then the Company agreed, at its cost, to use its best efforts to
file a shelf registration statement covering resales of the Initial Notes (the
"Shelf Registration Statement") and use its best efforts to have such Shelf
Registration Statement declared effective and kept effective for a period of
three years from the effective date thereof.
The purpose of the Exchange Offer is to fulfill certain obligations of the
Company under the Registration Rights Agreement. Except as provided under "Plan
of Distribution" with respect to certain broker-dealers, this Prospectus may not
be used by any Holder of the Exchange Notes to satisfy the registration and
delivery requirements under the Securities Act that may apply in connection with
any resale of the Initial Notes or the Exchange Notes. See "--Terms of the
Exchange" following the consummation of the Exchange Offer, the Company does not
intend to register any untendered Initial Notes under the Securities Act and
will not be obligated to do so.
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 (the
"Letter of Transmittal"), $1,000 in principal amount of Exchange Notes for each
$1,000 in principal amount of the Initial Notes. The terms of the Exchange Notes
are identical in all material respects to the terms of the Initial Notes for
which they may be exchanged pursuant to this Exchange Offer, except that the
Exchange Notes (i) will generally be freely transferable by Holders thereof and
(ii) are not subject to
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<PAGE>
any covenant regarding registration. The Exchange Notes will evidence the same
debt as the Initial Notes and will be entitled to the benefits of the Indenture.
See "Description of Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of the Initial Notes being tendered or accepted 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 Initial
Notes may be offered for sale, resold or otherwise transferred by Holders
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 Initial Notes may be offered for sale, resold and otherwise
transferred by Holders of such Exchange Notes (other than any such Holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such Holders' business, such Holders have no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes and neither such Holders nor any such other 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 Initial Notes, where such Initial 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."
The Exchange Notes will bear interest from and including their respective
dates of issuance. Holders whose Initial Notes are accepted for exchange will
receive accrued interest thereon to, but not including, the date of issuance of
the Exchange Notes, such interest to be payable with the first interest payment
on the Exchange Notes, but will not receive any payment in respect of interest
on the Initial Notes accrued after the issuance of the Exchange Notes.
Tendering Holders of the Initial 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 Initial Notes
pursuant to the Exchange Offer.
Expiration Date; Extensions; Termination; Amendments
The Exchange Offer shall expire on the Expiration Date. The term
"Expiration Date" means 5:00 p.m., New York City time, on _______________, 1997,
unless the Company in its sole discretion extends the period during which the
Exchange Offer is open, in which event the term "Expiration Date" shall mean the
latest time and date on which the Exchange Offer, as so extended by the Company,
shall expire. The Company reserves the right to extend the Exchange Offer at any
time and from time to time by giving oral or written notice to Marine Midland
Bank (the "Exchange Agent") and by timely public announcement communicated,
unless otherwise required by applicable law or regulation, by making a release
to the Dow Jones News Service. During any extension of the Exchange Offer, all
Initial Notes previously tendered and not withdrawn pursuant to the Exchange
Offer will remain subject to the Exchange Offer.
The term "Exchange Date" means the first business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Initial Notes if any of the
events set forth below under "Conditions to the Exchange Offer" shall have
occurred and shall not have been
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<PAGE>
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
Initial Notes, whether before or after any tender of the Initial Notes. 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 Initial Notes on the Exchange Date.
Tender Procedure
The tender to the Company of Initial Notes by a Holder thereof pursuant to
one of the procedures set forth below and acceptance by the Company will
constitute an agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal. This Prospectus, together with the Letter of Transmittal, will
first be mailed on or about __________________, 1997, to all Holders of Initial
Notes known to the Company and the Exchange Agent.
General. A Holder of an Initial Note 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 Initial Notes being tendered and
any required signature guarantees and any other documents required by the Letter
of Transmittal, to the Exchange Agent at its address set forth on the Letter of
Transmittal 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.
If tendered Initial 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 Initial 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 Initial Notes), the signature of such signer need not be
guaranteed. In any other case, the tendered Initial 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 firm that is a
member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., or a commercial bank or trust company
having an office or correspondent in the United States, or otherwise eligible
within the meaning of "Eligible Institution" as set forth in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended (an "Eligible Institution"). If
the Exchange Notes and/or Initial Notes not exchanged are to be delivered to an
address other than that of the registered Holder appearing on the register for
the Initial Notes, the signature on the Letter of Transmittal must be guaranteed
by an Eligible Institution.
Any beneficial owner whose Initial Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Initial Notes should contact such holder promptly and instruct such
holder to tender Initial Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Initial Notes himself, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering such Initial Notes, either make appropriate arrangements to register
ownership of the Initial Notes in such beneficial owner's name or follow the
procedures described in the immediately preceding paragraph. The transfer of
record ownership may take considerable time.
Book-Entry Transfer. The Exchange Agent will make a request promptly after
the date of this Prospectus to establish accounts with respect to the Initial
Notes at the book-entry transfer facility for purposes 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 Initial Notes by causing such book-entry
transfer facility to transfer such Initial Notes into the Exchange Agent's
account with respect to the Initial Notes in accordance with the book-entry
transfer facility's procedures for such transfer. Although delivery of Initial
Notes may be effected through book-entry transfer into the Exchange Agent's
accounts 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 on the Letter of Transmittal on or prior
to the Expiration Date, or, if the guaranteed delivery procedures described
below are
23
<PAGE>
complied with, within the time period provided under such procedures. However,
the exchange for the Initial Notes so tendered will only be made after timely
confirmation (a "Book-Entry Confirmation") of such book-entry transfer of
Initial Notes into the Exchange Agent's account, and timely receipt by the
Exchange Agent of an Agent's Message (as defined below) and any other documents
required by the Letter of Transmittal. The term "Agent's Message" means a
message, transmitted by the book-entry transfer facility and received by the
Exchange Agent and forming part of a Book-Entry Confirmation, which states that
the book-entry transfer facility has received an express acknowledgment from a
participant tendering Initial Notes which are the subject of such Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Company may enforce such
agreement against such participant.
THE METHOD OF DELIVERY OF INITIAL NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE OBTAINED,
AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT
DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE. NO LETTER OF
TRANSMITTAL OR INITIAL NOTES SHOULD BE SENT TO THE COMPANY.
Guaranteed Delivery Procedures. If a Holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or Initial 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 office listed on the Letter of Transmittal 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 Initial Notes are
registered and, if possible, the certificate numbers of the Initial Notes to be
tendered and stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange trading days after the date of execution of
such letter, telegram or facsimile transmission by the Eligible Institution, the
Initial Notes, in proper form for transfer (or a confirmation of book-entry
transfer of such Initial 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 Initial 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 a 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 Initial Notes (or a confirmation of book-entry transfer of
such Initial 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 Initial Notes tendered pursuant to a
Notice of Guaranteed Delivery of letter, telegram or facsimile transmission to
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 Initial Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Initial Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any Initial Notes not properly
tendered or the acceptances for exchange of which may, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or irregularity
in the tender of any Initial Notes. Unless waived, any defects or irregularities
in connection with tenders of Initial Notes for exchange must be cured within
such reasonable period of time as the Company shall determine. None of the
Company, the Exchange Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incurs any liability
for failure to give any such notification. Tenders will not be deemed to be made
until such irregularities have been cured or waived.
24
<PAGE>
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Initial Notes, where such Initial 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 Initial Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Initial Notes to the Company and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Initial 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 Initial
Notes and to acquire Exchange Notes issuable upon the exchange of such tendered
Initial Notes, and that, when the same are accepted for exchange, the Company
will acquire good and unencumbered title to the tendered Initial 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 Company to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Initial Notes or transfer ownership of such Initial Notes on the
account books maintained by a book-entry transfer facility. The Transferor
further agrees that acceptance of any tendered Initial Notes by the Company and
the issuance of Exchange Notes in exchange therefore 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 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 holding
Initial Notes acquired for its own account must acknowledge that it will deliver
a prospectus meeting the requirements of the Securities Act 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 Initial
Notes where such Initial Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company will make
this Prospectus available to any broker-dealer for use in connection with any
such resale.
Withdrawal Rights
Tenders of Initial Notes pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date; otherwise, such tenders are
irrevocable.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Exchange Agent at its address set forth on the Letter of Transmittal, and with
respect to a facsimile transmission, must be confirmed by telephone and an
original delivered by guaranteed overnight delivery. Any such notice of
withdrawal must specify the person named in the Letter of Transmittal as having
tendered Initial Notes to be withdrawn, the certificate numbers of Initial Notes
to be withdrawn, the principal amount of Initial Notes to be withdrawn, a
statement that such Holder is withdrawing his, her or its election to have such
Initial Notes exchanged, and the name of the registered Holder of such Initial
Notes, and must be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal (including any required signature
guarantees) or be accompanied by evidence satisfactory to the Company that the
person withdrawing the tender has succeeded to the beneficial ownership of the
Initial Notes being withdrawn. The Exchange Agent will return the
25
<PAGE>
properly withdrawn Initial Notes promptly following receipt of notice of
withdrawal. If Initial 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 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 Initial Notes so withdrawn will be deemed not to have been tendered
for exchange for purposes of the Exchange Offer. Any Initial Notes which have
been tendered for exchange but are not exchanged for any reason will be returned
to the Holder thereof without cost to such Holder (or, in the case of Initial
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 Initial 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 Initial Notes may be retendered by following one of the
procedures described under "--Tender Procedure" above at any time on or prior to
the Expiration Date.
Acceptance of Notes for Exchange; Delivery of Exchange Notes
Upon the satisfaction or waiver of all the terms and conditions of the
Exchange Offer, the acceptance for exchange of Initial Notes validly tendered
and not withdrawn and issuance of the Exchange Notes will be made on the
Exchange Date. For the purposes of the Exchange Offer, the Company shall be
deemed to have accepted for exchange validly tendered Initial Notes when, as and
if the Company has given oral or written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering Holders of Initial
Notes for the purposes of receiving Exchange Notes from the Company and causing
the Initial Notes to be assigned, transferred and exchanged. Upon the terms and
subject to the conditions of the Exchange Offer, delivery of Exchange Notes to
be issued in exchange for accepted Initial Notes will be made by the Exchange
Agent promptly after acceptance of the tendered Initial Notes. Initial Notes not
accepted for exchange by the Company will be returned without expense to the
tendering Holders promptly following the Expiration Date or, if the Company
terminates the Exchange Offer prior to the Expiration Date, promptly after the
Exchange Offer is so terminated.
Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to issue
Exchange Notes in respect of any properly tendered Initial Notes not previously
accepted and may terminate the Exchange Offer (by oral or written notice to the
Exchange Agent and by timely public announcement communicated, unless otherwise
required by applicable law or regulation, by making a release to the Dow Jones
News Service) or, at its option, modify or otherwise amend the Exchange Offer,
if in the good faith determination of the Company, the Exchange Offer violates
any law, rule or regulation or any applicable interpretation of the staff of the
Commission.
In addition, the Company will not accept for exchange any Initial Notes
tendered and no Exchange Notes will be issued in exchange for any such Initial
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 qualification of the Indenture under the Trust Indenture Act of 1939
(the "Trust Indenture Act"). The Company will use its best efforts to prevent
the issuance of any such order and, if any such order is issued, to obtain the
withdrawal of any such order at the earliest possible moment.
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Initial 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 Initial 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 occurs. 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
Initial Notes.
26
<PAGE>
The foregoing conditions are for the sole benefit of the Company and may
be waived by the Company, in whole or in part, in the good faith determination
of the Company. Any determination made by the Company concerning an event,
development or circumstance described or referred to above will be final and
binding on all parties.
The Company is not aware of the existence of any of the foregoing events.
Exchange Agent
Marine Midland Bank has been appointed as the Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of the Prospectus or of the Letters of Transmittal must be addressed to
the Exchange Agent at its address set forth on the Letter of Transmittal. Marine
Midland Bank also acts as Trustee, Registrar and Paying Agent under the
Indenture.
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; Expenses
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent its reasonable and customary fees for its
services and will reimburse it for 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 related documents to the
beneficial owners of the Initial Notes and in handling or forwarding tenders for
their customers.
No person has been authorized to give any information or to make any
representation 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
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 Initial 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 Initial
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 jurisdiction.
Transfer Taxes
Holders who tender their Initial Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that Holders who
instruct the Company to register Exchange Notes in the name of, or request that
Initial Notes not tendered or tendered but not accepted in the Exchange Offer be
returned to, a person other than the registered tendering Holder will be
responsible for the payment of any applicable transfer tax thereon.
Consequences of Failure to Exchange
Holders of Initial Notes who do not exchange their Initial Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Initial Notes as set forth in the legend
thereon as a consequence of the offer or sale of the Initial Notes pursuant to
exemptions from, or in transactions not subject
27
<PAGE>
to, the registration requirements of the Securities Act and applicable state
securities laws. In general, the Initial Notes may not be offered or sold,
unless registered under the Securities Act and applicable state securities laws,
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 intend
to register the Initial Notes under the Securities Act and, after consummation
of the Exchange Offer, will not be obligated to do so. 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 Initial 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 Initial
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. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Initial Notes, where such Initial 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."
Other
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to participate. Holders of the Initial Notes are
urged to consult their financial and tax advisors in making their own decisions
of what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Initial Notes pursuant to the terms of, this Exchange Offer,
the Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of the Initial Notes who do not tender their certificates in
the Exchange Offer will continue to hold such certificates 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, which by
their terms terminate or cease to have further effect as a result of the making
of this Exchange Offer. See "Description of Notes." All untendered Initial Notes
will continue to be subject to the restrictions on transfer set forth in the
Indenture. Such untendered Initial Notes will remain outstanding and continue to
accrue interest, but will not retain any rights under the Registration Rights
Agreement and shall not accrue any applicable liquidated damages under the
Indenture. To the extent that Initial Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered, and tendered but unaccepted,
Initial Notes could be adversely affected.
By acceptance of the Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer hereby agrees to notify the
Company prior to using this 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 requires the making of any
changes in the Prospectus in order to make the statements therein not misleading
(which notice the Company agrees to deliver promptly to such broker-dealer),
such broker-dealer will suspend use of the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented prospectus to such
broker-dealer.
The Company may in the future seek to acquire untendered Initial Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no current plans to acquire any Initial
Notes which are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any Initial Notes which are not tendered pursuant
to the Exchange Offer and, after consummation of the Exchange Offer, will not be
obligated to do so. The Company's ability to purchase Initial Notes is subject
to the restrictions set forth in the Indenture and the Bank Credit Facility. See
"Description of the Bank Credit Facility" and "Description of Notes."
28
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited pro forma capitalization of
the Company, as of November 30, 1996, as adjusted to give effect to the
Transactions. This table should be read in conjunction with the financial
statements of ArtCarved and the financial statements of Balfour and the
respective related notes thereto included elsewhere herein. The following table
is based on the estimated Adjusted Working Capital and Balfour Gold balance on
the date of closing. However, the final calculation of the Adjusted Working
Capital and Balfour Gold balance at closing and the resulting purchase prices
for each of ArtCarved, Balfour and Balfour Gold may differ from the estimates
assumed below. See "Use of Proceeds," "Unaudited Pro Forma Combined Financial
Statements and Other Data," "Principal Stockholders," "The Acquisitions,"
"Description of the Bank Credit Facility" and "Description of Notes."
November 30, 1996
-----------------
Pro Forma
As Adjusted
-----------------
(Dollars in thousands)
Total debt (including current maturities):
Revolving Credit and Gold Facilities ............ $ 11,201
Term Loan Facility............................... 25,000
11% Senior Subordinated Notes due 2007 .......... 90,000
---------
Total debt................................... 126,201
---------
Stockholders' equity:
Preferred stock(1)............................... 47,500
Common Stock .................................... 2,500
---------
Total stockholders' equity................... 50,000
---------
Total capitalization.................................. $ 176,201
=========
- - ----------
(1) Includes $10.0 million of Series A Preferred Stock and $37.5 million of
Series B Preferred Stock. See "Description of Capital Stock" and
"Description of Notes--Certain Covenants--Restricted Payments."
29
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS AND OTHER DATA
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. Discussions containing
such forward-looking statements may be found in the material set forth below and
under "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" and as
well as in the Prospectus generally. Actual events or results may differ
materially from those discussed in the forward-looking statements as a result of
various factors, including, without limitation, the factors set forth below and
the other matters set forth in the Prospectus generally.
The unaudited pro forma combined balance sheet was prepared as if the
Transactions had occurred on November 30, 1996 and the unaudited pro forma
combined statements of income and other data was prepared as if the Transactions
occurred on August 27, 1995.
The unaudited pro forma combined financial statements and other data have
been prepared under the purchase method of accounting. Under this method of
accounting, based on a preliminary allocation of the purchase price of each of
ArtCarved and Balfour, their respective identifiable assets and liabilities have
been adjusted to their estimated fair values. The preliminary purchase price
allocations are based upon estimates and assumptions which are subject to
subsequent determination and more detailed analyses, receiving final detailed
appraisals and evaluations of specific assets and liabilities and the
calculation of the Adjusted Working Capital yet to be finalized. The final
allocation of the purchase price of the Acquisitions may differ from the amounts
contained in these unaudited pro forma combined financial statements.
The unaudited pro forma combined financial statements and other data
reflect the fact that CBI did not purchase certain Balfour facilities but
instead will relocate the Balfour jewelry manufacturing operations and related
sales, general and administrative functions to existing ArtCarved facilities in
Austin, Texas. Consequently, the pro forma adjustments reflect the realization
of $4.3 million of the Annual Cost Savings relating to the elimination of
duplicative personnel, occupancy and fixed overhead costs resulting from the
closure of these Balfour facilities. However, the pro forma adjustments do not
reflect $3.1 million of the Annual Cost Savings expected to result from lower
prevailing wage rates in Austin, Texas and the elimination of other duplicative
costs. The pro forma adjustments related to Annual Cost Savings described above
do not reflect non-recurring severance and relocation costs of approximately
$5.5 million and incremental capital expenditures of approximately $1.9 million
to be incurred in connection with the Combination.
Management intends to begin the consolidation of the Company's operations
to Austin, Texas as soon as practicable and expects that the consolidation will
be completed during the fiscal year ending August 30, 1997. Management expects
that a portion of the Annual Cost Savings will be realized during the fiscal
year ending August 30, 1997 and that all of such savings will be realized during
the fiscal year ending August 29, 1998. There can be no assurance that the
Company will complete its consolidation by the end of its fiscal year ending
August 30, 1997 or that the Annual Cost Savings will be realized by the end of
its fiscal year ending August 29, 1998, or at all.
The unaudited pro forma combined financial statements and other data have
been prepared based on the foregoing and on certain assumptions described in the
notes thereto. Such statements should be read in conjunction with the historical
financial statements of ArtCarved and the historical financial statements of
Balfour, each including the notes thereto, and "Management's Discussion and
Analysis of Results of Operations and Financial Condition" that are included
elsewhere herein. The following unaudited pro forma combined financial
statements and other data do not purport to be indicative of the financial
position or results of operations that would have been reported had the
Transactions been effected on the dates indicated, or that may be reported in
the future.
30
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
AND OTHER DATA
FOR THE TWELVE MONTHS ENDED AUGUST 31, 1996
(Dollars in thousands, except ratios)
<TABLE>
<CAPTION>
Historical Statements(1)
-----------------------------
Balfour
ArtCarved Twelve Months
Year Ended Ended Pro Forma Pro Forma
Aug. 31, 1996 Aug. 25, 1996 Adjustments Combined
------------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Net sales.......................................... $ 70,671 $ 71,391 $ -- $142,062
Cost of sales...................................... 32,655 34,547 (2,243)(2)(3) 64,957
(2)(4)
---------- ---------- ---------- ----------
Gross profit....................................... 38,016 36,844 2,245 77,105
Selling, general and administrative expenses....... 27,940 34,002 (2,048)(2)(3) 60,340
(916)(4)
95(5)
1,500(6)
(233)(7)
---------- ---------- ---------- ----------
Operating income .................................. 10,076 2,842 3,847 16,765
Other (income) expense............................. -- (418) 418(8) --
Interest expense, net.............................. 11,907 2,597 (765)(9) 13,739
---------- ---------- ----------- ---------
Income (loss) before income tax expense............ (1,831) 663 4,194 3,026
Income tax expense................................. -- 145 1,096(10) 1,241
---------- ---------- ---------- ----------
Net income (loss).................................. $ (1,831) $ 518 $ 3,098 $ 1,785
========== ========== ========== ==========
Other Data:
EBITDA(3)(11)...................................... $ 15,091 $ 4,812 $ 22,832
Depreciation and amortization...................... 5,015 1,970 6,067
Capital expenditures(12)........................... 844 636 1,480
Ratio of earnings to fixed charges(13)............. -- 1.2x 1.2x
Ratio of pro forma combined EBITDA to cash
interest expense(14).......................... 1.7x
</TABLE>
See Notes to the "Unaudited Pro Forma Combined
Statement of Income and Other Data."
31
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
AND OTHER DATA
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996
(Dollars in thousands, except ratios)
<TABLE>
<CAPTION>
Historical Statements(1)
-----------------------------
ArtCarved Balfour
Three Months Three Months
Ended Ended Pro Forma Pro Forma
Nov. 30, 1996 Nov. 24, 1996 Adjustments Combined
------------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Net sales.......................................... $ 21,963 $ 19,535 $ -- $ 41,498
Cost of sales...................................... 9,626 8,762 (561)(2)(3) 17,753
(74)(4)
---------- ---------- ------- --------
Gross profit....................................... 12,337 10,773 635 23,745
Selling, general and administrative expenses....... 8,110 10,536 (512)(2)(3) 18,088
(344)(4)
375(6)
(77)(7)
---------- ---------- ------- --------
Operating income................................... 4,227 237 1,193 5,657
Interest expense, net.............................. 2,503 619 313(9) 3,435
---------- ---------- ------- --------
Income (loss) before income tax expense............ 1,724 (382) 880 2,222
Income tax expense................................. -- 10 901(10) 911
---------- ---------- ------- --------
Net income (loss).................................. $ 1,724 $ (392) $ (21) $ 1,311
========== =========== ======== ========
Other Data:
EBITDA(3)(11)...................................... $ 5,691 $ 708 $ 7,174
Depreciation and amortization...................... 1,464 471 1,517
Capital expenditures(12)........................... 182 22 204
Ratio of earnings to fixed charges(13)(15)......... 1.6x -- 1.6x
Ratio of pro forma combined EBITDA to cash
interest expense(14)(15)...................... 2.2x
</TABLE>
32
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
AND OTHER DATA
FOR THE TWELVE MONTHS ENDED AUGUST 31, 1996
AND THE THREE MONTHS ENDED NOVEMBER 30, 1996
(Dollars in thousands, except ratios)
(1) ArtCarved's fiscal year ends on the last Saturday of August and Balfour's
fiscal year ends on the last Sunday of February. The historical statement
of operations of Balfour was conformed to ArtCarved's fiscal year by
subtracting the six months ended August 27, 1995 from, and adding the six
months ended August 25, 1996 to, the fiscal year ended February 25, 1996
statement of operations amounts.
(2) Balfour jewelry manufacturing operations and related sales, general and
administrative functions will be relocated to existing ArtCarved
facilities in Austin, Texas. Consequently, the pro forma adjustments
reflect $4.3 million of the Annual Cost Savings relating to the
elimination of duplicative personnel, occupancy and fixed overhead costs
resulting from the closure of certain Balfour facilities, which were not
acquired in the Balfour Acquisition.
(3) Pro forma combined EBITDA does not give effect to $3.1 million of the
Annual Cost Savings, $2.4 million of which are related to lower prevailing
wage rates in Austin, Texas and $0.7 million of which are related to other
duplicative costs resulting from the closure of Balfour facilities and the
consolidation of Balfour's operations into existing ArtCarved operations
in Austin, Texas. The effect of the additional $3.1 million of the Annual
Cost Savings on the pro forma combined EBITDA is summarized below:
Twelve Months Ended Three Months Ended
August 31, 1996 November 30, 1996
------------------- ------------------
Pro forma combined EBITDA............ $ 22,832 $ 7,174
-------- -------
Supplemental adjustments:
Wage rate differential........... 2,357 589
Elimination of other
duplicative costs.............. 755 189
-------- -------
Additional cost savings.............. 3,112 778
-------- -------
Adjusted pro forma combined EBITDA... $ 25,944 $ 7,952
======== =======
Ratio of Adjusted pro forma
combined EBITDA to cash
interest expense................... 2.0x 2.4x
(4) Adjustments to reflect the estimated pro forma depreciation for tangible
assets and amortization of intangible assets and goodwill based on their
estimated fair market values and their respective useful lives.
Twelve Months Ended Three Months Ended
August 31, 1996 November 30, 1996
--------------------- ---------------------
Cost of Sales SG&A Cost of Sales SG&A
------------- ---- ------------- ----
Depreciation................. $ 670 $(907) $ 206 $(266)
Amortization of intangible
assets goodwill............. (672) (9) (280) (78)
------ ------ ------ ------
Total adjustments....... $ (2) $(916) (74) $(344)
====== ====== ====== ======
For purposes of calculating pro forma amounts, (i) the fair value of the
property, plant and equipment acquired is estimated to be $13.3 million,
which will be depreciated over 20 years for buildings and 2 to 10 years
for equipment, (ii) the fair value of the tools and dies acquired is
estimated to be $19.9 million, which
33
<PAGE>
will be depreciated over 14 to 19 years, and (iii) trademarks and goodwill
are estimated to be $30.7 million and $74.7 million, respectively, of
which will be amortized over 40 years.
(5) Reflects adjustment for the interest charge related to the accumulated
benefit obligation for the Balfour postretirement medical benefits plan,
net of the accretion of unrecognized transition obligation previously
recorded. See Note (8) to the audited financial statements of Balfour.
(6) Represents a $1.5 million annual management fee payable to Castle Harlan,
Inc.
(7) Reflects adjustment to exclude the Balfour gold consignment fees, which
were replaced by the Gold Facility.
(8) Reflects adjustment to exclude the non-recurring gain from the sale of a
Balfour facility in November 1995.
(9) Adjustments to interest expense, net, includes the following:
<TABLE>
<CAPTION>
Principal Twelve Months Ended Three Months Ended
Rate Amount August 31, 1996 November 30, 1996
---- --------- ------------------- ------------------
<S> <C> <C> <C> <C>
Elimination of historical interest
expense, net............................ $(14,504) $(3,122)
New interest expense related to:
Revolving Credit Facility........... 8.56% $5,200 445 111
Gold Facility....................... 5.25% 6,001 315 79
Term Loan Facility.................. 9.06% 25,000 2,265 566
Notes .............................. 11.00% 90,000 9,900 2,475
Amortization of capitalized
financing fees.................... 608 152
Bank fees........................... 206 52
-------- -------
Total new interest expense, net......... 13,739 3,435
-------- -------
Adjustment to interest expense, net..... $ (765) $ 313
========= =======
</TABLE>
Deferred financing costs are estimated to be $5.3 million, which will be
amortized over the term of the related debt instrument.
(10) Reflects adjustment to income tax expense to recognize the federal
statutory income tax rate and additional state tax expense at a combined
effective rate of 41% related to the pro forma combined statements of
income.
(11) EBITDA represents operating income (loss) before depreciation,
amortization, and restructuring charges. EBITDA does not represent cash
flows as defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all of the
Company's cash needs. EBITDA should not be considered in isolation or as a
substitute for net income (loss), cash flows from operating activities or
other measures of liquidity determined in accordance with generally
accepted accounting principles.
(12) The pro forma combined capital expenditure level is not indicative of the
expected capital expenditure level for the Company's fiscal year ending
August 30, 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality, Liquidity and Capital
Resources."
(13) For the purpose of computing this ratio, earnings consist of income (loss)
before taxes on income and fixed charges. Fixed charges consist of
interest expense, capitalized interest, amortization of deferred debt
issuance cost and a portion of rental expenses. For ArtCarved's fiscal
year ended August 31, 1996, ArtCarved's earnings before fixed charges were
insufficient to cover fixed charges by approximately $1.8 million. For
Balfour's three months ended November 24, 1996, Balfour's earnings before
fixed charges were insufficient to cover fixed charges by approximately
$0.4 million.
(14) Cash interest expense represents pro forma combined interest expense less
amortization of capitalized financing fees.
34
<PAGE>
(15) Ratios for the three months ended November 30, 1996 are not indicative of
the full year results due to the seasonal nature of the business.
35
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
NOVEMBER 30, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Historical Statements
------------------------------------
ArtCarved Balfour Pro Forma Pro Forma
November 30, 1996 November 24, 1996 Adjustments(1) Combined
----------------- ----------------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash ..................................... $ 4,456 $ 59 $ (4,515) $ --
Receivables............................... 14,681 20,605 (1,226) 34,060
Inventories............................... 5,298 9,472 7,461 22,231
Prepaid expenses and other current assets.. 784 2,447 (55) 3,176
------- -------- -------- --------
Total current assets.................. 25,219 32,583 1,665 59,467
Property, plant and equipment.............. 10,848 9,324 13,020 33,192
Trademarks................................. 21,207 -- 9,533 30,740
Deferred financing costs................... -- -- 5,325 5,325
Goodwill 12,186 2,590 59,905 74,681
Other assets............................... 13,933 553 (11,492) 2,994
------- -------- -------- --------
Total assets.......................... $83,393 $ 45,050 $ 77,956 $206,399
======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Bank overdraft............................. $ -- $ 708 $ (708) $ --
Current portion of long-term debt.......... 2,116 257 (1,873) 500
Accounts payable........................... 2,385 2,202 -- 4,587
Accrued interest payable................... 2,345 -- (2,345) --
Accrued expenses........................... 4,312 9,307 5,679 19,298
------- -------- -------- --------
Total current liabilities............. 11,158 12,474 753 24,385
Long-term debt, net of current maturities.. 80,144 19,148 26,409 125,701
Other long-term liabilities................ -- 826 5,487 6,313
------- -------- -------- --------
Total liabilities..................... 91,302 32,448 32,649 156,399
Stockholders' equity:
Preferred stock......................... -- -- 47,500 47,500
Common stock............................ -- 4 2,496 2,500
Additional paid-in capital.............. -- 75,970 (75,970) --
Accumulated deficit -- (63,372) 63,372 --
Advances and equity (deficit)........... (7,909) -- 7,909 --
------- -------- -------- --------
Total stockholders' equity (deficit).. (7,909) 12,602 45,307 50,000
------- -------- -------- --------
Total liabilities and stockholders'
equity................................ $83,393 $ 45,050 $ 77,956 $206,399
======= ======== ======== ========
</TABLE>
See Notes to the "Unaudited Pro Forma Combined Balance Sheet."
36
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED BALANCE SHEET
NOVEMBER 30, 1996
(Dollars in thousands)
(1) Set forth below are the adjustments to reflect the ArtCarved Acquisition,
the Balfour Acquisition, and the Financing.
<TABLE>
<CAPTION>
ArtCarved Balfour
Acquisition Acquisition Financing Pro Forma
Adjustments Adjustments Adjustments Adjustments
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash ........................................ $ (114,829)(a) $ (52,287)(a) $ 167,116 (h) $ (4,515)
(4,456)(b) (59)(b)
Receivables.................................. (300)(c) (926)(c) -- (1,226)
Inventories.................................. 801(c) (246)(b) -- 7,461
1,843 (c)
5,063 (e)
Prepaid expenses and other current assets.... 6(b) (61)(b) -- (55)
---------- ---------- ---------- ----------
Total current assets.................... (118,778) (46,673) 167,116 1,665
---------- ---------- ---------- ----------
Property, plant and equipment................ 5,827(c) 10,120(c) -- 13,020
(2,927)(b)
Trademarks................................... (3,467)(c) 13,000(c) -- 9,533
Deferred financing costs..................... -- -- 5,325 (h) 5,325
Goodwill 50,252(c) 5,143(c) 4,510 (h)(j) 59,905
Other assets................................. (11,147)(b) (215)(b) -- (11,492)
(130)(c)
---------- ---------- ---------- ----------
Total assets............................ $ (77,443) $ (21,552) $ 176,951 $ 77,956
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank overdraft............................... $ -- $ (708)(b) $ -- $ (708)
Current portion of long-term debt............ (2,116)(d) (257)(d) 500 (h) (1,873)
Accounts payable............................. -- -- -- --
Accrued interest payable..................... (2,345)(d) -- -- (2,345)
Accrued expenses............................. (747)(c) 196 (c) 750 (j) 5,679
5,480 (f)
---------- ---------- ---------- ----------
Total current liabilities............... (5,208) 4,711 1,250 753
---------- ---------- ---------- ----------
Long-term debt, net of current maturities.... (80,144)(d) (19,148)(d) 125,701 (h) 26,409
Other long-term liabilities.................. -- 5,487 (g) -- 5,487
---------- ---------- ---------- ----------
Total liabilities....................... (85,352) (8,950) 126,951 32,649
---------- ---------- ---------- ----------
Stockholders' equity:
Preferred stock........................... -- -- 47,500 (h) 47,500
Common stock.............................. -- (4)(i) 2,500 (h) 2,496
Additional paid-in capital................ -- (75,970)(i) -- (75,970)
Accumulated deficit -- 63,372 (i) -- 63,372
Advances and equity (deficit)............. 7,909(i) -- -- 7,909
---------- ---------- ---------- ----------
Total stockholders' equity (deficit).... 7,909 (12,602) 50,000 45,307
---------- ---------- ---------- ----------
Total liabilities and stockholders'
equity................................ $ (77,443) $ (21,552) $ 176,951 $ 77,956
========== ========== ========== ==========
</TABLE>
37
<PAGE>
- - ----------
(a) To reflect (i) the ArtCarved Acquisition, which consisted of the ArtCarved
Purchase Price of $114.8 million; and (ii) the Balfour Acquisition, which
consisted of the Balfour Purchase Price of $47.4 million and the Balfour
Gold Purchase Price of $4.9 million, in each case, based on the estimated
Adjusted Working Capital and Balfour Gold balance on the date of closing.
However, the final calculation of the Adjusted Working Capital and Balfour
Gold balance at closing and the resulting purchase prices for each of
ArtCarved, Balfour and Balfour Gold may differ from the amounts set forth
herein. See "The Acquisitions." The following represents the preliminary
allocation of the purchase prices for ArtCarved and Balfour to their
respective assets and liabilities based on Management's estimate of fair
values. This preliminary allocation is based upon estimates and
assumptions which are subject to subsequent determinations and more
detailed analyses, receiving final detailed appraisals and evaluations of
specific assets and liabilities and the calculation of the Adjusted
Working Capital and Balfour Gold balances. The final allocation of the
purchase prices for the Acquisitions may differ from the amounts set forth
below.
ArtCarved Acquisition Balfour Acquisition
--------------------- -------------------
Receivables..................... $ 14,381 $ 19,679
Inventories..................... 6,099 16,132
Prepaid expenses and other
current assets................ 790 2,386
Plant, property and equipment... 16,675 16,517
Trademarks...................... 17,740 13,000
Goodwill........................ 62,438 7,733
Other assets.................... 2,656 338
Accounts payable................ (2,385) (2,202)
Accrued expenses................ (3,565) (14,983)
Other long-term liabilities..... -- (6,313)
-------- --------
$114,829 $ 52,287
======== ========
(b) To reflect the exclusion of assets not purchased or liabilities not
assumed as part of the ArtCarved Acquisition and Balfour Acquisition.
(c) To reflect the estimated fair market value of the acquired assets and
assumed liabilities of ArtCarved and Balfour.
(d) To reflect the elimination of existing debt and accrued interest.
(e) To reflect the purchase of Balfour Gold held on consignment.
(f) To record a reserve for the non-recurring severance and relocation costs
associated with the Combination.
(g) To record the accumulated benefit obligation of $5.5 million related to
the unfunded Balfour postretirement medical benefits plan assumed in the
Balfour Acquisition.
(h) To reflect the proceeds from the Financing related to the Transactions.
The use of the proceeds is as follows:
ArtCarved Acquisition.................... $114,829
Balfour Acquisition...................... 52,287
Transaction fees and expenses............ 9,085
--------
$176,201
========
(i) To reflect the elimination of the historical equity of ArtCarved and
Balfour.
(j) To record accrued costs related to finalizing the purchase prices of the
Acquisitions.
38
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA -- ARTCARVED
The following table presents selected historical financial and other data
for ArtCarved and should be read in conjunction with the financial statements of
ArtCarved and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein. The
following information with respect to ArtCarved as of and for each of the years
ended August 27, 1994; August 26, 1995; and August 31, 1996 has been derived
from the audited financial statements of ArtCarved, which have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report dated November 13, 1996 included elsewhere herein. The ArtCarved data as
of August 31, 1993 are derived from the audited financial statements of
ArtCarved, which have been audited by Arthur Andersen LLP and are not included
elsewhere herein. The ArtCarved data as of August 31, 1992 and the three months
ended on and as of November 25, 1995 and November 30, 1996 are derived from the
unaudited financial statements of ArtCarved. The results for the three months
ended November 30, 1996 are not necessarily indicative of the results to be
expected for the full fiscal year. The information presented below does not
include adjustments related to the ArtCarved Acquisition.
<TABLE>
<CAPTION>
Three Months
Fiscal Year Ended(1) Ended(1)
----------------------------------------------------- ------------------
Aug. 31, Aug. 31, Aug. 27, Aug. 26, Aug. 31, Nov. 25, Nov. 30,
1992 1993 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales........................... $ 63,847 $ 63,955 $ 69,820 $ 71,994 $ 70,671 $ 21,923 $ 21,963
Cost of sales....................... 26,993 25,290 30,572 32,879 32,655 9,209 9,626
--------- --------- --------- --------- --------- -------- --------
Gross profit........................ 36,854 38,665 39,248 39,115 38,016 12,714 12,337
Selling, general and administrative
expenses......................... 26,920 27,016 26,618 28,224 27,940 8,484 8,110
Restructuring charges(2)............ -- -- -- 3,244 -- -- --
--------- --------- --------- --------- --------- -------- ---------
Operating income (loss)............. 9,934 11,649 12,630 7,647 10,076 4,230 4,227
Interest expense, net............... 13,165 12,333 11,506 13,613 11,907 3,355 2,503
--------- --------- --------- --------- --------- -------- --------
Income (loss) before income tax (3,231) (684) 1,124 (5,966) (1,831) 875 1,724
expense.............................
Income tax expense.................. 65 146 137 -- -- -- --
--------- --------- --------- --------- --------- -------- --------
Net income (loss)................... $ (3,296) $ (830) $ 987 $ (5,966) $ (1,831) $ 875 $ 1,724
========= ========= ========= ========= ========= ======== ========
Other Data:
EBITDA(3)........................... $ 15,548 $ 17,046 $ 17,324 $ 16,505 $ 15,091 $ 5,494 $ 5,691
Depreciation and amortization....... 5,614 5,397 4,694 5,614 5,015 1,264 1,464
Capital expenditures(4)............. 862 1,344 1,186 1,120 844 420 182
Ratio of earnings to fixed charges(5) -- -- 1.1x -- -- 1.3x 1.6x
Balance Sheet Data (at end of
period):
Working capital..................... $ (1,232) $ 6,938 $ (17,064) $ (21,178) $ 3,063 $ 14,061
Total assets........................ 79,698 76,008 78,900 75,955 74,542 83,393
Total long-term debt(6)............. 107,783 98,485 98,728 99,900 91,221 80,144
Advances and equity (deficit)(6).... (32,989) (27,931) (51,504) (53,186) (28,524) (7,909)
</TABLE>
- - ----------
footnotes appear on following page
39
<PAGE>
(1) During the periods presented, ArtCarved was not operated or accounted for
as a separate entity. As a result, allocations for certain accounts of CJC
were reflected in the financial statements of ArtCarved. Selling, general
and administrative expenses for ArtCarved represent all the expenses
incurred by CJC excluding only the expenses directly related to the
non-ArtCarved operations of CJC. Since CJC intends to use the proceeds
from the sale of ArtCarved to repay its outstanding debt obligations, the
statement of income data, other data, and the balance sheet data include
all of CJC's debt and related interest expense.
(2) For the fiscal year ended August 26, 1995, the restructuring charges of
$3.2 million consisted of the write-off of $2.9 million of capitalized
financing costs incurred in 1990 by CJC and $0.3 million of related
professional advisory fees incurred by CJC. The balance sheet data include
all of CJC's debt and related interest expense, and therefore all of the
restructuring charges are allocated to ArtCarved assets.
(3) EBITDA represents operating income (loss) before depreciation,
amortization, and restructuring charges. EBITDA does not represent cash
flows as defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all of
ArtCarved's cash needs. EBITDA should not be considered in isolation or as
a substitute for net income (loss), cash flows from operating activities
or other measures of liquidity determined in accordance with generally
accepted accounting principles.
(4) Historical capital expenditure levels are not necessarily indicative of
the expected capital expenditure level for the Company's fiscal year
ending August 30, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality, Liquidity and
Capital Resources."
(5) For the purpose of computing this ratio, earnings consist of income (loss)
before taxes on income and fixed charges. Fixed charges consist of
interest expense, capitalized interest, amortization of deferred debt
issuance cost and a portion of rental expenses. For the fiscal years ended
August 31, 1992, August 31, 1993, August 26, 1995 and August 31, 1996,
earnings before fixed charges were insufficient to cover fixed charges by
approximately $3.2 million, $0.7 million, $6.0 million and $1.8 million,
respectively.
(6) The changes in total long-term debt and advances in equity (deficit) from
August 31, 1996 to November 30, 1996 are due to the sale of CJC's
non-ArtCarved operations.
40
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA--BALFOUR
The following table presents selected historical financial and other data
for Balfour and should be read in conjunction with the financial statements of
Balfour and the notes thereto and "Management's Discussion and Analysis of
Results of Operations and Financial Condition" included elsewhere herein. The
following information with respect to Balfour as of and for the years ended
February 27, 1994; February 26, 1995 and February 25, 1996 has been derived from
the audited financial statements of Balfour, which have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report dated
September 30, 1996 included elsewhere herein. The following information with
respect to Balfour as of and for the years ended February 29, 1992 and February
28, 1993 and the nine months ended on, and as of, November 26, 1995 and November
24, 1996 has been derived from the unaudited financial statements of Balfour. In
Management's opinion, the data as of and for the years ended February 29, 1992
and February 28, 1993 and as of and for the nine months ended November 26, 1995
and November 24, 1996 reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation. The results for the nine months
ended November 24, 1996 are not necessarily indicative of the results to be
expected for the full fiscal year. The information presented below does not
include adjustments related to the Balfour Acquisition.
<TABLE>
<CAPTION>
Fiscal Year Ended(1) Nine Months Ended(1)
--------------------------------------------------- -------------------
Feb. 29, Feb. 28, Feb. 27, Feb. 26, Feb. 25, Nov. 26, Nov. 24,
1992 1993 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales............................. $ 91,681 $ 83,938 $ 85,304 $ 77,491 $ 71,300 $ 53,413 $ 55,521
Cost of sales......................... 55,607 47,130 35,860 35,406 35,598 27,160 27,021
-------- -------- -------- -------- -------- -------- --------
Gross profit.......................... 36,074 36,808 49,444 42,085 35,702 26,253 28,500
Selling, general and administrative
expenses........................... 42,481 43,856 43,350 51,743 33,496 25,831 27,910
Restructuring charges(2).............. -- 14,500 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)............... (6,407) (21,548) 6,094 (9,658) 2,206 422 590
-------- -------- -------- -------- -------- -------- --------
Other (income) expense:
Interest expense, net................. 306 234 673 700 583 450 432
Payroll tax refund.................... -- -- -- (574) -- -- --
Gain on sale of facility.............. -- -- -- -- (418) (418) --
Interest on due to Parent(3).......... 9,183 9,501 683 1,093 1,986 1,401 1,384
-------- -------- -------- -------- -------- -------- --------
Net other expense..................... 9,489 9,735 1,356 1,219 2,151 1,433 1,816
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income tax expense (15,896) (31,283) 4,738 (10,877) 55 (1,011) (1,226)
Provision for income taxes............ 125 310 50 65 191 144 60
-------- -------- -------- -------- -------- -------- --------
Net income (loss)..................... $(16,021) $(31,593) $ 4,688 $(10,942) $ (136) $ (1,155) $ (1,286)
======== ======== ======== ======== ======== ===================
Other Data:
EBITDA(4)............................. $(3,376) $(3,983) $7,993 $(7,680) $4,232 $1,970 $2,050
Depreciation and amortization......... 3,031 3,065 1,899 1,978 2,026 1,548 1,460
Capital expenditures(5)............... 620 826 1,820 1,274 530 320 252
Adjusted net sales(6)................. 59,600 56,315 61,784 64,891 70,111 52,537 54,672
Ratio of earnings to fixed charges(7). -- -- 4.3x -- 1.0x -- --
Balance Sheet Data (at end of period):
Working capital....................... $24,076 $4,848 $15,217 $14,214 $13,898 $20,109
Total assets.......................... 70,086 44,795 47,989 45,236 42,563 45,050
Total long-term debt(8)............... 66,924 1,801 6,136 15,136 13,166 19,405
Advances and equity (deficit)......... (20,127) 20,278 24,966 14,024 13,888 12,602
</TABLE>
- - ----------
footnotes appear on following page
41
<PAGE>
(1) During the periods presented, Balfour was operated as a wholly-owned
subsidiary of Town & Country and Town & Country administered certain
programs (such as health insurance, workmen's compensation and gold
consignment) and charged all directly identifiable costs to Balfour.
Indirect costs were not allocated to Balfour; however, Balfour's
management believes these amounts are not significant for the periods
presented.
(2) For the fiscal year ended February 28, 1993, Balfour's management decided
to make changes with respect to certain of its operations. As a result of
this decision, Balfour sold or disposed of certain inventory and equipment
no longer considered necessary to its modified business and recorded a
restructuring charge associated with such disposal of assets.
(3) Effective February 28, 1993, Town & Country contributed amounts due to
Town & Country from Balfour as additional paid-in-capital, thereby
reducing interest charges on the due to Town & Country amounts in future
periods.
(4) EBITDA represents operating income (loss) before depreciation,
amortization and restructuring charges. EBITDA does not represent cash
flows as defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all of
Balfour's cash needs. EBITDA should not be considered in isolation or as a
substitute for net income (loss), cash flows from operating activities or
other measures of liquidity determined in accordance with generally
accepted accounting principles.
(5) Historical capital expenditure levels are not necessarily indicative of
the expected capital expenditure level for the Company's fiscal year
ending August 30, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality, Liquidity and
Capital Resources."
(6) Adjusted net sales represents, for all periods presented, net sales
excluding results from (i) the direct mail distribution of licensed
consumer sports jewelry, which was discontinued in February 1995; (ii) the
fraternity jewelry product line, which was sold in March 1994; and (iii)
the service award recognition product line, which was sold in April 1993.
Although Balfour sold substantially all of the service award recognition
product line, Balfour continues to have sales of service award recognition
products, which Management believes will not be a significant percentage
of net sales in future periods.
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
--------------------------------------------------- -------------------
Feb. 29, Feb. 28, Feb. 27, Feb. 26, Feb. 25, Nov. 26, Nov. 24,
1992 1993 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................. $91,681 $83,938 $85,304 $77,491 $71,300 $53,413 $55,521
Less:
Direct distribution of licensed
consumer sports jewelry............... -- 2,313 16,271 10,481 -- -- --
Fraternity jewelry product line....... 3,997 3,537 -- -- -- -- --
Service award recognition product line 28,084 21,773 7,249 2,119 1,189 876 849
-------- -------- --------- --------- --------- -------- --------
Adjusted net sales................. $59,600 $56,315 $61,784 $64,891 $70,111 $52,537 $54,672
======= ======= ======= ======= ======= ======= =======
</TABLE>
(7) For the purpose of computing this ratio, earnings consist of income (loss)
before taxes on income and fixed charges. Fixed charges consist of
interest expense, capitalized interest, amortization of deferred debt
issuance cost and a portion of rental expenses. For the fiscal years ended
February 29, 1992, February 28, 1993 and February 26, 1995, Balfour's
earnings before fixed charges were insufficient to cover fixed charges by
$15.9 million, $31.3 million and $10.9 million, respectively. For the nine
months ended November 26, 1995 and November 24, 1996, Balfour's earnings
before fixed charges were insufficient to cover fixed charges by $1.0
million and $1.2 million, respectively.
(8) The change in total long term debt from February 25, 1996 to November 24,
1996 is due to the seasonal nature of Balfour's operations.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the ArtCarved
financial statements and notes thereto, the Balfour financial statements and
notes thereto and the other financial information appearing elsewhere herein.
See "Index to Financial Statements."
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. Discussions containing
such forward-looking statements may be found in the material set forth below and
under "Prospectus Summary," "Risk Factors," "Unaudited Pro Forma Combined
Financial Statements and Other Data" and "Business" as well as in the Prospectus
generally. Actual events or results may differ materially from those discussed
in the forward-looking statements as a result of the various factors, including,
without limitation, the factors set forth below and the other matters set forth
in the Prospectus generally.
General
The Company is the second largest manufacturer of class rings in the
United States based on net sales and is a supplier of graduation-related
scholastic products for high school and college markets. The Company is the only
class ring manufacturer with a strong national presence in the three primary
sales channels for class rings and scholastic products. The Company also
manufactures and markets recognition and affinity jewelry designed to
commemorate significant events, achievements and affiliations.
During the late 1980s and early 1990s, the prior owners of each of
ArtCarved and Balfour diverted the focus and resources of such companies and
considerable management time from their respective core class ring businesses.
Management believes that the multiple changes in ownership, strategic direction
and management attention to other subsequently discontinued business lines of
ArtCarved and Balfour had an unfavorable impact on the financial performance of
such entities and on the ability of prior management of such companies to
develop and expand their respective businesses.
Despite continued operating profitability in ArtCarved's core class ring
operations, difficulties in CJC's non-ArtCarved operations, which had
substantial working capital requirements, and bankruptcy filings by several
significant customers of that division led to a substantial drain on CJC's
resources and led to CJC's recapitalization, which began in 1993 and was
completed in 1996. Balfour discontinued its direct mail distribution of licensed
consumer sports jewelry (the "direct mail program") due to high marketing costs
and poor collections of installment payments, which were responsible for an
operating loss of $10.3 million, including the allocation of certain fixed
overhead costs, for Balfour's fiscal year ended February 26, 1995. In March
1994, Balfour sold its fraternity jewelry product line, thereby eliminating a
product line with operating losses of $0.6 million, including the allocation of
certain fixed overhead costs, in both of Balfour's fiscal years ended February
29, 1992 and February 28, 1993.
The Company sells its high school class rings through two distinct sales
channels--in-store to independent retail jewelers, chain jewelers and mass
merchants and in-school through Balfour's independent sales representatives.
Historically, Balfour's selling expenses tend to represent a relatively high
percentage of Balfour's net sales because Balfour's products are marketed at
individual schools through independent sales representatives, who are
compensated on a commission basis. Alternatively, ArtCarved has employed a
salaried sales force to sell its class rings in-store, and consequently,
ArtCarved's selling expenses are comparatively lower than those of Balfour. See
"Business--Sales and Marketing" and "--Employees."
Effective September 1, 1993, ArtCarved changed to a fiscal year consisting
of 52 or 53 weeks, as applicable, ending on the last Saturday in August.
Effective February 1990, Balfour changed to a fiscal year consisting of 52 or 53
weeks, as applicable, ending on the last Sunday of February. Neither change in
fiscal years resulted in a material
43
<PAGE>
impact on results of operations. The Company's fiscal year consists of 52 or 53
weeks, as applicable, ending on the last Saturday of August.
Recent Developments
During the current fiscal quarter, class ring unit shipments by the
Company and its predecessors in December were negatively impacted by (i)
production disruptions and manufacturing inefficiencies following the December
5, 1996 announcement to the Balfour employees of the proposed sale of Balfour
and of the relocation of all production from Massachusetts to Texas, (ii) the
shortened post-Thanksgiving selling period (26 days in 1996 compared to 31 days
in 1995) and (iii) the discontinuation of certain marketing programs. Class
ring unit shipments by the Company for the first three weeks of January 1997
(the three weeks ended January 25, 1997) have improved over the same period in
the prior fiscal year for the predecessor companies. Through the first
three weeks of the current fiscal quarter, total class ring unit shipments by
the Company and its predecessors decreased by 3.1% compared to the same fiscal
periods for the predecessor companies in the prior year (Balfour predecessor
company having had one less week in the same period in its prior fiscal year).
Expenses during December 1996 and January 1997 (through January 25,
1997) fiscal periods have been higher than in the same periods in the prior
year. The consolidation of class ring manufacturing is an integral part of the
Company's cost reduction opportunities and Management expects to complete the
consolidation of operations during the fiscal year ending August 30, 1997.
Notification of plant closings pursuant to the Workers Adjustment and
Retraining Notification Act (WARN) were provided beginning on January 16, 1997
to two of the three affected Balfour facilities in Massachusetts.
The financial books and records have not been closed for the December
1996 and January 1997 fiscal periods. Therefore the effect of the class ring
unit decrease (for the December fiscal period) and the class ring unit increase
(for the January fiscal period) and the additional operating expenses on the
Company's operating income has not yet been determined.
Results of Operations
ArtCarved
Three Months Ended November 30, 1996 (the "three months ended November
1996") to Three Months Ended November 25, 1995 (the "three months ended November
1995").
Net Sales. Net sales increased less than $0.1 million, or 0.2%, to $22.0
million for the three months ended November 1996 from $21.9 million for the
three months ended November 1995. The increase in sales reflected a 4.5%
increase in units sold, which more than offset a 4.1% decrease in average unit
price. The increase in units sold primarily reflected a 110.0% increase in units
sold of other jewelry products, primarily through the expansion of personalized
family jewelry products, which was partially offset by a 9.6% decrease in units
sold of college class rings. The decrease in average unit price resulted
primarily from the change in product mix resulting in decreased sales in the
higher average unit price of the college segment to the lower average unit price
of the personalized family jewelry products.
Gross Profit. Gross profit decreased $0.4 million, or 3.0% to $12.3
million for the three months ended November 1996 from $12.7 million for the
three months ended November 1995. As a percentage of net sales, gross profit
decreased to 56.2% for the three months ended November 1996 from 58.0% for the
three months ended November 1995. This decrease was primarily a result of a
change in product mix resulting from decreased sales of college rings, and
increased sales of personalized family jewelry products.
Selling, General & Administrative Expenses. Selling, general and
administrative expenses decreased $0.4 million, or 4.4%, to $8.1 million for the
three months ended November 1996 from $8.5 million for the three months ended
November 1995. As a percentage of net sales, selling, general and administrative
expenses decreased to 36.9% for the three months ended November 1996 from 38.7%
for the three months ended November 1995. This decrease was primarily a result
of postponing certain marketing activities from the three months ended November
1996 until the second and third quarter of the fiscal year ending August 30,
1997.
44
<PAGE>
Operating Income. As a result of the foregoing, operating income was $4.2
million for the three months ended November 1996 and November 1995. As a
percentage of net sales, operating income decreased to 19.2% for the three
months ended November 1996 from 19.3% for the three months ended November 1995.
Interest Expense, Net. Interest expense, net decreased $0.9 million to
$2.5 million for the three months ended November 1996 from $3.4 million for the
three months ended November 1995, primarily as a result of $16.4 million of debt
reduction due to the restructuring and recapitalization of CJC that was
consummated in March 1996.
Income Tax Expense. There was no income tax provision in either the three
months ended November 1996 or the three months ended November 1995, due to
available federal net operating tax losses and other credit carryforwards of CJC
that eliminated the need for a federal tax provision.
Net Income (Loss). As a result of the foregoing, net income increased $0.8
million, to $1.7 million for the three months ended November 1996 from $0.9
million for the three months ended November 1995.
Twelve Months Ended August 31, 1996 ("fiscal 1996") to Twelve Months Ended
August 26, 1995 ("fiscal 1995")
Net Sales. Net sales decreased $1.3 million, or 1.8%, to $70.7 million in
fiscal 1996 from $72.0 million in fiscal 1995. The decrease in sales reflected a
4.7% decrease in units sold, which more than offset a 3.0% increase in average
unit price. The decline in units sold primarily reflected an 11.3% decrease in
units sold of high school class rings, which was partially offset by a 3.0%
increase in units sold of college class rings and a 39.3% increase in units sold
of other jewelry products. Management believes the decline in high school units
sold resulted primarily from heightened marketing efforts and aggressive pricing
from competitors in the in-school market during the 1995 fall back-to-school
season. The impact on ArtCarved of this increased competitive environment in the
in-school market was partially offset in the second half of fiscal 1996 by
ArtCarved's increased in-store marketing. The increase in average unit price
primarily resulted from price increases in high school class rings sold to mass
merchants.
Gross Profit. Gross profit decreased $1.1 million, or 2.8%, to $38.0
million in fiscal 1996 from $39.1 million in fiscal 1995. As a percentage of net
sales, gross profit decreased to 53.8% in fiscal 1996 from 54.3% in fiscal 1995.
This decease was due primarily to a decrease in the number of units sold and an
average increase in gold material costs which was not reflected in unit prices
until the end of the second quarter of fiscal 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.3 million, or 1.0%, to $27.9 million in
fiscal 1996 from $28.2 million in fiscal 1995. As a percentage of net sales,
selling, general administrative expenses increased to 39.5% in fiscal 1996 from
39.2% in fiscal 1995, primarily as a result of decreased sales and increased
marketing expenditures. The decrease in selling, general and administrative
expenses resulted from a $1.1 million decrease in general and administrative
expenses and savings associated with staff reductions and a $0.6 million
decrease in depreciation and amortization cost. These cost reductions were
substantially offset by an increase in marketing costs of $1.4 million, which
funded additional college direct mail advertising and enhanced high school
marketing efforts.
Restructuring Charges. Restructuring charges of $3.2 million in fiscal
1995 consisted of the write-off of $2.9 million of capitalized financing costs
incurred in 1990 by CJC and $0.3 million of related professional advisory fees
incurred by CJC.
Operating Income (Loss). As a result of the foregoing, operating income
increased $2.4 million, or 31.8%, to $10.1 million in fiscal 1996 from $7.6
million in fiscal 1995. Operating income before restructuring charges decreased
$0.8 million, or 7.5%, to $10.1 million in fiscal 1996 from $10.9 million in
fiscal 1995. As a percentage of net sales, operating income before restructuring
charges decreased to 14.3% in fiscal 1996 from 15.1% in fiscal 1995.
45
<PAGE>
Interest Expense, Net. Interest expense, net decreased $1.7 million, to
$11.9 million for fiscal 1996 from $13.6 million in fiscal 1995, primarily as a
result of $16.4 million of debt reduction due to the restructuring and
recapitalization of CJC that was consummated in March 1996.
Income Tax Expense. There was no income tax provision in either fiscal 1996
or fiscal 1995, due to available federal net operating tax losses and other
credit carryforwards of CJC that eliminated the need for a federal tax
provision.
Net Income (Loss). As a result of the foregoing, net loss decreased $4.2
million, to $1.8 million, in fiscal 1996 from a net loss of $6.0 million in
fiscal 1995.
Twelve Months Ended August 26, 1995 ("fiscal 1995") to Twelve Months Ended
August 27, 1994 ("fiscal 1994")
Net Sales. Net sales increased $2.2 million, or 3.1% , to $72.0 million in
fiscal 1995 from $69.8 million in fiscal 1994. the increase in net sales
reflected a 4.1% increase in average unit price, which offset a 1.0% decrease in
units sold. This increase was due primarily to increased sales of college class
rings of $2.4 million, which resulted from increased unit sales of 5.3% and a
higher average sales price of 5.0%, which was partially offset by decreased unit
sales of high school class rings of 2.9%. The increase in average unit price
resulted primarily from a favorable product mix change in style and metal type
in the college and high school class ring segments.
Gross Profit. Gross profit decreased $0.1 million, or 0.3%, to $39.1
million in fiscal 1995 from $39.2 million in fiscal 1994. As a percentage of net
sales, gross profit decreased to 54.3% in fiscal 1995 from 56.2% in fiscal 1994.
This decrease was primarily a result of a change in product mix in metal type of
class rings, increased gold and stone raw material costs, and an increase in
hourly wages.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.6 million, or 6.0%, to $28.2 million in
fiscal 1995 from $26.6 million fiscal 1994. As a percentage of net sales,
selling, general and administrative expenses increased to 39.2% in fiscal 1995
from 38.1% in fiscal 1994. This increase was predominately due to an increase of
$0.9 million in marketing costs associated with college and high school direct
mail advertising and an increase of $0.9 million in depreciation and
amortization.
Restructuring Charges. Restructuring charges of $3.2 million in fiscal 1995
consisted of the write-off of $2.9 million of capitalized financing costs
incurred in 1990 by CJC and $0.3 million of related professional advisory fees
incurred by CJC.
Operating Income (Loss). As a result of the foregoing, operating income
decreased $5.0 million, or 39.5%, to $7.6 million in fiscal 1995 from $12.6
million in fiscal 1994. Operating income before restructuring charges decreased
$1.7 million, or 13.8%, to $10.9 million in fiscal 1995 from $12.6 million in
fiscal 1994. As a percentage of net sales, operating income before restructuring
charges decreased to 15.1% in fiscal 1995 from 18.1% in fiscal 1994.
Interest Expense, Net. Interest expense, net increased $2.1 million, or
18.3%, to $13.6 million in fiscal 1995 from $11.5 million in fiscal 1994,
primarily as a result of the higher average loan balances of CJC outstanding
during fiscal 1995.
Income Tax Expense. There was no federal income tax provision in either
fiscal 1995 or fiscal 1994 due to available federal net operating tax losses and
other tax credit carryforwards of CJC that eliminated the need for a federal tax
provision. The fiscal 1994 income tax expense represents a provision for state
income taxes of CJC.
Net Income (Loss). As a result of the foregoing, net income (loss)
decreased $7.0 million to a net loss of $6.0 million in fiscal 1995 from net
income of $1.0 million in fiscal 1994.
46
<PAGE>
Balfour
Nine Months Ended November 24, 1996 (the "nine months ended November 1996")
to Nine Months Ended November 26, 1995 (the "nine months ended November 1995").
Net Sales. Net Sales increased $2.1 million, or 3.9%, to $55.5 million for
the nine months ended November 1996 from $53.4 million for the nine months ended
November 1995. The increase primarily reflects a $3.2 million increase in
scholastic products and a $0.2 million increase in licensed consumer sports
jewelry. These increases were offset by a decline in sports championship jewelry
of $1.3 million, primarily attributable to the fact that Balfour, which had been
awarded the contract to produce the 1995 Super Bowl championship rings, was not
awarded the contract in 1996.
Gross Profit. Gross profit increased $2.2 million, or 8.4%, to $28.5
million for the nine months ended November 1996 from $26.3 for the nine months
ended November 1995. As a percentage of net sales, gross profit increased to
51.3% for the nine months ended November 1996 from 49.3% for the nine months
ended November 1995. The change in gross profit is primarily related to the
volume increase of scholastic products, resulting in a $1.7 million increase in
gross profit, as well as reduced labor and overhead costs associated with class
rings manufacturing resulting in an additional $0.7 million of gross profit.
These gains were offset by a volume reduction of recognition and affinity
products (including Super Bowl rings) resulting in a $0.2 million decline in
gross profit.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.1 million, or 8.1%, to $27.9 million for
the nine months ended November 1996 from $25.8 million for the nine months ended
November 1995. As a percentage of net sales, selling, general and administrative
expenses increased to 50.3% of net sales in the nine months ended November 1996
from 48.3% of net sales in the nine months ended November 1995. This increase is
primarily the result of updating the class rings marketing material for both the
high school and college markets and increased selling expenses associated with
jewelry designed to commemorate the 1996 Summer Olympics.
Operating Income (Loss). Operating income increased $0.2 million to $0.6
million, or 1.1% of net sales, for the nine months ended November 1996 from
operating income of $0.4 million, or 0.8% of net sales, for the nine months
ended November 1995.
Interest Expense, Net. Interest expense decreased $0.1 million to $1.8
million for the nine months ended November 1996 from $1.9 million for the nine
months ended November 1995. The interest rate was at 11.5% for both periods on
amounts due to Town & Country.
Other Income. A gain on the sale of a facility in the amount of $0.4
million is reflected in the nine months ended November 1995.
Income Tax Expense. There was no federal income tax provision in either the
nine months ended November 1996 or the nine months ended November 1995 due to
available federal net operating tax losses and other tax credit carryforwards of
Town & Country that eliminated the need for a federal tax provision. The income
tax expense represents a provision for state income taxes for each of the nine
months ended November 1996 and the nine months ended November 1995.
Net Income (Loss). As a result of the foregoing, net loss increased by $0.1
million, to a net loss of $1.3 million for the nine months ended November 1996
from a net loss of $1.2 million for the nine months ended November 1995.
47
<PAGE>
Twelve Months Ended February 25, 1996 (the "1996 period") to Twelve Months
Ended February 26, 1995 (the "1995 period")
Net Sales. Net sales decreased $6.2 million, or 8.0%, to $71.3 million for
the 1996 period from $77.5 million for the 1995 period. A decrease of $10.5
million in the 1996 period resulted from the decision to discontinue the direct
mail program as of February 1995, and the decision to focus on retail
distribution for licensed consumer sports jewelry. This decline was partially
offset by increased net sales of $4.3 million of scholastic products, primarily
fine paper, reflecting the full-year impact during the 1996 period of the
addition of independent regional sales representatives, which began during the
1995 period. Excluding the direct mail program, net sales would have increased
$4.3 million, or 6.4%, to $71.3 million for the 1996 period from $67.0 million
for the 1995 period.
Gross Profit. Gross profit decreased $6.4 million, or 15.2%, to $35.7
million for the 1996 period from $42.1 million for the 1995 period. As a
percentage of net sales, gross profit decreased to 50.1% for the 1996 period
from 54.3% for the 1995 period. This decrease was largely as a result of the
discontinuation of the direct mail program, which resulted in lower
manufacturing unit throughput. The gross profit for the direct mail program for
the 1995 period was $6.4 million, including the allocation of certain fixed
overhead costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $18.2 million, or 35.3%, to $33.5 million for
the 1996 period from $51.7 million for the 1995 period. As a percentage of net
sales, selling, general and administrative expenses decreased to 47.0% for the
1996 period from 66.8% for the 1995 period. This decrease was primarily related
to the elimination of advertising expense of $7.7 million, bad debt expense of
$5.2 million and other related expenses of $0.8 million associated with the
direct mail program in the 1995 period. In addition, Balfour implemented staff
reductions in the selling, marketing, design, finance, MIS and human resource
functions in November 1994 and January 1995, including the discontinuance of the
direct mail program, that resulted in cost savings of $4.5 million in the 1996
period, net of related expenses. The selling, general and administrative
expenses associated with the direct mail program for the 1995 period were $16.7
million, including the allocation of certain fixed overhead costs.
Operating Income (Loss). As a result of the foregoing, operating income
increased $11.9 million, to $2.2 million, or 3.1% of net sales, for the 1996
period from an operating loss of $9.7 million for the 1995 period. The operating
loss for the direct mail program for the 1995 period was $10.3 million,
including the allocation of certain fixed overhead costs.
Interest Expense, Net. Interest expense, net increased $0.8 million, or
43.3%, to $2.6 million in the 1996 period from $1.8 million in the 1995 period.
This increase was primarily the result of increased borrowings to fund
advertising and other expenses associated with the direct mail program and an
increase in the interest rate charged by Town & Country to 11.5% in the 1996
period from 11.0% for the 1995 period.
Income Tax Expense. There was no federal income tax provision in either the
1996 period or the 1995 period due to available federal net operating tax losses
and other tax credit carryforwards of Town & Country that eliminated the need
for a federal tax provision. The income tax expense represents a provision for
state income taxes in both the 1996 period and the 1995 period.
Net Income (Loss). As a result of the foregoing, net loss decreased $10.8
million to a net loss of $0.1 million for the 1996 period from a net loss of
$10.9 million for the 1995 period.
Twelve Months Ended February 26, 1995 (the "1995 period") to Twelve Months
Ended February 27, 1994 (the "1994 period")
Net Sales. Net sales decreased $7.8 million, or 9.2%, to the $77.5 million
for the 1995 period from $85.3 million for the 1994 period. Net sales decreased
by approximately $5.8 million in the 1995 period due to the decision to
discontinue the direct mail program in the 1995 period, which accounted for
$10.5 million and $16.3 million of net sales in the 1995 and 1994 periods,
respectively. In addition, Balfour experienced a $5.1 million
48
<PAGE>
decrease in sales of recognition and affinity products in the 1995 period due to
a decline in the sale of service award recognition products that remained
following the sale of substantially all of this product line in April 1993. Net
sales of in-school scholastic products increased $2.3 million in the 1995 period
as a result of the addition of new independent sales representatives and net
sales of licensed consumer sports jewelry increased $1.3 million in the 1995
period as a result of the expansion of Balfour's retail distribution of licensed
consumer sports jewelry. Excluding net sales from the direct mail program, net
sales for the 1995 period would have decreased $2.0 million, or 2.9%, to $67.0
million for the 1995 period from $69.0 million for the 1994 period.
Gross Profit. Gross profit decreased $7.3 million, or 14.9% to $42.1
million for the 1995 period from $49.4 million for the 1994 period. As a
percentage of net sales, gross profit decreased to 54.3% for the 1995 period
from 58.0% for the 1994 period. A decline in the direct mail program sales
volume accounted for $6.1 million of the decrease. Additionally, the volume
decline in sales of Balfour affinity and recognition products contributed $1.7
million offset by a volume increase in sales of licensed consumer sports jewelry
due to volume increases of $0.5 million. The gross profit for the direct mail
program for the 1995 and 1994 periods were $6.4 million and $12.5 million,
respectively, including the allocation of certain fixed overhead costs. The
decline in gross profit as a percentage of sales in the 1995 period reflects the
substantially lower manufacturing unit throughput that resulted from the
discontinuation of the direct mail program.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $8.4 million, or 19.4%, to $51.7 million for
the 1995 period from $43.3 million for the 1994 period. As a percentage of net
sales, selling, general and administrative expenses increased to 66.8% for the
1995 period from 50.8% for the 1994 period. This increase resulted from (i) $5.2
million in bad debt expense associated with the direct mail program, (ii) and
increase of $1.2 million in fine paper selling expenses as a result of increased
sales and the addition of independent sales representatives, and (iii) the
relocation of administrative offices and an increase in staff associated with
administrative support for the direct mail program and MIS improvements. The
selling, general and administrative expenses associated with the direct mail
program for the 1995 and 1994 period were $16.7 million and $11.5 million,
respectively, including an allocation of certain fixed overhead costs.
Operating Income (Loss). As a result of the foregoing, operating income
decreased $15.8 million to an operating loss of $9.7 million for the 1995 period
from operating income of $6.1 million, or 7.1% of net sales, for the 1994
period. Operating loss for the direct mail program for the 1995 period was $10.3
million and the operating income for the 1994 period was $1.0 million, including
the allocation of certain fixed overhead costs for each period.
Interest Expense, Net. Interest expense, net increased $0.4 million, or
32.2%, to $1.8 million in the 1995 period from $1.4 million in the 1994 period.
This increase was the result of higher average loan balances with Town & Country
resulting from the direct mail program.
Income Tax Expense. There was no federal income tax provision in either the
1995 period or the 1994 due to federal net operating tax losses and other tax
credit carryforwards of Town & Country that eliminated the need for a federal
tax provision. The income tax expense represents a provision for state income
taxes in both the 1995 period and the 1994 period.
Net Income (Loss). As a result of the foregoing, net income decreased $15.6
million to a net loss of $10.9 million for the 1995 period from net income of
$4.7 million for the 1994 period.
49
<PAGE>
Impact of Inflation
The Company's operating expenses are directly affected by inflation, which
results in an increased cost of conducting business. In general, the Company
believes that the rate of inflation over the past several years has not had a
significant impact on its sales, operating income (loss) or results of
operations.
Raw Material Price Fluctuations
The Company requires significant amounts of gold for the manufacture of its
jewelry. The Company finances a majority of its gold inventory requirements
through its Gold Facility. Management believes that the Company has sufficient
availability under its Revolving Credit and Gold Facilities to finance all of
its gold inventory requirements.
The Company seeks to reduce its exposure to fluctuations in the price of
gold in several ways. In the Company's in-school sales channel for the sale of
high school class rings, the Company can reset its ring prices from time to time
on new ring sales to reflect the then current price of gold. However, the
Company does not have the same flexibility to reset its ring prices in the
in-store and on-campus sales channels for high school and college rings,
respectively, where rings are sold on the basis of seasonal prices. In either
case, the Company must bear the risk of a change in the price of gold either
from the time the order is placed or from the time the price is set until the
product is shipped. As a result, since there may be a change in the price of
gold during such period, the Company may engage in certain hedging transactions
to reduce the effects of fluctuations in the price of gold during these periods.
The Company currently does not have any such hedges in place.
The Company also uses precious metals and both precious and semiprecious
stones in its products and, accordingly, any increase in the price of these
materials could have a significant adverse impact on its cost of sales. See
"Business--Raw Materials."
Seasonality, Liquidity and Capital Resources
The Company's scholastic product sales tend to be seasonal. Class ring
sales are highest during October through December (which overlaps the Company's
first and second fiscal quarters), when students have returned to school after
the summer recess and orders are taken for delivery of class rings to students
before the winter holiday season. Sales of the company's fine paper products are
predominantly made during February through April (which overlaps the Company's
second and third fiscal quarters) for graduation in May and June. The Company
has historically experienced operating losses during its fourth fiscal quarter,
which includes the summer months when school is not in session. Management does
not expect the Company's recognition and affinity product line to be seasonal in
any material respect, although it does anticipate that sales will be highest
during the winter holiday season and in the period prior to Mother's Day. As a
result, the effects of seasonality of the class ring business on the Company are
tempered by the Company's relatively broad product mix. See "Risk
Factors--Seasonality."
As a result of the foregoing, the Company's working capital requirements
tend to exceed its operating cash flows from July through December.
Historically, ArtCarved met its working capital and capital expenditures
requirements through cash flow provided by operating activities, while Balfour
met its working capital and capital expenditures requirements through cash flow
from operations and borrowings from its parent. The Company's liquidity needs
arise primarily from debt service on the indebtedness to be incurred in
connection with the Transactions, payments required under a Management Agreement
with Castle Harlan, Inc. (see "Certain Relationships and Related Transactions")
and working capital and capital expenditure requirements. The Company is party
to the Revolving Credit Facility and expects peak borrowings to occur from
October through December. As of December 16, 1996, the Company had outstanding
approximately $126.2 million of indebtedness, consisting of the Notes, $25.0
million under the Term Loan Facility and $11.2 million in borrowings under the
Revolving Credit and Gold Facilities. The Revolving Credit and Gold Facilities
permit borrowings of up to a maximum aggregate principal amount of $35.0 million
based upon availability under a borrowing base, with a sublimit of $5.0 million
for letters of credit and $10.0 million for either gold, pursuant to a
consignment arrangement, or dollar borrowings.
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Management believes that it will have sufficient availability under these
facilities to meet its working capital needs. See "Description of the Bank
Credit Facility."
Debt Service. Interest payments under the Bank Credit Facility and on the
Notes represent significant liquidity requirements for the Company. The Term
Loan Facility will mature in 2003, and the commitments under the Revolving
Credit and Gold Facilities will expire in 2001. Loans outstanding under the Bank
Credit Facility will bear interest at either fixed or floating rates based upon
the interest rate option elected by the Company. See "Description of the Bank
Credit Facility."
Capital Expenditures. For the fiscal year ending August 30, 1997, ongoing
capital expenditures for the Company are expected to relate principally to tools
and dies, software upgrades, and ongoing capital improvements. Management
estimates that the Company will spend approximately $3.8 million during this
period for these types of recurring expenditures. In addition, Management
estimates that the Company will spend approximately $1.9 million during this
period on non-recurring capital expenditures related to the Combination,
including spending on telephone and computer system upgrades and the preparation
of ArtCarved's Austin, Texas facility to accommodate Balfour's operations.
Future Financing Sources and Cash Flows. Management believes that amounts
available under the Revolving Credit and Gold Facilities are sufficient to meet
future working capital and other business needs of the Company. The Company
believes that cash generated from operations, together with amounts available
under the Revolving Credit and Gold Facilities, will be adequate to permit the
Company to meet its debt service obligations, capital expenditure program
requirements, ongoing operating costs and working capital needs, although no
assurance can be given in this regard. The Company's future operating
performance and its ability to service or refinance the Notes and to repay,
extend or refinance the Bank Credit Facility or to incur additional debt will be
subject to future economic conditions, financial performance and other factors,
many of which are beyond the Company's control. See "Risk Factors." In addition,
covenants under the Indenture and the Bank Credit Facility restrict, among other
things, the Company's ability to incur additional indebtedness, create liens,
engage in a business other than certain permitted lines of business, make
certain investments, sell assets, merge with or into another entity, issue stock
and transact with affiliates. See "Description of Notes--Certain Covenants" and
"Description of the Bank Credit Facility."
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BUSINESS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. Discussions containing
such forward-looking statements may be found in the material set forth below and
under "Prospectus Summary," "Risk Factors," "Unaudited Pro Forma Combined
Financial Statements and Other Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" as well as in the Prospectus
generally. Actual events or results may differ materially from those discussed
in the forward-looking statements as a result of various factors, including,
without limitation, the factors as set froth below and the other matters set
forth in the Prospectus generally.
Overview
The Company is the second largest manufacturer of class rings in the United
States based on net sales and is a supplier of graduation-related scholastic
products for the high school and college markets. The Company is the only class
ring manufacturer with a strong national presence in the three primary sales
channels for class rings and scholastic products. Management attributes the
Company's leading market position in the class rings market to the Company's
emphasis on the quality of its products, the caliber of its sales force, its
customer service and its comprehensive distribution network. In combining
ArtCarved and Balfour, the Company joined together two of the most widely
recognized and most respected names in the scholastic products market in the
United States. The Company also manufactures and markets recognition and
affinity jewelry designed to commemorate significant events, achievements and
affiliations.
The Company's scholastic product line consists of high school and college
class rings (the Company's largest product offering) and graduation-related fine
paper products such as announcements, name cards and diplomas. The Company's
independent sales representatives also sell or distribute caps and gowns,
yearbooks, memory books, and other graduation apparel and accessories
manufactured by others. The Company markets and distributes its scholastic
products, which represented approximately 85% of net sales in Pro Forma Fiscal
1996, through three distinct sales channels: (i) the high school "in-store"
channel of retailers, including approximately 5,100 independent retail jewelers,
approximately 21 of the nation's 40 largest retail jewelry chains (representing
approximately 1,200 stores throughout the United States) and approximately 2,200
Wal-Mart and 2,100 Kmart stores nationwide; (ii) the high school "in-school"
channel of independent sales representatives, who sell directly to students in
approximately 4,500 high schools throughout the United States; and (iii) the
college "on-campus" sales organization, which sells to students in approximately
1,700 colleges and universities throughout the United States. Management
believes that this comprehensive distribution network distinguishes the Company
from its competitors and enables it to offer its products through a wider array
of formats and locations throughout the year, thereby providing customers with
the convenience of availability and choice of location for purchasing scholastic
products.
The Company has three national competitors, none of which has a strong
nationwide presence in all three primary sales channels for scholastic products.
Management estimates that the market for high school and college class rings is
approximately $350 million per year, of which the high school segment represents
approximately 70% of the market and the college segment represents approximately
30% of the market. Management also estimates that within the high school
segment, 65% of the high school class rings sold are sold through the in-school
sales channel with the remaining 35% being sold through the in-store sales
channel. College class rings are sold primarily through on-campus bookstores
and, to a lesser extent, through local bookstores.
The Company's recognition and affinity product line consists primarily of
rings, pins and other jewelry designed to enable individuals to show pride in
their affiliations with or support for their favorite organizations and sports
teams. The Company's recognition and affinity product line is comprised of four
major product categories: (i) licensed consumer sports jewelry, consisting of
rings and other jewelry, intended for fans who wish to express their affinity
and support for their favorite professional, amateur and collegiate sports
teams, historically including all of the teams in the National Football League,
Major League Baseball, the National Basketball Association and the National
Hockey League; (ii) sports championship jewelry and related products for the
members of
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championship teams to commemorate their achievements, such as Super Bowl rings
for the San Francisco 49ers in 1995 and World Series trophies for the members of
the 1996 New York Yankees, and rings for individuals who bowl an American
Bowling Congress-sanctioned perfect game; (iii) personalized family jewelry,
consisting primarily of rings, bracelets, necklaces and other jewelry designed
to commemorate family and significant life events such as births and baptisms
and other family celebrations and holidays such as Mother's Day and Valentine's
Day; and (iv) corporate recognition and reward jewelry, consisting of rings,
pins and other jewelry, designed to commemorate employees' anniversaries with or
accomplishments on behalf of various corporations, including The Coca-Cola
Company, McDonalds Corp. and Xerox Corp.
ArtCarved and Balfour historically sold similar products and have
complementary strengths. The ArtCarved(R) brand name has been associated with
numerous technical and marketing innovations during more than 50 years in the
jewelry industry and has been used for class rings since 1976. Since the
inception of the in-store sales channel in 1963, ArtCarved and its predecessor
have been the leading supplier of high school rings in the in-store market, and
have also been a leading supplier of college class rings. Balfour began as an
insignia jewelry manufacturer in 1913 and entered the class ring industry in
1922, eventually becoming a significant producer of class rings as well as
service awards and recognition products. Balfour manufactures and sells high
school and college class rings and scholastic fine paper products and graduation
accessories through a network of independent sales representatives who market
Balfour(R) products directly in-school and on-campus.
CBI (formerly known as "Scholastic Brands, Inc.") was formed in March 1996
by Castle Harlan Partners II, L.P., a Delaware limited partnership and private
equity investment fund, for the purpose of acquiring ArtCarved and Balfour, and
until December 16, 1996 engaged in no business other than in connection with the
Acquisitions and the financing thereof.
Business Strategy
Management's primary objective is to increase profitability through the
growth of the Company's sales and the realization of identified operational
improvements following the Combination. The Company will build on its leading
market position in class rings and the strong brand recognition of the
ArtCarved(R) and Balfour(R) brand names. Management seeks to achieve these
objectives by: (i) capitalizing on cost reduction opportunities presented by the
Combination; (ii) marketing a broader array of products by utilizing the
Company's comprehensive distribution network to cross-market existing products
and by continuing to develop and acquire new products and expand product lines;
and (iii) strengthening the Company's in-school sales channel through the
addition of independent sales representatives.
Capitalize on Cost Reduction Opportunities. In connection with the
Acquisitions, Management has developed a detailed consolidation plan that
Management believes will enable the Company to achieve approximately $7.4
million of annual cost savings relative to the historical cost structures of the
Company's predecessors (the "Annual Cost Savings"). Of the $7.4 million in
Annual Cost Savings, Management expects the Company to realize $4.3 million from
the elimination of duplicative personnel, occupancy and fixed overhead costs and
$3.1 million as a result of the lower prevailing wage rates in Austin, Texas and
the elimination of other duplicative costs resulting from the closure of Balfour
facilities and the consolidation of Balfour's operations into existing ArtCarved
operations in Austin, Texas. The Annual Cost Savings do not reflect estimated
non-recurring severance and relocation costs of approximately $5.5 million and
incremental capital expenditures of approximately $1.9 million to be incurred in
connection with the Combination.
o Manufacturing Integration. Management intends to consolidate the
operations of the Balfour jewelry manufacturing facilities in Attleboro and
North Attleboro, Massachusetts, into the existing ArtCarved operations in
Austin, Texas. During Pro Forma Fiscal 1996, Balfour's Massachusetts jewelry
facilities operated at approximately 50% of their aggregate manufacturing
capacity. ArtCarved and Balfour use compatible manufacturing processes at their
facilities, and ArtCarved's Austin, Texas facilities have the capacity to
accommodate additional production. Management estimates that as a result of the
Combination the Company will realize cost savings from the elimination of
occupancy costs associated with the Balfour manufacturing facilities, the
elimination of specifically
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identified duplicative personnel and related expenses, the relocation of other
functional positions to Austin, Texas at lower prevailing wage rates, and the
higher productivity rate at the Austin, Texas manufacturing facilities.
o Selling, General and Administrative Cost Reductions. Management believes
that a significant portion of the SG&A services currently performed by Balfour
can be performed using ArtCarved's existing infrastructure and personnel.
Management estimates that the Company will realize substantial savings resulting
from reduced SG&A expenses, attributable to the elimination of specifically
identified duplicative personnel and related expenses, the relocation of other
functional positions to Austin, Texas at lower prevailing wage rates, and the
elimination of occupancy costs associated with the Balfour administrative
facility in North Attleboro, Massachusetts.
Management intends to begin the consolidation of the Company's operations
to Austin, Texas as soon as practicable and expects that the consolidation of
operations will be completed during the fiscal year ending August 30, 1997.
Management expects that a portion of the Annual Cost Savings will be realized
during the fiscal year ending August 30, 1997 and that all of such savings will
be realized during the fiscal year ending August 29, 1998. There can be no
assurance that the Company will complete its consolidation by the end of its
fiscal year ending August 30, 1997 or that the Annual Cost Savings will be
realized by the end of its fiscal year ending August 29, 1998, or at all.
The following is a summary of the Annual Cost Savings that details (i) the
portion of the Annual Cost Savings that are reflected in the adjustments to the
unaudited pro forma combined financial statements, and (ii) the balance of the
Annual Cost Savings that Management expects to achieve in connection with the
Combination (dollars in thousands):
Cost of
Sales SG&A Total
------- ---- -----
Elimination of duplicative personnel ............. $1,304 $1,974 $3,278
Elimination of occupancy and fixed overhead ...... 939 74 1,013
------ ------ ------
Pro forma adjustments ......................... 2,243 2,048 4,291
------ ------ ------
Wage rate differential ........................... 1,752 605 2,357
Elimination of other duplicative costs ........... 416 339 755
------ ------ ------
Additional cost savings ....................... 2,168 944 3,112
------ ------ ------
Total Annual Cost Savings ........................ $4,411 $2,992 $7,403
====== ====== ======
Market Broader Array of Products. The Company's comprehensive distribution
network and highly effective sales organization provide the Company with broad
market coverage and strong customer relations, which Management believes present
opportunities to increase net sales without incurring significant incremental
sales and distribution costs. To achieve this objective, Management will
implement the following programs:
Cross-Market Existing Products. Management believes there are
significant growth opportunities in selling Balfour's fine paper products
to college students through ArtCarved's existing on-campus sales channel
and selling Balfour's licensed consumer sports jewelry through ArtCarved's
existing retail sales channel, including independent retail jewelers,
retail jewelry chains and mass merchants. ArtCarved's leading position in
the sale of college class rings through on-campus college bookstores
provides a strong platform to market simultaneously Balfour's fine paper
products to the same student population without incurring any material
incremental selling or marketing expenses. Additionally, beginning in
September 1995, Balfour's licensed consumer sports jewelry was
test-marketed in 15 J.C. Penney stores in the San Francisco metropolitan
area. As a result of the success of this program, as of January 15, 1997,
J.C. Penney offered this line of jewelry in over 400 J.C. Penney stores
nationwide. Management believes that Balfour's licensed consumer sports
jewelry is
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well-suited for the ArtCarved retail sales channel, and has plans to
introduce these products to such retailers during the fiscal year ending
August 30, 1997.
Develop and Acquire New Products and Expand Product Lines. Management
intends to pursue growth by penetrating new markets with new and existing
products and to expand the Company's presence in existing markets by
introducing product line extensions and new products. In April 1996,
ArtCarved introduced its Celebrations of Life(R) selection of rings, which
are personalized with children's names, birthdates and birthstones to
commemorate parenthood to approximately 2,000 independent and chain
jewelers. The Company plans to further expand this product line to include
other jewelry designed to commemorate other significant life events, family
celebrations and holidays. In order to leverage its comprehensive
distribution network, the Company has developed other lines of ArtCarved's
personalized family jewelry for the retail sales channel, primarily mass
merchants. For example, in September 1996, ArtCarved introduced its
Nameosake(TM) selection of personalized family jewelry to approximately
1,350 Wal-Mart stores nationwide, and Management expects to expand this
product line to all Wal-Mart stores nationwide by March 1997. In addition,
the Company plans to expand Balfour's line of licensed consumer sports
jewelry to include additional styles and products, such as charms,
pendants, earrings and cufflinks.
Strengthen In-School Sales Channel. Management intends to strengthen the
Company's presence in the in-school sales channel to increase the number of
students in each school who purchase the Company's products, expand school
coverage in geographic areas where the Company is under-represented and extend
its scholastic product lines. In July 1996 the Company introduced a simplified
marketing program for its in-school sales channel to stimulate demand for the
Company's scholastic products in-school. Management also plans to expand the
geographic presence of the Company's in-school independent sales representatives
beyond its primary focus in the Eastern, Southern and Midwestern sections of the
United States by adding additional independent sales representatives in selected
strategic regions to augment its in-school sales channel. Additionally,
Management believes that the improvements in the Company's product offerings,
customer service and financial resources that it believes will result from the
Combination will enable the Company to attract additional sales representatives
as well as improve the effectiveness of the current in-school independent sales
representatives. Specifically, because of ArtCarved's modern manufacturing
techniques and resulting accelerated product cycles, the Company's Balfour
in-school independent sales representatives will be able to deliver rings in
approximately one-half the time as was previously capable from Balfour's
production facilities. This production cycle time improvement is expected to
enhance in-school customer relations by providing quicker order turnaround,
thereby enabling the Balfour independent sales representatives to market
merchandise in the schools more frequently during each selling season, thereby
providing the potential for increased sales. Lastly, through increased joint
marketing efforts with other scholastic product companies and selective product
line acquisitions, the Company intends to enlarge its product offerings to
become a single source supplier of scholastic products to its customers.
Although Management believes that it will be able to implement its strategy
as set forth above, there can be no assurance that improvements will be
realized, or that there will not be delays in achieving such improvements or
that results will not, in fact, decline.
Products
The Company's larger product line is its scholastic product line,
consisting of high school and college class rings, graduation-related fine paper
products, including graduation announcements, name cards, diplomas and related
products, and graduation accessories, such as memory books, T-shirts, key chains
and pendants. The Company's other product line, its recognition and affinity
product line, is designed to enable purchasers to show their affinity or support
for their favorite teams and to show pride in their affiliations and to help
companies and other organizations promote and recognize achievement.
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The table and sections that follow provide an overview of the Company's
products:
<TABLE>
<CAPTION>
Distribution Channel Brand Name
-------------------- ----------
<S> <C> <C>
Scholastic Product Line
High School Class Rings In-School Balfour(R)
In-Store: independent and chain jewelers ArtCarved(R)
R. Johns(R)
In-Store: mass merchants Keystone(R)
Class Rings, Ltd.(R)
Master Class Rings(R)
College Class Rings On-Campus ArtCarved(R)
Balfour(R)
Fine Paper Products In-School Balfour(R)
Recognition and Affinity Product Line
Licensed Consumer Sports Jewelry In-Store, Catalogue Balfour(R)
Sports Championship Jewelry Direct to Consumer Balfour(R)
Keepsake(R)
Corporate Recognition and Reward Director to Consumer Balfour(R)
Jewelry
Personalized Family Jewelry In-Store: independent and chain jewelers Celebrations of Life(R)
In-Store: mass merchants Generations of Love(TM)
Nameosake(TM)
</TABLE>
Class Rings
The Company's largest product offering is its class rings. The Company
manufactures and markets a complete line of both high school and college class
rings with a wide choice of styles, metals, stones and other customized options
that allow students and alumni to personalize their rings in accordance with
their tastes and accomplishments. The Company produces an extensive variety of
traditional jewelry styles as well as an assortment of fashion and contemporary
designs. Purchasers have the option to include the name of the school,
curriculum, date, degree, mascot, activities and either synthetic or genuine
stones in their rings. The Company markets its products in a broad range of
prices through different sales channels.
High School Rings
The Company offers over 100 styles of high school class rings ranging from
traditional to highly stylish and fashion oriented. Most of the company's high
school class rings are available in gold or nonprecious metal, and most are
available with a choice of more than 50 different types of stones in each of
several different cuts, and more than 400 designs that can be placed on or under
the stone and emblems of over 100 activities or sports that can appear on the
sides. As a result, students have the ability to customize their rings by
designing highly personal and meaningful rings to commemorate their high school
education. During Pro Forma Fiscal 1996, the Company's high
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school class rings generally ranged in prices to the student from approximately
$50 for a nonprecious metal ring to approximately $500 for a gold ring with
precious stones. The Company markets its high school class rings under its
ArtCarved(R), Balfour(R), R. Johns(R), Keystone(R), Class Rings, Ltd.(R) and
Master Class Rings(R) brand names.
College Rings
The Company's ArtCarved(R) and Balfour(R) brand college class rings are
similar to the Company's high school class rings in terms of the variety of
customization and personalization options available. However, college rings tend
to be larger than high school rings, and many more college rings are ordered in
14- and 18-karat gold or with precious or semiprecious stones. During Pro Forma
Fiscal 1996, the average selling price of the college class ring was higher than
that of the Company's high school class ring, with prices generally ranging from
approximately $100 for a nonprecious metal ring to approximately $2,000 for a
gold ring with precious stones.
Fine Paper Products
The Company produces and markets a wide array of fine paper products,
including customized graduation announcements, name cards, thank-you stationery,
business cards, diplomas, mini-diplomas, certificates, appreciation covers,
diploma covers, and fine paper accessory items marketed under the Balfour(R)
brand name. Through its independent sales representatives, the Company also
markets certain graduation accessories that it does not produce, such as
T-shirts, pendants denoting class year, caps and gowns, yearbooks, memory books
and other scholastic products manufactured by third parties.
Recognition and Affinity
The Company also offers a variety of recognition and affinity jewelry for
specialty niche markets. The Company's "recognition" products are designed to
commemorate accomplishments and achievements in business, sporting or other
endeavors, and "affinity" products are designed to express pride in one's
affiliations with a particular organization or support for one's favorite teams
and organizations. The Company's recognition and affinity jewelry is grouped
into four primary categories. The Company's Balfour(R) licensed consumer sports
jewelry includes rings, pins and pendants containing team logos, mascots and
colors, that are manufactured for fans to express their support for their
favorite professional or amateur sports team. The Company has licensing
arrangements with the National Football League and the National Basketball
Association, and the Company has applied to continue Balfour's licensing
arrangements with Major League Baseball and the National Hockey League. These
arrangements enable the licensee to produce rings and other jewelry depicting
the logos and other trademarked names and symbols of all teams in these leagues.
The Company also historically has manufactured jewelry for NASCAR, with United
States Olympic Committee and the U.S. Figure Skating Association. The Company's
professional sports championship jewelry consists of similar products but is
designed for the championship individual or team to commemorate its championship
accomplishments and achievements. The Company offers Balfour(R) sports
championship jewelry on behalf of the foregoing organizations (including Super
Bowl rings to the San Francisco 49ers in 1995 and World Series trophies to the
New York Yankees in 1996) as well as Keepsake(R) jewelry for individuals to
commemorate American Bowling Congress-sanctioned perfect games. The Company's
Celebrations of Life(R), Generations of Love(TM) and Nameosake(TM) personalized
family jewelry consists of rings commemorating children's names, birthdates,
birthstones and baptisms, and other personalized jewelry such as necklaces and
bracelets designed to commemorate family celebrations and other holidays such as
Mother's Day and Valentine's Day. The Company distinguishes its personalized
family jewelry from those of its competitors through extensive personalization
with family names, dates, crests and events. Corporate recognition and reward
Balfour(R) jewelry includes jewelry awards for employees of various corporations
including many Fortune 500 corporations such as The Coca-Cola Company, McDonalds
Corp. and Xerox Corp.
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Sales and Marketing
The Company is the only class ring company with a strong national presence
in all three primary sales channels for class rings and scholastic products: (i)
the high school in-store sales channel of independent retail jewelers, retail
jewelry chains and mass merchants; (ii) the high school in-school sales channel
of independent sales representatives; and (iii) the college on-campus sales
organization. No single customer of the Company represented more than 5% of net
sales in Pro Forma Fiscal 1996.
The Company markets its class rings: (i) in-store to independent and chain
jewelers under the names ArtCarved(R) and R. Johns(R) and to mass merchants
under the names Keystone(R), Class Rings, Ltd.(R), and Master Class Rings(R);
(ii) in-school under the Balfour(R) name; and (iii) on-campus under the
ArtCarved(R) and Balfour(R) names. The Company markets its graduation-related
fine paper and accessories under the Balfour(R) name. The Company markets its
licensed consumer sports jewelry and its corporate recognition and reward
jewelry under the Balfour(R) name, its sports championship jewelry under the
Balfour(R) and Keepsake(R) names and its personalized family jewelry under the
Celebrations of Life(R), Generations of Love(TM), and Nameo sake(TM) names.
High School Scholastic Products
The Company is the only class ring manufacturer with a strong national
presence in both of the primary sales channels for high school scholastic
products as a result of the combination of the Balfour in-school channel and the
ArtCarved in-store channel. The Company's presence in both of these sales
channels distinguishes it from its competitors and enables it to sell class
rings throughout the year and to offer its products through a wider array of
formats and locations, thereby providing customers with the convenience and
choice of sales channels.
In-Store Sales Channel.
The Company is the leading supplier of high school class rings in the
in-store channel based on net sales. A predecessor of the Company introduced the
use of in-store sales in 1963 as an alternative to traditional in-school sales.
The Company sells its products in-store to independent jewelry retailers, large
jewelry chains and to mass merchants. The Company was the first class ring
manufacturer to sell class rings to mass merchants, an area of strong sales
growth within the class ring industry over the last eight years. Since 1987, the
Company has sold its products to mass merchants such as Wal-Mart and Kmart. The
Company utilizes distinct product brands, product line characteristics and
pricing for each of the in-store sales channels. Advertising is particularly
important in the in-store market to inform students and parents that the
retailer offers alternatives to the products sold at school. The Company
utilizes a combination of national, regional, local and co-op print and local
direct mail advertising for its products depending on the type of retailer
involved.
There are various reasons for selling class rings in the in-store sales
channel rather than the in-school sales channel, including: (i) the advantage of
a year round sales presence at retail store locations compared to the in-school
channel, which typically affords only two to five fixed selling days per school
during each school year; (ii) direct access to both students and their parents,
who, in many cases, are the ultimate purchasers of the scholastic jewelry
product; (iii) the ability to offer products of similar quality at lower prices
due to the Company's lower in-store distribution costs; (iv) the convenience of
the availability of store credit to purchasers to finance a purchase; (v)
quicker product delivery and superior customer service afforded retail
purchasers as a result of the smaller number of units per order; and (vi) the
ability for the Company's salespeople to represent multiple brands in a region.
Independent Retail Jewelers. The Company sells its products to
approximately 5,100 independent jewelers under the name ArtCarved(R) and R.
Johns(R). Most independent jewelers carry one line of class rings. The
Company traditionally develops marketing programs in the spring for the
following school season and presents these programs to the jewelers in the
summer to prepare local advertising placements for the fall, and
supplements these programs with national advertising in magazines targeting
teenage audiences, in-store promotional literature and direct mail
campaigns.
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Chain Jewelers. The Company sells its products to 21 of the nation's
40 largest retail jewelry chains representing approximately 1,200 stores,
including Sterling, Barry's Jewelers, A. A. Friedman, and Carlyle & Co.
Jewelers. Retail jewelry chains usually require marketing efforts tailored
to their own seasonal merchandising theme.
Mass Merchants. The Company has forged relationships with the two
largest retailers in the United States, Wal-Mart and Kmart, and in Pro
Forma Fiscal 1996 sold class rings to approximately 2,200 Wal-Mart stores
under the Keystone(R) brand name and approximately 2,100 Kmart stores
under the Master Class Rings(R) brand name. The Company also sells class
rings under the Class Rings Ltd.(R) brand name to other mass merchants,
including J.C. Penney.
In-School Sales Channel.
The Company markets its products in-school using the Balfour(R) brand name
and its independent sales representatives, who offer both class rings and a
variety of fine paper products and graduation accessories. The Company's
in-school sales channel is supported through a sales organization that consists
of approximately 120 regional independent representatives who work exclusively
for the Company with respect to the types of products represented by the
Company's product lines. The Company has developed its sales organization over
an extended period of time, and the Company intends to devote considerable
resources to maintaining and continually improving the quality of this sales
organization. The Company plans to increase its penetration in the in-school
sales channel in areas where it is not well represented. See "--Business
Strategy."
There are various reasons that students may prefer to purchase a class
ring in-school rather than in-store, including, among others: (i) the ability to
purchase a product that is more customized and symbolic of an individual school;
(ii) the excitement and enthusiasm generated by participating in both the ring
ordering and ring delivery events as a class; and (iii) the convenience of
ordering in-school from trained professionals.
The Company's independent sales representatives gain access to high
schools through administrators or student representatives who are involved in
the selection process of a supplier for their schools. Once selected as the
official supplier, the independent sales representative coordinates between the
school and the supplier to ensure satisfactory quality and service. As a result,
continuous sales coverage is an important element in the independent sales
representative's relationship with the school. Once established, personal
relationships are an important factor to ensure repeat sales.
The Company's independent sales representatives operate under contract
with exclusive non-compete arrangements that prohibit sales of competing
products during the term of the arrangement with the Company and for a period of
time, generally two years, thereafter. Depending on geographical size and
volume, independent sales representatives may employ one or more additional
sales representatives in addition to its part- or full-time personnel. The
Company compensates its independent sales representatives on a commission basis,
and most independent sales representatives receive an annual draw against
commissions earned, although all expenses, including promotional materials made
available by the Company, are the responsibility of the representative. See
"--Employees."
College Scholastic Products
The Company's college class rings are sold under the ArtCarved(R) brand
name and, to a lesser extent, under the Balfour(R) brand name primarily through
on-campus bookstores and, to a lessor extent, through local bookstores, both of
which typically also offer class rings distributed by one or more of the
Company's competitors. The college bookstores display the Company's products,
although approximately 85% of all orders are taken by the Company's sales
representatives at special events periodically set up at the bookstore or campus
student center. College class ring sales are principally supported by sales
promotions with school paper advertising and direct mailings to students and
parents. The Company uses promotions to stimulate sales in the critical
back-to-school, pre-Christmas and pre-graduation periods. The Company
differentiates itself from its competitors through its high-quality rings,
innovative styles, quick delivery times and promotional services that attract
students to tables containing product
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information. The Company intends to offer Balfour fine paper products through
the more extensive ArtCarved college on-campus sales channels. See "--Business
Strategy."
The Company employs a direct sales force of approximately 30 full-time
territory managers, who in turn are supported by 80 to 90 part-time
representatives working on a seasonal basis by assisting with the implementation
of scheduled promotions in its college market. Approximately 20 independent
sales representatives service colleges and universities. In Pro Forma Fiscal
1996, the Company sold class rings to students from approximately 1,700 colleges
and universities throughout the United States.
Recognition and Affinity Products
Recognition and affinity products are sold either to retail outlets or
directly to the group or organization or by a combination of field sales
personnel and corporate sales personnel. The Company's Balfour(R) licensed
consumer sports jewelry and Celebrations of Life(R), Generations of Love(TM) ,
and Nameosake(TM) personalized family jewelry are primarily distributed to
retail outlets and through merchandise catalogues. The Company markets its
Balfour(R) sports championship jewelry directly to the championship team or
organization or its members and its Keepsake(R) bowling rings directly to
individuals. Corporate recognition and reward programs are developed in
conjunction with corporate clients, who order and purchase products directly
from the Company.
Industry
Scholastic
There are three national competitors in the sale of class rings and fine
paper products (the Company, Jostens, Inc. and Herff Jones, Inc.) and one
additional national competitor in the sale of class rings (Gold Lance, Inc.).
Management believes the Company is the second largest among these competitors
based on net sales of class rings and the only competitor with a strong national
presence in the three primary sales channels for class rings. In addition,
regional producers have been successful at penetrating the scholastic market
through the introduction of lower-priced competitive products. The market is
highly competitive and numerous alternative suppliers exist. See "-Competition"
and "Risk Factors-Competition."
Scholastic products are differentiated on the basis of price, quality,
marketing and customer service. Customer service is particularly important in
this product line because of the high degree of customization associated with
the class ring product and the emphasis on its timely delivery. Class rings with
different quality and price points are marketed through different channels and,
within the in-store sales channel, through different retailers.
Scholastic products are sold in retail stores and directly to students in
schools and on college campuses. Management estimates that approximately 65% of
the high school class rings sold are sold through the in-school sales channel.
In schools, administrators or student representatives select the authorized
supplier for their school. Suppliers contact these administrators through their
sales forces, which are generally comprised of independent sales representatives
who market products directly to high school students. The supplier, through its
independent sales representatives, manages the entire process of interacting
with the student through the design, promotion, ordering and presentation of the
scholastic products to relieve school officials of any administrative burden
connected with the student's purchase. Successful companies in the scholastic
market have developed their sales organizations over an extended period of time
and devote considerable resources to maintaining and improving the quality of
their sales forces. After gaining access to a school, a sales representative and
the supplier must be able to demonstrate their ability to provide a high level
of customer service to complete the sale. In addition, in order to maintain an
ongoing relationship with a school, the sales representative and supplier must
provide a high-quality product and deliver finished products in a timely manner.
Due to the fact that orders from the in-school channel are placed in bulk, the
supplier must be able to deliver the units for an entire school by specified
dates or the sales representative and supplier run the risk of jeopardizing
their relationship with a particular school. A good relationship between the
sales representative and the school administrator helps ensure repeat sales from
year to year. Of the four national competitors for scholastic products, only the
Company, Jostens, Inc. and Herff Jones, Inc. have a strong presence in the
in-school sales channel.
In addition to the in-school sales channel, the scholastic product market
is also characterized by a strong in-store distribution channel. In 1963, a
predecessor of ArtCarved initiated the use of the in-store sales channel, and
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management estimates that this segment represents approximately 35% of high
school class rings sold. The in-store channel consists primarily of independent
jewelry retailers, large jewelry chains and mass merchants. Suppliers contact
these retailers through their direct sales force. Advertising is particularly
important in the in-store network to inform students and parents that the
retailers offer an alternative to the products sold in school. The in-store
network typically offers a year-round sales presence, products of similar
quality at a low price, convenience of store credit to finance a purchase, and
quicker product delivery as orders are placed on a unit, rather than
school-wide, basis. See "Sales and Marketing-In-Store Distribution." Of the four
national competitors for scholastic products, only the Company and Gold Lance,
Inc. have a strong presence in the in-store sales channel.
College class rings are sold primarily through on-campus bookstores and,
to a lesser extent, through local bookstores, both of which typically also offer
class rings distributed by one or more of the Company's major national
competitors. Historically, on-campus bookstores have been owned and operated by
the colleges and universities; however, during the last several years an
increasing number of campus bookstores have been leased to companies engaged in
retail bookstore operations, primarily Barnes & Noble Bookstores, Inc. and
Follett Corporation. Of the four national competitors for scholastic products,
only the Company and Jostens, Inc. have a strong presence in the sale of college
class rings.
Class ring manufacturers must enter into licensing arrangements, which
typically are non-exclusive, with colleges and universities in order to use the
name of the college or university and other trademarked names and symbols on the
class rings. Typically, these arrangements provide that the manufacturer must
pay a royalty to the college or university equal to a fixed dollar amount per
unit sold or a percentage of net sales. The school can terminate the arrangement
if, among other things, the class ring manufacturer uses the licensed
intellectual property in a manner not authorized by the relevant licensing
contract. Nonetheless, the ability of a manufacturer to enter into licensing
contracts, particularly exclusive contracts, is an important competitive factor
with respect to colleges and universities. Most high schools do not require
licensing arrangements to use their name, mascot or school colors.
High School. The potential size of the market for high school class rings,
graduation announcements, diplomas, and other high school scholastic products is
affected by high school graduation rates. Those high school students who
purchase class rings typically do so during their junior year. According to the
U.S. Department of Education, the number of high school graduates has declined
steadily since 1981. However, the Department of Education has projected that as
a result of the increase of birth rates in the 1980s, the number of high school
graduates will increase by approximately 16.8% from 2.6 million in 1996 to 3.0
million by 2006. The following table shows the historical and projected number
of U.S. high school graduates from 1986 to 2006:
High School Graduates
Historical Projected
- - ------------------------ --------------------------------------------------
High School High School % Increase
Graduates(1) Graduates(2) (Decrease)
Year (In thousands) Year (In thousands) from 1996 Level
- - ------ --------------- ------ ---------------- ----------------
1986 2,643 1997 2,612 0.9%
1987 2,694 1998 2,734 5.6%
1988 2,773 1999 2,828 9.3%
1989 2,727 2000 2,873 11.0%
1990 2,586 2001 2,933 13.3%
1991 2,503 2002 2,961 14.4%
1992 2,482 2003 2,981 15.2%
1993 2,490 2004 3,054 18.0%
1994 2,505(2) 2005 3,051 17.9%
1995 2,564(2) 2006 3,022 16.8%
1996 2,588(2)
- - ----------
(1) Source: The Department of Education, National Center for Education
Statistics, Projections of Education Statistics to 2006, March 1996.
(2) Projected by the Department of Education.
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Although the number of high school graduates has increased since 1992,
Management believes that the percentage of high school graduates who purchase
high school class rings has declined for a period of at least five years,
although there is no industry data to confirm such belief. In addition, the
Company's volume of high school class rings sold during this time has declined,
and Management believes that the Company's market share has declined as well,
although there is no industry data to confirm such belief. For information
regarding the Company's business performance during this period, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." See "Risk Factors--Customers and Sales Channels."
College. The potential size of the college scholastic market is affected
by the number of bachelor degrees granted. Most college class rings are
purchased during either the junior or senior year in anticipation of a student's
graduation. According to the U.S. Department of Education, the number of
bachelor degrees granted is expected to increase by approximately 10.1% from 1.2
million in 1996 to 1.3 million by 2006, although such number is expected to
decline slightly between 1996 and 2000. The following table shows the historical
and projected aggregate number of bachelor degrees granted from 1986 to 2006:
Bachelor Degrees Granted
Historical Projected
- - ------------------- ------------------------------------------------------
Degrees Degrees % Increase
Conferred(1) Conferred(2) (Decrease)
Year (in thousands) Year (in thousands) from 1996 Level
- - ----- ------------- ---- -------------- ---------------
1986 988 1997 1,188 -0.6%
1987 991 1998 1,173 -1.8%
1988 995 1999 1,180 -1.3%
1989 1,019 2000 1,191 -0.3%
1990 1,051 2001 1,211 1.3%
1991 1,095 2002 1,237 3.5%
1992 1,137 2003 1,264 5.8%
1993 1,165 2004 1,288 7.8%
1994 1,182(2) 2005 1,302 9.0%
1995 1,192(2) 2006 1,316 10.1%
1996 1,195(2)
- - ----------
(1) Source: Middle alternative projections, The Department of Education,
National Center for Education Statistics (the "DOE"), Projections of
Education Statistics to 2006, March 1996.
(2) Projected by the Department of Education.
Management believes that the percentage of college graduates who purchase
college class rings has been relatively stable for a period of five years,
although there is no industry data to confirm such belief. In addition, the
Company's volume of college class rings sold during this time has increased
slightly, but Management believes that the Company's market share has remained
stable, although there is no industry data to confirm such belief. For
information regarding the Company's business performance during this period, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." See "Risk Factors--Customers and Sales Channels."
Recognition and Affinity
The market for the Company's recognition and affinity products is a broad
(and expanding) collection of market niches. It includes championship jewelry
for winners of professional sports championships as well as individual events.
The market for retail affinity products, such as licensed consumer sports
jewelry, is well developed in the apparel category but not with respect to
non-apparel products (such as the Company's licensed consumer sports
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jewelry). Management believes that the demand for licensed consumer sports
jewelry is influenced by trends in the popularity of professional and amateur
sports. An important success factor in the licensed consumer jewelry business is
obtaining the exclusive right to a team name and mascot.
Professional sports championship jewelry is marketed directly to the
individual or the championship team commemorating a special event in the team's
history. The "Super Bowl Ring" is the most famous example of a special event.
However, the Company targets a range of special sporting events, from minor
league championships to national championships in all major sporting events.
These sporting events include not only football, basketball, baseball and hockey
championships, but also events such as golf, equestrian, figure skating, bowling
and auto racing. Important elements for success in this business are the ability
to contact future prospects, have unique designs and effectively compete on
service and prices. The Company historically has sold to clients in all of the
sporting events mentioned above and will pursue additional venues as resources
and capabilities are put in place.
In contrast, the market for "recognition" products such as the Company's
corporate recognition and reward jewelry is well developed and has a significant
array of competitors. Products are marketed through retail outlets, independent
sales representatives (who develop programs with corporate and other clients),
and directly to corporations through direct mail campaigns. Management
recognizes that the Company is a small player in the market, but the Company's
position in this market is enhanced by its low cost, its high level of service,
its brand name recognition and the quality of its products and designs. This
market is composed of approximately ten significant competitors, including the
Company's major scholastic products competitors--Jostens, Inc. and Herff Jones,
Inc. Two of the Company's competitors, O.C. Tanner and Ad Specialty Institute,
alone account for approximately 75% of the industry's revenues.
Operations
Production and Technology
Class Rings and Recognition and Affinity Products
As part of the identified cost savings program, Management plans to
consolidate Balfour's existing ring and jewelry manufacturing operations with
those of ArtCarved's existing manufacturing facilities. The Company's Austin,
Texas manufacturing facilities employ advanced design and manufacturing
techniques, which provide short production cycle times and high production
yields and has the capacity to absorb Balfour's production requirements.
Management believes that volume efficiencies, modern manufacturing techniques
(including cell manufacturing) and a consistent focus on process improvements
enhances the Company's ability to compete by enabling the Company to provide
quality products and a high level of service.
The Company produces high school and college class rings only upon the
receipt of a customer order and deposit, and each ring is custom manufactured.
The entire production process takes approximately two to three weeks from
receipt of the customer's order to product shipment. Consequently, only a
limited amount of finished products inventory is necessary, reducing the
Company's exposure to fluctuations in the price of materials and the Company's
investment in working capital.
The Company employs advanced design and manufacturing techniques at its
jewelry manufacturing plants. The use of computer-aided design and manufacturing
equipment (CAD/CAM), computer integrated manufacturing (CIM), cell manufacturing
and the craftsmanship of the Company's highly-skilled jewelers enable the
Company to produce increasingly personalized and high quality jewelry while
maintaining critical delivery schedules.
The Company utilizes similar manufacturing processes for most of its
jewelry, although licensed customer sports jewelry does not require the high
degree of customization necessary for the Company's other products. College
class rings are often larger and of a more complex design than high school
rings, but both are designed, cast and finished on the same production lines.
For every ring manufactured, an individual wax and steel or plastic mold is
developed according to the features (name, school, activity, mascot, etc.)
specified by the customer. Many of these features have been designed using the
CAD/CAM and other computer-assisted design technologies; many
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others have been designed by the craftsmen of the Company over its long history.
Several individual components may make up the mold, and the Company has indexed
collections of over 1,000,000 such components at its facilities from which to
draw at the design stage of a class ring. A bar code is printed on every
production order and is scanned at every quality inspection station as the order
proceeds through production, thereby allowing quality statistics to be recorded
and providing production personnel summaries of quality data during the day.
Furthermore, this scanning allows the customer service department to review
order status on its computer terminals, identifying the location of the order
and its approximate shipping time. The bar code is also used at several CIM
stations, where personalized information (name, date, school name, degree, etc.)
is retrieved from the main computer database to be cut into the ring using
specialized software and computer-controlled cutting machines.
Fine Paper
In July 1996 Balfour's fine paper manufacturing and distribution
activities were consolidated from Balfour's former Dallas, Texas plant with
Balfour's operations at a 100,000 square-foot facility in Louisville, Kentucky.
This represented the completion of the consolidation of the operations of three
of its fine paper plants with operations at the Louisville facility. Management
believes this consolidation will result in improved efficiency of operations and
increased capacity.
Each fine paper product requires a high level of customization and is
characterized by having short product runs. For a typical graduation product
order, the Company's salespeople meet with the next class of graduating seniors
to chose their graduation announcements and related designs in the spring of
their junior year or early fall of their senior year. Designs are chosen and art
work is produced on the Company's computerized design systems.
Raw Materials
The principal raw materials that the Company purchases are gold and
precious, semiprecious and synthetic stones. The cost (and, with respect to
precious, semiprecious and synthetic stones, the availability) of these
materials are affected by market conditions, and when there is a period of
volatility in the market, operating results may be affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Impact
of Inflation."
The Company purchases diamonds and other precious gems from various
suppliers, and the Company is not dependent upon any one supplier or a small
number of suppliers for diamonds and other precious gems. The Company purchases
substantially all synthetic and semiprecious stones from a single supplier, the
Herbert Stephen Company, a German corporation that supplies synthetic stones to
most of the class ring manufacturers in the United States. See "Risk
Factors--Sources of Semiprecious and Synthetic Gems; Fluctuations in Prices of
Raw Materials."
The Company requires significant amounts of gold for the manufacture of
its jewelry. The Company will finance a majority of its gold inventory
requirements through its Gold Facility. Management believes that it has
sufficient availability under its Revolving Credit and Gold Facilities to
finance all of its gold inventory requirements. The Company reduces its exposure
to fluctuations in the price of gold in several ways. The Company also uses
precious metals and both precious and semiprecious stones in its products and,
accordingly, any increase in the price of these materials could have a
significant impact on its cost of sales. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Raw Material Price
Fluctuations."
The Company purchases its fine paper from two major paper product
distributors, although there are many other suppliers of materials needed to
manufacture the Company's fine paper products if the Company should become
unable to satisfy its raw materials requirements from existing suppliers. The
Company also distributes finished goods such as memory books, T-shirts, caps and
gowns, yearbooks, and other scholastic products manufactured by third parties
for distribution with its fine paper products.
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Environmental Matters
The Company is subject to federal, state and local laws, ordinances and
regulations that establish various health and environmental quality standards
and provide penalties for violations of those standards. For example, under
certain environmental laws, a current or previous owner or operator of real
property may be liable for remediation of hazardous substances on the property,
whether or not the owner or operator was responsible for the presence of the
hazardous substances. Such environmental laws also may also impose liability for
remediation of hazardous substances at properties to which a company has sent
wastes for disposal or recycling. Other environmental laws govern the
generation, handling, storage, transportation and disposal of hazardous and
toxic wastes, the discharge of pollutants into surface waters and sewers,
emissions of certain potentially harmful substances into the air, and employee
health and safety.
Past and present manufacturing operations of the Company subject to
environmental laws include the use, handling, and contracting for disposal or
recycling of hazardous or toxic substances, the discharge of particles into the
air, and the discharge of process wastewaters into sewers. Also, minor spills of
chemicals used in the Company's manufacturing processes may occur from time to
time at the Company's facilities, which may result in localized soil or
groundwater contamination, and such spills may have occurred in the past.
Moreover, environmental laws are complex and subject to frequent change, and
Management cannot predict what environmental legislation or regulations will be
enacted in the future, how existing or future laws or regulations will be
administered or interpreted, or what environmental conditions may be found to
exist in the future at the Company's facilities. Management believes, however,
that the Company's current operations are in substantial compliance with all
material environmental laws and that the Company does not currently face
environmental liabilities that would have a material effect on the Company's
operations or operating results.
Security
To protect against theft, the Company has instituted security measures at
its facilities that deal with gold and precious stones. The Company also uses
various security techniques for salespeople, other employees and agents while
they are transporting Company products. In spite of such precautions, the
Company has experienced losses through theft from time to time. None of such
losses have had a material adverse effect on the financial condition or results
of operations of the Company, and the Company maintains all-risk insurance to
cover any significant losses.
Intellectual Property
The Company markets its products under many trademarked brand names, some
of which rank among the most recognized and respected names in the jewelry
industry, including ArtCarved(R), Balfour(R), Celebrations of Life(R), Class
Rings, Ltd.(R), Generations of Love(TM), Keepsake(R), Keystone(R), Master Class
Rings(R), Nameosake(TM), and R. Johns(R). Generally, a trademark registration
will remain in effect so long as the trademark remains in use by the registered
holder and any required renewals are obtained. The Company also holds several
patented ring designs, which yield a competitive advantage for the Company.
The Company has non-exclusive licensing arrangements with numerous
colleges and universities under which the Company has the right to use the name
and other trademarks and logos of these schools on the Company's products. In
addition, the Company has licensing agreements with certain major professional
sports organizations. Management does not believe that there are any franchises
or licenses the loss of which, individually, would have a material effect on the
Company.
In 1988 CJC Holdings, Inc., ArtCarved's former owner, granted to Lenox,
Inc. a ten-year license to use the Keepsake(R), name for the sale of non-jewelry
goods, with the prior written consent of CJC Holdings, Inc. This license is
royalty-free, worldwide and exclusive for non-jewelry products. ArtCarved also
has nonexclusive licensing arrangements with two manufacturers in Canada for the
ArtCarved trademark and exclusive licensing arrangements for the ArtCarved(R)
trademark to a retailer in Central America.
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Pursuant to the ArtCarved Purchase Agreement, the Company has succeeded to
ArtCarved's rights and obligations under a Trademark License Agreement with JTW
Industries, Inc. ("JTW"). JTW is controlled by Mr. J. T. Waugh, the former Chief
Executive Officer of CJC. Pursuant to the Trademark License Agreement, JTW was
granted the right to use the ArtCarved(R) trademark in connection with wedding
rings, engagement rings and anniversary bands. The license granted under the
Trademark License Agreement is perpetual and royalty free; provided, that upon
(i) a transfer of, or agreement to transfer, the license, (ii) a change of
control of JTW, as a result of which Mr. Waugh and his affiliates no longer own
at least a majority of the equity interests in JTW, (iii) the third anniversary
of the death of Mr. Waugh, (iv) a sale or series of sales of equity of JTW as a
result of which Mr. Waugh and his affiliates cease to own a majority of the
equity of JTW, or (v) any act that would violate the Noncompetition Agreement
described below, whether or not the term of such Noncompetition Agreement has
expired, the Trademark License Agreement will terminate unless the parties agree
to a royalty arrangement within 90 days, on terms and conditions satisfactory to
the Company in its sole and absolute discretion. The Trademark License Agreement
cannot be transferred without the Company's consent. As partial consideration
for the Trademark License Agreement, JTW and certain affiliates have entered
into a Noncompetition Agreement with ArtCarved, pursuant to which they have
agreed not to enter the class rings and recognition and affinity businesses for
a period of three years. Pursuant to the ArtCarved Acquisition, the Company has
succeeded to ArtCarved's rights under the Noncompetition Agreement.
Employees
As of December 31, 1996, the Company employed approximately 1,450
individuals, exclusive of approximately 80 seasonal manufacturing laborers
generally hired during the peak demand months for class rings (September through
December). Approximately 900 of these employees are involved in manufacturing,
operations and production support, 370 are involved in marketing and sales and
the balance are employed in various administrative and data processing
functions. Many employees engaged in manufacturing operations are highly-skilled
technicians and craftsmen, and training times for these positions range from two
weeks to four months.
Other than the approximately 285 hourly production and maintenance
employees (as of December 31, 1996) at the Austin, Texas manufacturing facility,
no employees of the Company are represented by a labor union. The Austin workers
are represented by the United Brotherhood of Carpenters and Joiners Union. There
is currently no collective bargaining agreement in place, and the prior
collective bargaining agreement expired in June, 1994. CJC was subject to a
National Labor Relations Board order requiring it to negotiate in good faith
with this Union. Such order may apply to the Company as a result of the
Acquisitions. The Union has demanded that the Company recognize it as the
exclusive bargaining agent for the production and maintenance employees and that
the Company commit to bargain. ArtCarved had not experienced any work stoppages
or significant employee-related problems at its Austin, Texas manufacturing
facility in the recent past. Management considers the relationship between the
Company and all of its employees to be satisfactory.
The Company employs two separate sales forces to support its in-store
retail products and its on-campus products, with approximately 40 salespeople
concentrating on in-store and approximately 30 full-time territory managers
(supplemented by approximately 80 to 90 part-time representatives during peak
buying seasons) concentrating on on-campus, respectively. The Company
compensates its independent sales representatives servicing the high school
in-school network on a commission basis, and most independent sales
representatives receive an annual draw against commissions earned, although all
expenses, including promotional materials made available by the Company, are the
responsibility of the representative.
Properties
The Company's headquarters are located in ArtCarved's existing facilities
in Austin, Texas, which are being expanded to accommodate the manufacturing and
administrative operations previously conducted at Balfour's jewelry plants in
North Attleboro and Attleboro, Massachusetts. Pending consolidation of such
operations, the Company will lease or sublease these facilities from L.G.
Balfour Company. The Company also maintains small sales offices in Mt. Lebanon,
Pennsylvania; Sherman, Texas; and Kingwood, Texas.
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The Company's principal executive offices are located at 7211 Circle S
Road, Austin, Texas 78745, and its telephone number is (512) 444-0571.
The Company's properties as of December 31, 1996 are as set forth below.
The Company believes that all of its properties are well maintained and in good
condition.
Primary Use Location Approximate Size Owned/Leased
----------- -------- ---------------- ------------
Administrative Offices Austin, Texas 20,000 Square Feet Owned
Jewelry Manufacturing Austin, Texas 83,955 Square Feet Owned
Juarez, Mexico 6,800 Square Feet Leased(1)
Attleboro,
Massachusetts 56,350 Square Feet Leased(2)
North Attleboro,
Massachusetts 101,422 Square Feet Leased(3)
Fine Paper Louisville,
Kentucky 100,000 Square Feet Leased
Warehouse Facilities Austin, Texas 50,000 Square Feet Leased
- - ----------
(1) The current lease will expire on March 9, 1997 but may be terminated on 60
days notice by either landlord or the Company. The Company has completed
negotiations with a prospective landlord to relocate to a larger leased
space by June 1997.
(2) This property is being leased directly from L.G. Balfour Company on a
triple net basis. The lease will terminate on the earlier of September 30,
1997 and the date on which the Company vacates the relevant facility,
unless the parties agree to extend the term.
(3) This property is being subleased from L.G. Balfour Company on terms
substantially similar to L.G. Balfour Company's relevant overlease. The
sublease will terminate on the earlier of September 30, 1997 and the date
on which the Company vacates the relevant facility (except with respect to
the manufacturing building, for which the sublease shall expire on the
earlier of May 30, 1998 and the date on which the Company vacates such
building, which Management expects will occur during the fiscal year
ending August 30, 1997), unless the parties agree to extend the terms.
Legal Proceedings
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject. Each of ArtCarved and Balfour
has in the past been subject to various legal proceedings arising in the
ordinary course of business, none of which are expected to have a material
adverse effect on the Company or any of its properties.
Competition
The Company's businesses are highly competitive and the Company faces
competition in each of its product lines. The Company seeks to compete on the
basis of price, service, product quality, product development and marketing.
While each of its product lines faces several strong competitors, the Company's
principal competitors with respect to the full breadth of its product lines are
Jostens, Inc. and Herff Jones, Inc. In the scholastic products business, there
are three national competitors in the sale of both class rings and fine paper
products (the Company, Jostens, Inc. and Herff Jones, Inc.), one additional
national competitor in the sale of class rings (Gold Lance, Inc.), and certain
additional competitors in the sale of fine paper products. An important
competitive factor contributing to the success of the Company in generating
sales through its in-school distribution channels will be its ability to
recruit, train and maintain a high-quality sales force. In addition, the Company
faces several regional competitors, which have been successful in the past at
taking market share from the national competitors (including ArtCarved and
Balfour).
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MANAGEMENT
Directors, Executive Officers and Certain Other Senior Officers
The following table sets forth in alphabetical order each person who is an
executive officer or director of the Company and each other person who is a
senior officer of the Company:
Name Position
- - ---- --------
Executive Officers and Directors:
George E. Agle(1) ........ Chairman of the Board of Directors
Jeffrey H. Brennan(1) .... President, Chief Executive Officer and Director
John K. Castle ........... Director
Richard H. Fritsche(1) ... Chief Financial Officer
William J. Lovejoy ....... Director
David B. Pittaway ........ Director
Zane Tankel .............. Director
Senior Officers:
Charlyn A. Cook .......... Vice President-Manufacturing
Parke H. Davis ........... Vice President-Retail Sales and Marketing
Andrew J. McLean ......... Vice President-Operations
Donald J. Percenti ....... Vice President-On Campus Sales and Marketing
R. Barry Shields ......... Vice President-Specialty Products Sales and
Marketing
- - ----------
(1) Denotes Executive Officer.
The Company is party to certain employment arrangements with respect to
Mr. Agle and has entered into employment agreements with each of the other
above-named executive and senior officers. For a description of the employment
arrangements with respect to Messrs. Agle, Brennan and Fritsche (hereinafter,
the "Named Executive Officers"), see "--Executive Compensation; Employment
Agreements." No family relationship exists between any of the executive officers
or between any of them and any director of the Company.
George E. Agle (56) has been Chairman of the Board of the Company since
December 16, 1996, and prior thereto was President and Chief Executive Officer
of Balfour from September 1994 through December 1996. Prior to that Mr. Agle was
Vice President of Business Alliance Development at Scott Paper Company from
September 1992 to August 1994. Prior to that, Mr. Agle was President and General
Manager of Scott Paper Company Mexico. Mr. Agle was employed by Scott Paper
Company in various capacities for 30 years.
Jeffrey H. Brennan (52) has been President, Chief Executive Officer and a
director of the Company since December 16, 1996, and prior thereto was President
and Chief Executive Officer of CJC from September 1995 through December 1996. He
also held the position of Chief Financial Officer of CJC from August 1988 and
served as a director of CJC from December 1988 through December 1996. Before
joining CJC in August 1988, Mr.
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Brennan served in various financial management positions with Baker Hughes
Incorporated, a provider of oilfield service, supplies and equipment.
John K. Castle (55) has been a director of the Company since December 16,
1996 and has been Chairman of Castle Harlan, Inc., a private merchant bank,
since 1987. Mr. Castle is Chairman of Castle Harlan Partners II G.P., Inc.,
which is the general partner of the general partner of Castle Harlan Partners
II, L.P., the Company's controlling stockholder. Immediately prior to forming
Castle Harlan, Inc. Mr. Castle was President and Chief Executive Officer and a
Director of Donaldson, Lufkin and Jenrette, Inc., one of the nation's leading
investment banking firms. Mr. Castle is a director of UNC Inc., Sealed Air
Corporation, Morton's Restaurant Group, Inc. and Oakley Insurance Group, Inc.; a
Managing Director of Statia Terminals Group, N.V.; and a member of the
corporation of the Massachusetts Institute of Technology. Mr. Castle is also a
Trustee of the New York and Presbyterian Hospitals, Inc., the Whitehead
Institute of Biomedical Research and New York Medical College (for 11 years
serving as Chairman of the Board). Formerly, Mr. Castle was a Director of the
Equitable Life Assurance Society of the United States.
Richard H. Fritsche (51) has been Chief Financial Officer of the Company
since December 16, 1996, and prior thereto was Vice President of Finance and
Administration of Balfour from August 1994 through December 1996. From 1990 to
1994, Mr. Fritsche served as Vice President of Administration for the Holson
Burnes Group, Inc.
William J. Lovejoy (29) has been a director of the Company since December
16, 1996 and served as Secretary of CBI from April 1996 through December 16,
1996. Mr. Lovejoy is a Vice President of Castle Harlan, Inc., a private merchant
bank, with which he has been associated since December 1994. From June to August
of 1992 and from August of 1993 to November of 1994, Mr. Lovejoy was a
management consultant at The Boston Consulting Group, Inc. From 1991 to 1993 he
attended Harvard Business School, and prior to that worked as an analyst at
Wasserstein Perella & Co., Inc. Mr. Lovejoy also serves as a director of
Homestead Insurance Company.
David B. Pittaway (45) has been a director of the Company since December
16, 1996 and was President, Treasurer and the sole director of CBI from April
1996 through December 16, 1996. Mr. Pittaway has been Vice President and
Secretary of Castle Harlan, Inc., a private merchant bank, since February 1987
and Managing Director since February 1992. Mr. Pittaway is Secretary and
executive officer of Castle Harlan Partners II G.P., Inc., which is the general
partner of the general partner of Castle Harlan Partners II, L.P., the Company's
controlling stockholder. Mr. Pittaway has been Vice President and Secretary of
Branford Castle, Inc., an investment company, since October 1986; Vice
President, Chief Financial Officer and a director of Branford Chain, Inc., a
marine wholesale company, since June 1987; a director of Morton's Restaurant
Group, Inc., a public restaurant company; a Managing Director of Statia
Terminals Group, N.V., a holder of marine terminals; and a director of McCormick
& Schmick Holding Corp., a privately-held restaurant holding company. Prior to
1987, Mr. Pittaway was Vice President of Strategic Planning and Assistant to the
President of Donaldson Lufkin & Jenrette, Inc. from 1985.
Zane Tankel (56) has been a director of the Company since December 16,
1996 and has been Chairman and Chief Executive Officer of Zane Tankel
Consultants, Inc., a sales company, since 1990. In 1994, Mr. Tankel formed Apple
Metro, Inc., a restaurant franchisee for the New York metropolitan area, for the
franchisor Applebee's Neighborhood Grill & Bar. He is presently Chairman and
Chief Executive Officer of Apple Metro, Inc. In 1995, Mr. Tankel was elected
chairman of the Federal Law Enforcement Foundation, which aids the federal law
enforcement community in times of crisis, and was elected to the Board of
Directors of the Metropolitan Presidents Organization, the New York chapter of
the World Presidents Organization, with which Mr. Tankel has been associated
since 1977. Mr. Tankel is also on the advisory board to the Boys Choir of Harlem
and, in 1987, Mr. Tankel served on the Board of Directors of Beverly Hills
Securities Corporation, a wholesale mortgage brokerage company, until its sale
in January 1994. In addition, Mr. Tankel founded Saga Communications, Inc. in
1988.
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The following individuals serve as Senior Officers of the Company:
Charlyn A. Cook (48) has been Vice President--Manufacturing of the Company
since December 16, 1996 and prior thereto was President--Manufacturing Division
of CJC from December 1989 through December 1996. From the formation date of CJC
until December 1989, she was Vice President--Operations. Ms. Cook was one of the
founding employees of R. Johns Ltd., the predecessor company of CJC. She also
served as a director of CJC from April 1988 until March 1996. Prior to joining
R. Johns, she was employed in administrative operations at John Roberts, Inc.
Parke H. Davis (54) has been Vice President--Retail Sales and Marketing
since December 16, 1996, and prior thereto was President--Class Ring Division of
CJC for more than the past five years and previously served as
President--Keepsake Division and President--College Class Ring Sales. Mr. Davis
has been involved in class ring sales and marketing since his employment with
CJC and its predecessor in 1965.
Andrew J. McLean (49) has been Vice President--Operations since December
16, 1996, and prior thereto was Vice-President of Operations of Balfour from
March 1992 through December 1996. Prior to that, he was Operations Manager--EPG
and Ring Plant Manager from 1990 through 1992.
Donald J. Percenti (40) has been Vice President--On Campus Sales and
Marketing since December 16, 1996, and prior thereto was Vice President of Sales
and Marketing for scholastic products of Balfour from September 1991 through
December 1996. Prior to that, Mr. Percenti was employed by Balfour in various
capacities since 1977.
R. Barry Shields (37) has been Vice President--Specialty Products Sales
and Marketing since December 16, 1996, and prior thereto was Vice President,
Sales and Marketing, Consumer Products Group of Balfour from January 1994
through December 1996. Prior to that, Mr. Shields was Director of Direct
Response Marketing since December 1992. From July 1989 to November 1992 Mr.
Shields served as Director of Marketing of Color Me Beautiful Cosmetics.
The Board of Directors has established two committees, a Compensation
Committee and an Audit Committee. The Compensation Committee reviews general
policy matters relating to compensation and benefits of employees and officers
of the Company. The Audit Committee recommends the firm to be appointed as
independent accountants to audit the Company's financial statements, discusses
the scope and results of the audit with the independent accountants, reviews
with management and the independent accounts the Company's interim and year-end
operating results, considers the adequacy of the internal controls and audit
procedures of the Company and reviews the non-audit services to be performed by
the independent accountants. The Compensation Committee consists of Messrs.
Castle and Pittaway and the Audit Committee consists of Messrs. Pittaway and
Lovejoy.
Compensation of Directors
Except as set forth below, Directors are not provided with any
compensation for their services other than the reimbursement of expenses
associated with attending meetings of the Board of Directors or any committee
thereof. For a description of certain employment arrangements with Messrs. Agle
and Brennan see "--Executive Compensation; Employment Agreements."
The Company has entered into indemnification agreements with its directors
that, among other things, require the Company to indemnify the directors to the
fullest extent permitted by law, and to advance to the directors all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The Company has also agreed to indemnify and
advance all expenses incurred by directors seeking to enforce their rights under
the indemnification agreements, and to cover directors under the Company's
directors' and officers' liability insurance.
The Company has entered into a Management Agreement with Castle Harlan,
Inc. pursuant to which Castle Harlan, Inc. has agreed to provide business and
organizational strategy, financial and investment management and merchant and
investment banking services to the Company, for which the Company will pay
Castle Harlan, Inc. $1.5 million per year. See "Certain Relationships and
Related Transactions." Mr. Castle is the Chairman and majority stockholder of
Castle Harlan, Inc. and Mr. Pittaway is Vice President and Secretary of Castle
Harlan, Inc.
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Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is or will be an employee of the
Company. There are no compensation committee interlocks (i.e., no executive
officer of the Company serves as a member of the board of directors or the
compensation committee of another entity which has an executive officer serving
on the Board or the Compensation Committee).
Executive Compensation; Employment Agreements
Pursuant to the Balfour Purchase Agreement, the Company has agreed to
employ Mr. Agle at an annual base salary of $300,000, plus a bonus of $50,000
payable under certain circumstances. In addition, the Company has agreed to
assume certain of Balfour's obligations under Mr. Agle's employment agreement
with Balfour to pay Mr. Agle a severance payment equal to 18 months of his
yearly salary payable on a monthly basis in the event he voluntarily terminates
employment with the Company under certain circumstances or is terminated without
cause.
The Company has entered into an employment agreement with Jeffrey H.
Brennan, effective as of December 16, 1996, pursuant to which Mr. Brennan will
serve as Chief Executive Officer of the Company at an annual base salary of
$190,000 per year for an initial term of four years, which will automatically be
extended for additional year terms on December 15 of each succeeding year
thereafter unless earlier terminated by the Company by not less than 60 days'
prior notice. Mr. Brennan will be entitled to participate in all employee
benefit plans and programs (including any incentive bonus plans and incentive
stock option plans) maintained by the Company from time to time for the benefit
of its employees. In addition, Mr. Brennan's employment agreement provides that,
in the event Mr. Brennan's employment is terminated by the Company without Cause
(as defined) or by Mr. Brennan with Good Reason (as defined), Mr. Brennan will
be entitled to receive bi-weekly severance payments during the two-year period
following his termination in an amount equal to the average of his bi-weekly
base compensation in effect within the two years preceding his termination. Mr.
Brennan has agreed not to compete with the Company in the United States for a
period of one year after the termination of his employment under his employment
agreement.
The Company has entered into an employment agreement with Richard H.
Fritsche, effective as of December 16, 1996, pursuant to which Mr. Fritsche will
serve as an executive of the Company at an annual base salary of $115,000 per
year for an initial term of three years, which will automatically be extended
for additional year terms on December 15 of each succeeding year thereafter
unless earlier terminated by the Company by not less than 60 days' prior notice.
The Company also has agreed to pay Mr. Fritsche a $50,000 bonus if Mr. Fritsche
remains employed by the Company through December 15, 1997, or if his employment
is earlier terminated by the Company without Cause (as defined) or by Mr.
Fritsche with Good Reason (as defined), in each case subject to approval by the
Board of Directors of the Company based on his performance during such time. Mr.
Fritsche will be entitled to participate in all employee benefit plans and
programs (including any incentive bonus plans and incentive stock option plans)
maintained by the Company from time to time for the benefit of its employees. In
addition, Mr. Fritsche's employment agreement provides that in the event Mr.
Fritsche's employment is terminated by the Company without Cause (as defined) or
by Mr. Fritsche with Good Reason (as defined), Mr. Fritsche will be entitled to
receive bi-weekly severance payments during the 18-month period following his
termination in an amount equal to the average of his bi-weekly base compensation
in effect within the two years preceding his termination. Mr. Fritsche has
agreed not to compete with the Company in the United States for a period of one
year after the termination of his employment under his employment agreement.
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Management Options
The Board of Directors of the Company is considering establishing an
option plan for its Management, pursuant to which it will grant
performance-based options representing up to 15% of the capital stock of the
Company on a fully-diluted basis (after giving effect to the issuance of the
shares of capital stock underlying such options) to those employees whose
performance is expected to contribute significantly to the long-term strategic
performance and growth of the Company. The Compensation Committee would monitor
any such plan.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's voting securities as of December 31, 1996
with respect to (i) each person or entity who is the beneficial owner of more
than 5% of the Company's voting securities, (ii) each of the Company's
directors, (iii) each of the Named Executive Officers, and (iv) all directors
and executive officers as a group.
<TABLE>
<CAPTION>
Number of Number of
Shares of Percentage Shares of Percentage of
Common of Total Series B Total Series B
Name and Address of Beneficial Owner(1) stock Common Stock Preferred Preferred
--------------------------------------- ----- ------------ --------- ---------
<S> <C> <C> <C> <C>
Castle Harlan Partners II, L.P.(2).............. 334,847 89.3 334,847 89.3
Castle Harlan Offshore Partners, L.P.(2)(3)..... 21,028 5.6 21,028 5.6
John K. Castle(2)(3)(4)......................... 375,000 100.0 375,000 100.0
William J. Lovejoy(2)........................... -- * -- *
David B. Pittaway(2)............................ 375 * 375 *
Zane Tankel(2).................................. -- * -- *
George Agle(5).................................. -- * -- *
Jeffrey H. Brennan(5)........................... -- * -- *
Richard H. Fritsche(5).......................... -- * -- *
Directors and executive officers as a group(5).. 375,000 100.0 375,000 100.0
</TABLE>
- - ----------
* Denotes beneficial ownership of less than one percent of the class of
capital stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Except as indicated in the footnotes
to this table, each stockholder named in the table has sole voting and
investment power with respect to the shares set forth opposite of such
stockholder's name.
(2) The address for each such stockholder or director identified above is c/o
Castle Harlan, Inc., 150 East 58th Street, New York, New York 10155.
(3) Affiliates of CHP II include Castle Harlan Offshore Partners, L.P. and
Dresdner Bank AG, Grand Cayman Branch Managed Account. Castle Harlan, Inc.
acts as the investment manager for such entities (in addition to CHP II),
pursuant to separate investment management agreements. Castle Harlan
Associates, L.P. ("CHALP") is the sole general partner of each of CHP II
and Castle Harlan Offshore Partners, L.P., and therefore may be deemed to
be a beneficial owner of the shares owned by each of those two
partnerships. Castle Harlan Partners II GP, Inc. is the sole general
partner of CHALP, and therefore may be deemed to be a beneficial owner of
the shares owned by CHALP. Castle Harlan, Inc. is the investment manager
for each of CHP II, Castle Harlan Offshore Partners, L.P. and Dresdner
Bank AG, Grand Cayman Branch, (the owner of 18,562 shares of common stock
and 18,562 shares of Series B Preferred Stock representing 4.95% of the
total outstanding common stock and 4.95% of the total Series B Preferred
Stock, respectively) and therefore may be deemed to be a beneficial owner
of the shares owned by such entities.
(4) John K. Castle is a director of the Company and is the controlling
stockholder of Castle Harlan Partners II G.P., Inc., the general partner
of the general partner of CHP II, and as such may be deemed to be a
beneficial owner of the shares owned by CHP II and its affiliates. Mr.
Castle disclaims beneficial ownership of such shares in excess of his
proportionate partnership share. In addition, Mr. Castle serves as voting
trustee under a voting trust holding 563 shares of Common Stock and 563
shares of Series B Preferred and as such may be deemed to be a beneficial
owner of the shares held in such voting trust. Mr. Castle disclaims
beneficial ownership of such shares.
(5) The address for each such officer identified above is c/o Commemorative
Brands, Inc., 7211 Circle S Road, Austin, Texas 78745.
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CBI was formed during March 1996 by CHP II, for the purpose of effecting
the Acquisitions. CHP II is a private equity investment partnership formed in
February 1992 and managed by Castle Harlan, Inc., the New York merchant bank
(the "Manager"), CHP II's capital is funded by corporate pension funds, college
endowments, foundations and individual investors. The Manager also acts as
investment manager for Castle Harlan Offshore Partners, L.P., a private equity
investment partnership formed by it, and acts as the investment manager under a
managed account formed by Dresdner Bank, AG, Grand Cayman Branch, the Cayman
Islands branch of a German banking corporation.
The Manager was founded by John K. Castle, former President and Chief
Executive Officer of Donaldson, Lufkin & Jenrette, the investment banking firm,
and Leonard M. Harlan, founder and former Chairman of The Harlan Company, a
diversified real estate and corporate advisory firm.
In accordance with a subscription agreement entered into by the Company
and the members of the Castle Harlan Group in conjunction with the consummation
of the Transactions, the Company granted to the Castle Harlan Group certain
registration rights with respect to the shares of capital stock (including
shares of Common Stock receivable upon exercise of certain warrants to purchase
Common Stock) owned by the Castle Harlan Group, pursuant to which the Company
agreed, among other things, to effect the registration of such shares under the
Securities Act at any time at the request of the Castle Harlan Group and granted
to the Castle Harlan Group unlimited piggyback registration rights on certain
registrations of shares by the Company. Castle Harlan, Inc. acts as the
investment manager for each member of the Castle Harlan Group pursuant to
separate investment management agreements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a Management Agreement, dated December 16, 1996,
with Castle Harlan, Inc., as Manager, pursuant to which the Manager agreed to
provide business and organizational strategy, financial and investment
management and merchant and investment banking services to the Company upon the
terms and conditions set forth therein. As compensation for such services, the
Company will pay the Manager $1.5 million per year, which amount has been paid
in advance for the first year and is payable quarterly in arrears thereafter.
The agreement is for a term of 10 years, renewable automatically from year to
year thereafter unless the Castle Harlan Group then owns less than 5% of the
then outstanding capital stock of the Company. The Company has agreed to
indemnify the Manager against liabilities, costs, charges and expenses relating
to the Manager's performance of its duties, other than such of the foregoing
resulting from the Manager's gross negligence or willful misconduct. The
Indenture prohibits payment of the Management Fee in the event of a default by
the Company in the payment of principal, Redemption Price, Purchase Price (as
defined in the Indenture), interest, or Liquidated Damages (if any) on the
Notes.
THE ACQUISITIONS
The ArtCarved Acquisition
CBI entered into the ArtCarved Purchase Agreement with CJC as of May 20,
1996, as amended as of November 21, 1996 and December 16, 1996, for the
acquisition by CBI of ArtCarved. In consideration for ArtCarved, CBI paid CJC in
cash the sum of $97.8 million plus an amount equal to the Adjusted Working
Capital (as defined in the ArtCarved Purchase Agreement) of ArtCarved as of the
closing date. Based upon an estimated Adjusted Working Capital of $17.0 million,
the ArtCarved Purchase Price was approximately $114.8 million, subject to
adjustment upon final determination of the Adjusted Working Capital. In
addition, CBI assumed certain liabilities of ArtCarved, including liabilities
included in the determination of Adjusted Working Capital and certain
liabilities relating to the employees to be employed by CBI.
The ArtCarved Purchase Agreement contains customary representations,
warranties and covenants. CBI and CJC have also indemnified one another for
certain breaches of representations (which breaches are discovered by March 31,
1997) or covenants. No claims under the indemnity may be asserted by CBI or CJC
against the other party unless such claims exceed $100,000 in the aggregate, in
which event the indemnitor shall only be obligated to
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indemnify for the amount of such claims in excess of such amount. In addition,
CJC's indemnification obligations are limited to a $3.0 million escrow account
at Texas Commerce Bank, which will remain in place through March 31, 1997.
The Balfour Acquisition
CBI entered into the Balfour Purchase Agreement with Town & Country, L.G.
Balfour Company and Gold Lance, Inc. (another subsidiary of Town & Country,
"Gold Lance") as of May 20, 1996, as amended and restated as of November 21,
1996 and December 16, 1996, for the acquisition by CBI of Balfour. In
consideration for Balfour, CBI paid Town & Country and L.G. Balfour Company in
cash the aggregate sum of $23.8 million plus an amount equal to the Adjusted
Working Capital (as defined in the Balfour Purchase Agreement) of Balfour as of
the closing date. In addition, CBI purchased the Balfour Gold for the Balfour
Gold Purchase Price. Based upon an estimated Adjusted Working Capital of Balfour
of $23.6 million, the Balfour Purchase Price was approximately $47.4 million,
subject to adjustment upon final determination of the Adjusted Working Capital.
In addition, CBI assumed certain liabilities of Balfour, including liabilities
included in the determination of Adjusted Working Capital, certain liabilities
relating to the employees to be assumed by CBI and an accumulated benefit
obligation of $5.5 million related to the unfunded Balfour postretirement
medical benefits plan.
Originally, the Balfour Purchase Agreement contemplated that CBI would
acquire the assets (and assume certain liabilities) of Gold Lance as well. The
agreement was subsequently amended following the determination of the FTC that
it would not grant its consent under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, if the Balfour Acquisition included such
assets. Pursuant to the Final Order, CBI has agreed, among other things, not to
acquire any assets of or interest in Gold Lance, another class ring
manufacturing subsidiary of Town & Country, the assets of which CBI had
originally contracted to buy together with Balfour. Also pursuant to the Final
Order, Town & Country and Gold Lance agreed, among other things, not to sell any
assets to or acquire any interest in CBI, other than the sale of the Balfour
assets to CBI on the terms set forth in the Balfour Purchase Agreement. In
accordance with the Balfour Purchase Agreement $14.0 million of the Balfour
Purchase Price was originally paid into escrow pending receipt of the Final
Order. Following receipt of the Final Order on December 20, 1996, such funds
were paid to Town & Country.
The Balfour Purchase Agreement contains customary representations,
warranties and covenants. CBI, on the one hand, and Town & Country and L.G.
Balfour Company, on the other hand, have also indemnified one another for
certain breaches of representations (which breaches are discovered in a limited
survival period, generally 15 months) or covenants. No claims under the
indemnity may be asserted by CBI or Town & Country against the other party
unless such claims exceed $150,000 in the aggregate, in which event the
indemnitor shall only be obligated to indemnify for the amount of such claims in
excess of such amount, and in no event shall an indemnifying party be liable to
indemnify the other party for any amounts in excess of $7.5 million. If a
petition under bankruptcy laws is filed by or against, or a receiver, fiscal
agent or similar officer is appointed by a court for the business or property
of, Town & Country or L.G. Balfour Company, there can be no assurance that the
Company would be able to collect any amounts determined to be due to it by Town
& Country or L.G. Balfour Company, pursuant to such indemnities.
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation (as amended) provides that the
Company is authorized to issue 750,000 shares of preferred stock, par value $.01
per share and 750,000 shares of common stock, par value $.01 per share.
Series A Preferred Stock ("Series A Preferred")
Dividends. Dividends on the Series A Preferred are payable in cash, when,
as and if declared by the board of directors of the Company, commencing on
January 31, 1997, on a quarterly basis, and accrue cumulatively at a rate per
annum of 12%, whether or not such dividends have been declared and whether or
not there shall be surplus, net profits, or the assets of the Company legally
available for the payment of dividends. All such dividends declared
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<PAGE>
shall be paid pro rata to the holders entitled thereto. Pursuant to the terms of
the Indenture, dividends on the Series A Preferred may not be paid until the
Fixed Charge Coverage Ratio (as defined) for the Company's most recently ended
four full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such dividend payment is made would have
been at least 2.25 to 1, determined on a pro forma basis (including a pro forma
application of such dividend payment), as if the dividend payment had been made
at the beginning of such four-quarter period. See "Description of Notes--Certain
Covenants; Restricted Payments."
Redemption and Liquidation. The Series A Preferred is redeemable at any
time at the option of the Company. However, pursuant to the terms of the
Indenture, the Company may not redeem the Series A Preferred (a) unless such
redemption is for at least $2.0 million and (b) until the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such redemption is made would have been at least 2.5 to 1, determined on a
pro forma basis (including a pro forma application of such redemption), as if
the redemption had been made at the beginning of such four-quarter period. See
"Description of Notes--Certain Covenants; Restricted Payments." Subject to the
foregoing, the Company may redeem all or any portion of the Series A Preferred
at its liquidation value of $100 per share, plus accrued and unpaid dividends
thereon, if any, to the date fixed for redemption. In the event of any
liquidation, dissolution or winding up of the Company, the holders of the Series
A Preferred will receive payment of the liquidation value of $100 per share plus
all accrued and unpaid dividends thereon, if any, in full, prior to the payment
of any distributions to the holders of the Series B Preferred or the holders of
the Common Stock of the Company.
Restrictions on Payment of Other Dividends and Redemptions. So long as any
share of the Series A Preferred shall be outstanding, the Company may not
declare, pay or set aside for payment dividends or other distributions with
respect to, or redeem or otherwise repurchase any shares of, the Series B
Preferred or any other shares of capital stock of the Company ranking, as to
dividend rights and rights upon liquidation, dissolution or winding up, junior
to the Series A Preferred, other than dividends payable in Common Stock or in
another stock ranking junior to the Series A Preferred as to dividend rights and
rights on liquidation, dissolution and winding up and other than redemptions or
repurchases of shares of Common Stock or other capital stock of the Company
issued to or held by any officer, director, employee, independent sales
representative or agent of the Company or its subsidiaries (including, without
limitation, any former officer, director, employee, independent sales
representative or agent of the Company or its subsidiaries) or any employee
stock ownership plan or similar trust for the account of any such person.
Voting. The Company shall not amend, alter or repeal any of the provisions
of its Certificate of Incorporation or Bylaws, or merge with or into or
consolidate with any other entity, in any case so as to affect adversely any of
the preferences, rights, powers or privileges of the Series A Preferred or the
holders thereof, without first obtaining the approval of at least a majority of
the outstanding shares of Series A Preferred voting separately as one class.
Except as set forth above, the holders of shares of Series A Preferred shall not
be entitled to voting rights.
Series B Preferred Stock ("Series B Preferred")
Dividends. No dividends shall be payable on the Series B Preferred.
Redemption and Liquidation. The Series B Preferred is non-redeemable. In
the event of any liquidation, dissolution or winding up of the Company, the
holders of the Series B Preferred will receive payment of the liquidation value
of $100 per share plus all accrued and unpaid dividends thereon, if any, in
full, prior to the payment of any distributions to the holders of the Common
Stock of the Company or any other class of stock of the Company junior to the
Series B Preferred, but only to the extent that the liquidation preference (plus
all accrued and unpaid dividends, if any) of the Series A Preferred and any
other class of stock ranking senior to the Series B Preferred has been paid to
the holders thereof.
Restriction on Payment of Other Dividends. The Company may not declare,
pay or set aside for payment any dividends or distributions (other than
dividends payable in Common Stock or in another stock ranking junior to the
Series B Preferred as to dividend rights and rights on liquidation, dissolution
and winding up) on any Common
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Stock or other shares of capital stock ranking junior to the Series B Preferred
so long as any share of Series B Preferred is outstanding.
Voting. The holders of shares of Series B Preferred shall be entitled to
one vote per share, and shall vote together with holders of the Common Stock on
all matters presented to stockholders generally. The Company shall not amend,
alter or repeal any of the provisions of its Certificate of Incorporation or
Bylaws, or merge with or into or consolidate with any other entity, in any case
so as to affect adversely any of the preferences, rights, powers or privileges
of the Series B Preferred or the holders thereof, without first obtaining the
approval of at least a majority of the outstanding shares of Series B Preferred
voting separately as one class.
Common Stock
The holders of Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders, including the
election of directors, and shall vote together as a class with the holders of
the Series B Preferred.
Dividends may be paid on the Common Stock, when and as declared by the
Board of Directors out of funds legally available therefor. The Company does not
expect to pay dividends on the Common Stock in the foreseeable future.
Common Stock Purchase Warrants.
The Company has issued Warrants, initially excercisable to purchase an
aggregate of 28,230 shares of Common Stock (or an aggregate of 7% of the
outstanding shares of Common Stock on a fully diluted basis), at a nominal
price, at any time on or after December 16, 1997. The Warrants were initially
issued to the initial holders of the Series A Preferred but are transferable
separately from the Series A Preferred.
In accordance with a subscription agreement entered into by the Company
and the members of the Castle Harlan Group, the Company granted to the Castle
Harlan Group certain registration rights with respect to the shares of capital
stock (including shares of Common Stock receivable upon exercise of the
Warrants) owned by the Castle Harlan Group, pursuant to which the Company
agreed, among other things, to effect the registration of such shares under the
Securities Act of 1933, as amended, at any time at the request of the Castle
Harlan Group and granted to the Castle Harlan Group unlimited piggyback
registration rights on certain registrations of shares of capital stock by the
Company.
DESCRIPTION OF THE BANK CREDIT FACILITY
The following summarizes certain provisions of the Bank Credit Facility,
which was entered into as of December 16, 1996, by and among the Company, as
borrower, The First National Bank of Boston ("FNBB") and Rhode Island Hospital
Trust National Bank ("RIHT", and together with FNBB, as agents, the "Agents")
and the financial institutions party thereto. This summary does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
all of the provisions of the Bank Credit Facility, including all of the
definitions therein of terms not defined in this Prospectus. The Bank Credit
Facility has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
General. The Bank Credit Facility consists of a senior secured credit
facility of up to $60,000,000, including (i) a $25,000,000 term loan facility
(the "Term Loan Facility"), (ii) a $25,000,000 revolving credit facility (with a
letter of credit sublimit of $5,000,000) (the "Revolving Credit Facility") and
(iii) a $10,000,000 gold consignment and revolving credit facility (the "Gold
Facility", and together with the Revolving Credit Facility, the "Revolving
Credit and Gold Facilities"), for the purpose of financing, in part, the
Acquisitions, and to support the ongoing working capital requirements of the
Company.
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Term Loan Facility
The Term Loan Facility matures on December 16, 2003. The Company may
prepay the Term Loan at any time, except that any repayment of any portion of
the Term Loan bearing interest at the Eurodollar Rate may only be repaid on the
last day of the Interest Period relating thereto. The Company must repay the
Term Loan in 28 consecutive quarterly installments, commencing March 31, 1997,
as follows:
Quarterly Annual
Year Amount Amount
---- ------------ ----------
1 $ 125,000 $ 500,000
2 $ 250,000 $1,000,000
3 $ 375,000 $1,500,000
4 $ 500,000 $2,000,000
5 $ 750,000 $3,000,000
6 $ 2,000,000 $8,000,000
7 $ 2,250,000 $9,000,000
The final installment of principal of the Term Loan shall be due and payable on
December 16, 2003.
In addition, subject to certain exceptions set forth in the Bank Credit
Facility, the Company must make mandatory prepayments of the Term Loan in an
amount equal to (i) 100% of the net proceeds received from the sale or
disposition of assets of the Company (other than sales of inventory in the
ordinary course of business or other asset sales and dispositions to the extent
the net proceeds received do not exceed $500,000 during the period prior to the
first anniversary of the closing date, and do not exceed $250,000 in any
corresponding one-year period thereafter), (ii) 100% of net proceeds received
from the issuance of equity of the Company until certain conditions are met, and
(iii) 50% of Consolidated Excess Cash Flow (as defined).
Revolving Credit and Gold Facilities
Availability under the Revolving Credit Facility and the Gold Facility is
subject to a borrowing base limitation (the "Borrowing Base") based on the
aggregate of certain percentages of Eligible Receivables (as defined) and
Eligible Inventory (as defined) of the Company. If the aggregate amount of loans
and other extensions of credit under the Revolving Credit Facility and the Gold
Facility exceeds the Borrowing Base, the Company must immediately prepay or cash
collateralize its obligations under the Revolving Credit Facility to the extent
of such excess.
The Gold Facility consists of (a) a purchase and consignment facility,
pursuant to which the RIHT, as gold agent, on behalf of the lenders under the
Gold Facility, will purchase amounts of gold inventory of the Company and
consign such amounts to the Company, (b) a consignment facility, pursuant to
which the gold agent, on behalf of the lenders under the Gold Facility, will
obtain and consign amounts of gold to the Company and (c) a revolving loan
facility. The obligation of any Gold Bank to lend to the Company pursuant to the
Gold Facility is subject to the condition that, among other things, such Gold
Loan will not cause the aggregate amount of outstanding Gold Loans by such Gold
Bank to exceed such Gold Bank's Gold Commitment, minus such Gold Bank's
percentage of the fair market value of Consigned Precious Metal outstanding. The
obligation of the Gold Agent to make any gold consignment pursuant to the Gold
Facility is subject to the condition that, among other things, the fair market
value of gold consigned by the Gold Agent to the Company shall not exceed 95%
multiplied by the fair market value of the sum of (i) gold consigned by the Gold
Agent to the Company, plus (ii) gold owned by the Company.
The outstanding principal of each loan under the Bank Credit Facility will
bear interest at a rate per annum equal to (a) the Base Rate plus (i) 1.25% per
annum, in the case of loans under the Revolving Credit and Gold Facilities, and
(ii) 1.75% per annum, in the case of the Term Loan Facility, or (b) at the
option of the Company (but subject to certain specified conditions), the reserve
adjusted Eurodollar Rate plus (i) 3.0% per annum in the case of borrowings under
the Revolving Credit and Gold Facilities and (ii) 3.50% in the case of Term Loan
Facility. The
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applicable interest rate margins will be subject to up to two decreases in 25
basis point increments after the first year following the closing date if the
Company meets and maintains certain leverage and interest coverage ratios. If
any payment event of default occurs, the interest rates and consignment fees
will be increased by 2% above the then applicable rate for each Facility.
Outstanding consigned or purchased and consigned gold under the Gold
Facility shall accrue a daily consignment fee at a rate determined by the Gold
Agent plus 3.0% per annum, payable monthly in arrears, or, at the Borrower's
option, at a rate equal to (a) the greater of (i) the reserve adjusted
Eurodollar Rate minus the average of rates quoted to the Gold Agent as the
London Interbank Bullion Rates as displayed on Reuter's gold loan screen or, if
Reuter's gold loan screen is not available, as set by the Gold Agent for gold
forwards for such period and (ii) zero, plus (b) 3.0% per annum.
In addition to the interest charges described above, the Company will pay
to the applicable Agent (i) for the account of the Dollar Banks, a commitment
fee on the unused portion of the Revolving Credit Facility of 1/2% per annum;
(ii) for the account of the Gold Banks, a commitment fee on the unused portion
of the Gold Facility of 1/2% per annum; and (iii) a letter of credit fee equal
to (a) for standby letters of credit, a rate per annum equal to the Eurodollar
rate margin applicable to Loans under the Revolving Credit Facility then in
effect, and (b) for documentary letters of credit, a per annum rate equal to the
Eurodollar rate margin applicable to loans under the Revolving Credit Facility
then in effect, less 1%.
Repayment. The Revolving Credit and Gold Facilities may be borrowed,
repaid and reborrowed from time to time until five years after the closing date
of the Bank Credit Facility, subject to certain conditions on the date of any
such borrowing. Amounts of principal repaid on the Term Loan Facility may not be
reborrowed.
Security. The Bank Credit Facility is secured by a first priority lien on
substantially all assets of the Company, including all accounts receivable,
inventory, equipment, general intangibles, real estate, buildings and
improvements and the outstanding stock of its subsidiaries. The Company's U.S.
subsidiary, CBI North America, Inc., has guaranteed the Company's obligations
and granted a similar security interest.
Covenants. The Credit Agreement contains certain customary affirmative and
negative covenants, including, among other things, requirements that the Company
(i) periodically deliver certain financial information (including monthly
borrowing base, consigned metal and receivables aging reports), (ii) not merge
or make certain asset sales, (iii) not permit certain liens to exist on its
assets, (iv) not incur additional debt or liabilities except as may be permitted
under the terms of the Bank Credit Facility, (v) not make capital expenditures
in excess of limits set forth in the Bank Credit Facility, (vi) not declare or
make certain dividend payments, (vii) not make certain investments or consummate
certain acquisitions, (viii) not enter into any consignment transactions as
consignee (except for deliveries of diamonds), (ix) not create a new subsidiary,
(x) not establish any new bank account, and (xi) establish concentration
accounts with FNBB and direct all of its depositary banks to transfer all
amounts deposited (on a daily basis) to such concentration accounts (for
application in accordance with the Credit Agreement). Most of the covenants
apply to the Company and its subsidiaries.
In addition, the Company must comply with certain financial covenants,
including maintaining a specified minimum interest coverage ratio of
Consolidated EBITDA to Consolidated Interest Expense, maximum Consolidated
Senior Funded Debt to Consolidated EBITDA and minimum Consolidated EBITDA (as
those terms are defined in the Bank Credit Facility) in amounts set forth in the
Bank Credit Facility.
Events of Default. The Bank Credit Facility contains certain customary
events of default, including nonpayment, misrepresentation, breach of covenant,
bankruptcy, ERISA, judgments, change of control and cross defaults. In addition,
the Credit Agreement provides that it shall be an Event of Default if the
Company or any of its subsidiaries (other than its Mexican subsidiary) shall be
enjoined or restrained from conducting any material part of its business for
more than 30 days.
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DESCRIPTION OF NOTES
The Exchange Notes will be issued under the Indenture, a copy of which has
been filed as an exhibit to the Registration Statement of which this Prospectus
constitutes a part. The Indenture is subject to and governed by the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following
summary of certain terms and provisions of the Indenture and the Registration
Rights Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all of the provisions of the Notes,
the Indenture and the Registration Rights Agreement, including the definitions
of certain terms therein and those terms made a part of the Indenture by
reference to the Trust Indenture Act. The Company will provide, without charge,
to each person, including any beneficial owner, to whom this Prospectus is
delivered, upon such person's written or oral request, copies of the Indenture
and the Registration Rights Agreement. Any such request should be delivered to
the Company, 7211 Circle S Road, Austin, Texas 78745 (telephone number (512)
444-0571), Attention: Secretary. In addition, definitions of certain capitalized
terms used in the following summary are set forth below under "Certain
Definitions."
On December 16, 1996, the Company issued $90,000,000 aggregate principal
amount of Initial Notes under the Indenture. The terms of the Exchange Notes are
identical in all material respects to the Initial Notes, except for certain
transfer restrictions and registration and other rights relating to the exchange
of the Initial Notes for the Exchange Notes. The Trustee will authenticate and
deliver Exchange Notes for original issue only in exchange for a like principal
amount of Initial Notes. Any Initial Notes that remain outstanding after the
consummation of the Exchange Offer will be entitled to vote or consent on all
matters, together with the Exchange Notes, as a single class of securities under
the Indenture.
General
The aggregate principal amount of the Notes that may be issued under the
Indenture is limited to $90.0 million. The Notes mature on January 15, 2007, and
bear interest at a rate of 11% from the date of original issuance of the Initial
Notes (or from the most recent date to which interest has been paid), payable
semi-annually on January 15 and July 15 of each year, commencing on July 15,
1997, to holders of record at the close of business on the January 1 or July 1
immediately preceding such interest payment date. Interest on the Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
The Notes will rank junior in right of payment to all Senior Indebtedness,
including borrowings under the Bank Credit Facility. Borrowings under the Bank
Credit Facility are secured by substantially all the Company's assets, including
the capital stock of the Company's existing and future Subsidiaries, and will be
guaranteed by all such Subsidiaries, which guarantees will be secured by
substantially all of such Subsidiaries' assets. The Notes will rank pari passu
in right of payment with all senior subordinated Indebtedness of the Company
issued in the future (if any) and senior in right of payment to all other
subordinated Indebtedness of the Company issued in the future, if any. As of
December 16, 1996, the Company had approximately $36.2 million of Senior
Indebtedness outstanding (exclusive of an unused commitment of up to $23.8
million under the Bank Credit Facility). See "Risk Factors--Substantial Leverage
and Debt Service" and "Capitalization." 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--Incurrence of Indebtedness and Issuance of Preferred Stock."
The Indenture provides that principal, Redemption Price and Purchase Price
of, and interest and Liquidated Damages (if any) on the Notes will be payable,
and the Notes will be exchangeable and transferable (subject to compliance with
transfer restrictions imposed by applicable securities laws for so long as the
Notes are not registered for resale under the Securities Act), at the office or
agency of the Company in the City of New York maintained for such purposes;
provided, however, that payment of interest may be made at the option of the
Company by check mailed to the holders of record as shown on the security
register. The Notes will be issued only in fully registered form without
coupons, in denominations of $1,000 and any integral multiple thereof. No
service charge will be made for any registration of transfer, exchange or
redemption of Notes, except in certain circumstances for any tax or other
governmental charge that may be imposed in connection therewith.
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Optional Redemption
The Notes will be subject to redemption (an "Optional Redemption"), at the
option of the Company, in whole or in part, at any time on or after January 15,
2002, upon not less than 30 nor more than 60 days' prior notice in amounts of
$1,000 or an integral multiple thereof at the following Redemption Prices
(expressed as a percentage of the principal amount), together with accrued and
unpaid interest and Liquidated Damages (if any) to the applicable redemption
date, if redeemed during the 12-month period beginning January 15 of the years
indicated below:
Year Redemption Price
---- ----------------
2002................................. 105.500%
2003................................. 103.667%
2004................................. 101.833%
2005 and thereafter.................. 100.000%
If less than all the Notes are to be redeemed, the Trustee will select the
particular Notes or portions thereof to be redeemed by lot, pro rata or by any
other method the Trustee shall deem fair and reasonable.
The Company will comply with all applicable notice requirements regarding
redemption as set forth in the Indenture.
Special Redemption
The Indenture provides that in the event the Company completes one or more
Public Equity Offerings on or before January 15, 2000, the Company, in its
discretion, may use the net cash proceeds from any such Public Equity Offering
to redeem up to 33 1/3% of the original principal amount of the Notes (a
"Special Redemption") at a Redemption Price of 111% of the principal amount,
together with accrued and unpaid interest and Liquidated Damages (if any), to
the date of redemption, provided, however, that at least 66-2/3% of the original
principal amount of the Notes will remain outstanding immediately after each
such redemption; and provided, further, that each such redemption shall occur
within 90 days after the date of the closing of the applicable Public Equity
Offering.
If less than all the Notes are to be redeemed, the Trustee will select the
particular Notes or portions thereof to be redeemed by lot, pro rata or by any
other method the Trustee shall deem fair and reasonable.
The Company will comply with all applicable notice requirements regarding
redemption as set forth in the Indenture.
Subsidiary Guarantees
The Indenture provides that if any Subsidiary of the Company (other than
an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary) becomes
a Significant Subsidiary (whether as a result of creation, acquisition,
additional investment, internal growth or otherwise), then such Subsidiary will
be required to execute a subsidiary guarantee (a "Subsidiary Guarantee");
provided, however, that any Foreign Subsidiary shall only be required to execute
a Subsidiary Guarantee to the extent permitted under the laws of its
jurisdiction of organization. Each Subsidiary that is obligated to execute a
Subsidiary Guarantee shall execute a Subsidiary Guarantee and deliver an opinion
of counsel, in accordance with the terms of the Indenture.
"Subsidiary Guarantors" means any Subsidiary that executes a Subsidiary
Guarantee in accordance with the provisions of the Indenture, and their
respective successors and assigns.
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The Subsidiary Guarantee of each Subsidiary Guarantor will be unsecured
and subordinated to the prior payment in full in cash or Cash Equivalents of all
Senior Indebtedness of such Subsidiary Guarantor (including such Subsidiary
Guarantor's guarantee of the Bank Credit Facility), and the amounts for which
the Subsidiary Guarantors will be liable under the guarantees issued from time
to time with respect to other Senior Indebtedness of the Company. The
subordination of the Subsidiary Guarantees will be substantially similar to the
subordination provided for in the Indenture with respect to the Notes. See
"Subordination." The obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee will be limited with the intent of not creating a
fraudulent conveyance under applicable law. See, however, "Risk Factors
- - --Fraudulent Conveyance."
The Indenture provides that no Subsidiary Guarantor may consolidate with
or merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation, Person or entity (other than the Company or
another Subsidiary Guarantor) whether or not affiliated with such Subsidiary
Guarantor unless subject to the provisions of the following paragraph, (i) the
Person formed by or surviving any such consolidation or merger (if other than
such Subsidiary Guarantor) assumes all the obligations of such Subsidiary
Guarantor, in form and substance reasonably satisfactory to the Trustee, under
the Notes and the Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists; and (iii) the Company would
be permitted, by virtue of the Company's pro forma Fixed Charge Coverage Ratio
immediately after giving effect to such transaction, to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock."
The Indenture provides that in the event of a sale or other disposition of
all or substantially all of the assets of any Subsidiary Guarantor, by way of
merger, consolidation or otherwise, or a sale or other disposition of all of the
capital stock of any Subsidiary Guarantor, then such Subsidiary Guarantor (in
the event of a sale or other disposition, by way of such a merger, consolidation
or otherwise, of all of the capital stock of such Subsidiary Guarantor) or the
corporation acquiring the property (in the event of a sale or other disposition
of all of the assets of such Subsidiary Guarantor) will be released and relieved
of any obligations under its Subsidiary Guarantee; provided that the Net
Proceeds of such sale or other disposition are applied in accordance with the
applicable provisions of the Indenture. See "--Repurchase at the Option of
Holders."
Subordination
The Indenture provides that the payment of the principal, Redemption Price
and Purchase Price of, and interest and Liquidated Damages (if any) on, the
Notes (including, without limitation, by any purchase of Notes referred to in
"--Repurchase at the Option of Holders") will be expressly subordinate and
subject in right of payment, as provided in the Indenture, to the prior payment
in full in cash or Cash Equivalents of all Senior Indebtedness (as hereinafter
defined).
"Senior Indebtedness" is defined as Designated Senior Indebtedness and the
principal of, premium (if any) and interest (including interest accruing after
the filing of a petition initiating any proceeding under any applicable
bankruptcy law, whether or not a claim therefor is allowable in such proceeding)
on, any other Indebtedness of the Company, whether outstanding on the date of
the Indenture or thereafter created, incurred or assumed, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing, or the
agreement governing, such Indebtedness or pursuant to which such Indebtedness is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to the Notes. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (i) Indebtedness evidenced by the Notes; (ii)
Indebtedness that is by its terms subordinate or junior in right of payment to
any other Indebtedness of the Company; (iii) that portion of any Indebtedness
which is incurred in violation of the Indenture; (iv) Indebtedness of the
Company to a Subsidiary or any other Affiliate of the Company; (v) Indebtedness
which is represented by Disqualified Stock; (vi) any liability for federal,
state, local or other taxes owed or owing by the Company; (vii) accounts payable
or other obligations to trade creditors created, incurred or assumed in the
ordinary course of business in connection with obtaining materials or services
and other current liabilities (excluding the current portion of long-term Senior
Indebtedness); (viii) Indebtedness of or amounts owing by the Company for
compensation to employees for services; and (ix) amounts owing under leases
(other than Capitalized Lease Obligations).
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"Designated Senior Indebtedness" means (i) Indebtedness of the Company
under the Bank Credit Facility, including without limitation all principal,
interest (including interest accruing after the filing of a petition initiating
any proceeding under any applicable bankruptcy law, whether or not a claim
therefor is allowable in such preceding), reimbursements of amounts drawn under
letters of credit, reimbursements of other amounts, Hedging Obligations with an
agent or other representative of the lenders under the Bank Credit Facility,
guarantees in respect thereof, and all charges, consignment and other fees,
indemnifications, damages, penalties, expenses (including expenses accruing
after the filing of a petition initiating any proceeding under any applicable
bankruptcy law, whether or not a claim therefor is allowable in such proceeding)
and all other amounts or liabilities payable in respect thereof; and (ii) any
other Senior Indebtedness, and all fees, expenses, indemnities and other
monetary obligations in respect thereof, which, at the date of creation thereof
or determination, has an aggregate principal amount outstanding of, or under
which at the date of creation thereof or determination, the holders thereof are
committed to lend, at least $7.5 million and is specifically designated by the
Company (with the consent of the Senior Representative for the Bank Credit
Facility unless the Trustee has received written notice from such Senior
Representative waiving such right of consent) in the instrument evidencing or
governing such Senior Indebtedness as "Designated Senior Indebtedness" for
purposes of the Indenture.
During the continuance of any default in the payment of any principal of,
gold consignment repurchase obligation or reimbursement obligation under, or
premium (if any) or interest or consignment fee on, any Senior Indebtedness (a
"Senior Payment Default"), no payment or distribution of any assets of the
Company of any kind or character may be made on account of the Notes (including
without limitation on account of the principal, Redemption Price and Purchase
Price of, and interest and Liquidated Damages (if any) on, the Notes) unless and
until such Senior Payment Default has been cured, waived or has ceased to exist
or such Senior Indebtedness has been discharged or paid in full in cash or Cash
Equivalents or the right under the Indenture to prevent any such payment has
been waived by or on behalf of the holders of such Senior Indebtedness.
During the continuance of any event (other than a Senior Payment Default),
the occurrence of which entitles one or more Persons to accelerate the maturity
of any Designated Senior Indebtedness (a "Senior Covenant Default"), and the
receipt by the Trustee from the Senior Representative for such Designated Senior
Indebtedness of a written notice of such Senior Covenant Default, no payment or
distribution of any assets of the Company of any kind or character may be made
by the Company on account of the Notes (including without limitation on account
of the principal, Redemption Price and Purchase Price of, and interest and
Liquidated Damages (if any) on, the Notes) for the period specified below (a
"Payment Blockage Period").
A Payment Blockage Period shall commence upon the receipt by the Trustee
of notice from a Senior Representative for Designated Senior Indebtedness of a
Senior Covenant Default and shall end (subject to any blockage of payment that
may be in effect in respect of a Senior Payment Default or insolvency) on the
earliest of (i) 179 days after the receipt of such notice, provided such
Designated Senior Indebtedness shall not theretofore have been accelerated and
no Senior Payment Default shall be in effect; (ii) the date on which such Senior
Covenant Default is cured, waived or ceases to exist or such Designated Senior
Indebtedness is discharged or paid in full in cash or Cash Equivalents; or (iii)
the date on which such Payment Blockage Period shall have been terminated by
written notice to the Company and the Trustee from the Senior Representative
initiating such Payment Blockage Period or the holders of at least a majority in
principal amount of such issue of Designated Senior Indebtedness, after which
the Company shall promptly resume making any and all required payments in
respect of the Notes, including any missed payments. In no event will a Payment
Blockage Period extend beyond 179 days from the date of the receipt by the
Trustee of the notice initiating such Payment Blockage Period. Any number of
notices of a Senior Covenant Default may be given during a Payment Blockage
Period; provided, that no such notice shall extend such Payment Blockage Period,
only one Payment Blockage Period may be commenced within any 360-day period and
there shall be at least 181 consecutive days in each period of 360 consecutive
days when no Payment Blockage Period is in effect. No Senior Covenant Default
with respect to Designated Senior Indebtedness that existed or was continuing on
the date of the commencement of any Payment Blockage Period and that was known
to the holders or the Senior Representative for such Designated Senior
Indebtedness will be, or can be, made the basis for the commencement of a second
Payment Blockage Period, whether or not within a period of 360 consecutive days,
unless such Senior Covenant Default has been cured or waived for a period of not
less than 90 consecutive days. The Company shall deliver a notice to the Trustee
promptly after the date on which any Senior
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Covenant Default is cured or waived or ceases to exist or on which the
Designated Senior Indebtedness related thereto is discharged or paid in full in
cash or Cash Equivalents.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the Holders of Notes to accelerate the
maturity thereof in accordance with the Indenture. See "--Events of Default."
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the Company or its assets, or any liquidation,
dissolution or other winding up of the Company, whether voluntary or
involuntary, or any assignment for the benefit of creditors or other marshaling
of assets or liabilities of the Company (except in connection with the
consolidation or merger of the Company or its liquidation or dissolution
following the sale, assignment, transfer, lease or other disposition of all or
substantially all of its assets in one or more related transactions, upon the
terms and conditions described under "--Covenants--Limitation on Mergers,
Consolidations and Sales of Assets" to the extent permitted under the terms of
outstanding Senior Indebtedness), all Senior Indebtedness (including, in the
case of Designated Senior Indebtedness, interest and consignment fees accruing
after the commencement of any such proceeding at the rate specified in the
instrument evidencing the applicable Designated Senior Indebtedness, whether or
not a claim therefor is allowed in such proceeding, to the date of payment of
such Designated Senior Indebtedness) must be paid in full in cash or Cash
Equivalents before any payment or distribution of any assets of the Company of
any kind or character is made on account of the Notes (including without
limitation the principal, Redemption Price, and Purchase Price of, and interest
and Liquidated Damages (if any) on, the Notes).
By reason of such subordination, in the event of liquidation or
insolvency, creditors of the Company that are holders of Senior Indebtedness of
the Company may recover more, ratably, than the Holders of Notes, and the
Company may be unable to meet its obligations fully with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
The Indenture provides that, upon the occurrence of a Change of Control,
each Holder of Notes will have the right to require the Company to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Notes pursuant to the offer described below (the "Change of Control
Offer") at a Purchase Price in cash equal to 101% of the aggregate principal
amount thereof, together with accrued and unpaid interest and Liquidated Damages
(if any) thereon to the Purchase Date. Within 30 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes pursuant to the procedures required by the Indenture and
described in such notice.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
On a date that is at least 30 but no more than 60 days from the date on
which the Company mails notice of a Change of Control (the "Purchase Date"), the
Company will, to the extent lawful, (i) accept for payment all Notes or portions
thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit
with the Paying Agent an amount equal to the Purchase Price, together with
accrued and unpaid interest and Liquidated Damages (if any) thereon to the
Purchase Date in respect of all Notes or portions thereof so tendered and
accepted for repurchase and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being repurchased by the
Company. The Paying Agent will promptly (but in any case not later than five
days after the Purchase Date) mail to each Holder of Notes so repurchased the
amount due in connection with such Notes, and the Company will promptly issue a
new Note, and the Trustee, upon written request from the Company will
authenticate and mail or deliver to each relevant
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Holder a new Note, in a principal amount equal to any unpurchased portion of the
Notes surrendered to the Holder thereof; provided, that each such new 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 Purchase Date.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole, to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), (ii) the adoption of a plan relating to the liquidation or dissolution of
the Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that (a) prior
to a Public Equity Offering, the Principals and their Related Parties cease to
be the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act) of a majority of the total outstanding Voting Stock of
the Company, or (b) after a Public Equity Offering, any "person" (as defined
above), other than the Principals and their Related Parties, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act), directly or indirectly, of more than 35% of the total
outstanding Voting Stock of the Company, and the Principals and their Related
Parties beneficially own a lesser percentage of the Voting Stock of the Company
than such person, or (iv) the first day on which a majority of the members of
the Board of Directors of the Company are not Continuing Directors.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of the Company and its Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all", there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
"Continuing Directors" means, 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 of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Principals" means Castle Harlan Partners II, L.P., Castle Harlan, Inc.
and their respective Affiliates and the officers and directors of the Company.
"Related Party" means, with respect to any Principal, (A) any controlling
stockholder, director or officer, 80% (or more) owned Subsidiary, or spouse or
immediate family member or estate thereof (in the case of an individual) of such
Principal or (B) or trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding an
80% or more controlling interest of which consist of such Principal and/or such
other Persons referred to in the immediately preceding clause (A).
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee, provided that such Officers' Certificate shall be delivered only in the
event of any Asset Sale involving $5.0 million or more of consideration) of the
assets or Capital Stock issued or sold or otherwise disposed of and (ii) at
least 80% of the consideration therefor received by the Company or such
Subsidiary is in the form of cash or Cash Equivalents; provided that the amount
of (x) any liabilities (as shown on the Company's or such Subsidiary's most
recent balance sheet), of the Company or any Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Notes or
any guarantee thereof) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Subsidiary from further liability and (y) any notes or other obligations
received by the Company or any such Subsidiary from such transferee that are
immediately converted by the Company or such Subsidiary into
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cash (to the extent of the cash received), will be deemed to be cash for
purposes of this provision and provided, further, that (A) the Company and its
Subsidiaries will not be required to comply with clauses (i) and (ii) of this
paragraph in connection with any Asset Sale effected in order to comply with an
FTC Order which is consummated within the lesser of (a) 365 days of the date of
such FTC Order, or (b) the time period specified in such FTC Order and (B) any
Acquisition Subsidiary and any Subsidiary of an Acquisition Subsidiary will not
be required to comply with clause (ii) of this paragraph in connection with any
Asset Sale.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or the applicable Subsidiary may apply such Net Proceeds, at its
option, (a) to permanently reduce outstanding Senior Indebtedness (and
correspondingly reduce commitments with respect thereto) or (b) to the
acquisition of an interest in another business, the making of a capital
expenditure or the acquisition of other long-term assets, in each case, in a
Permitted Line of Business on the date of such Asset Sale. Pending the final
application of any such Net Proceeds, the Company or the applicable Subsidiary
may temporarily reduce Indebtedness under the Revolving Credit Facility or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds."
Within 30 days after the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company will be required to make an offer to all Holders of Notes
(an "Asset Sale Offer") to purchase an aggregate principal amount of Notes equal
to such Excess Proceeds (the "Offer Amount"), at a Purchase Price in cash in an
amount equal to 100% of the principal amount thereof, together with accrued and
unpaid interest and Liquidated Damages (if any) thereon to the Purchase Date, in
accordance with the procedures set forth in the Indenture and described in such
notice.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of an Asset Sale.
On a date that is at least 30 but no more than 60 days from the date on
which the Company mails notice of an Asset Sale Offer (the "Purchase Date"), the
Company will, to the extent lawful, (i) accept for payment all Notes or portions
thereof properly tendered pursuant to the Asset Sale Offer in an aggregate
principal amount not in excess of the Offer Amount, (ii) deposit with the Paying
Agent an amount equal to the Purchase Price, together with accrued and unpaid
interest and Liquidated Damages (if any) thereon to the Purchase Date, in
respect of all Notes or portions thereof so tendered and accepted for repurchase
and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating the aggregate principal amount of
Notes or portions thereof being repurchased by the Company. The Paying Agent
will promptly (but in any case not later than five days after the Purchase Date)
mail to each Holder of Notes so repurchased the amount due in connection with
such Notes, and the Company will promptly issue a new Note, and the Trustee,
upon written request from the Company in the form of an Officers' Certificate
will authenticate and mail or deliver (or cause to transfer by book entry) to
each relevant Holder a new Note, in a principal amount equal to any unpurchased
portion of the Notes surrendered to the Holder thereof; provided, that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the Asset Sale Offer
on or as soon as practicable after the Purchase Date.
To the extent that the aggregate amount of Notes tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Company or the applicable
Subsidiary may use any remaining Excess Proceeds for general corporate purposes.
If the aggregate principal amount of Notes surrendered by Holders thereof
exceeds the Offer Amount, the Trustee shall select the particular Notes or
portions thereof to be purchased on a pro rata basis. Upon completion of such
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
Restrictions under Senior Indebtedness
The Indenture provides that prior to giving notice to Holders of Notes
relating to a Change of Control Offer or an Asset Sale Offer, but in any event
within 90 days following a Change of Control or the accumulation of Excess
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Proceeds in excess of $5.0 million, the Company shall (i) repay, or otherwise
make arrangements satisfactory to the holders of all Senior Indebtedness (or
their respective Senior Representatives) for the repayment of, all Senior
Indebtedness in full in cash or Cash Equivalents or offer to repay all such
Senior Indebtedness in full in cash or Cash Equivalents and have repaid, or
otherwise made arrangements satisfactory to the holders of all Senior
Indebtedness (or their respective Senior Representatives) for the repayment of,
all Senior Indebtedness in full in cash or Cash Equivalents of any lender who
accepts such offer; and/or (ii) obtain the requisite consents under the Bank
Credit Facility or under agreements relating to other Senior Indebtedness to
purchase Notes as required by the Indenture. The Company shall not effect the
purchase of Notes until all Senior Indebtedness has been repaid in full in cash
or Cash Equivalents and/or such requisite consents have been obtained.
The Bank Credit Facility prohibits the Company from purchasing any Notes
and also provides that certain change of control events with respect to the
Company and asset sales would constitute a default thereunder. Any future
agreements relating to Senior Indebtedness to which the Company becomes a party
may contain similar restrictions and provisions. In the event the Company
becomes obligated pursuant to the Indenture to purchase Notes at a time when the
Company is contractually prohibited by the Bank Credit Facility or any other
such agreement from purchasing Notes, the Company could seek the consent of its
lenders to the purchase of Notes or could attempt to refinance the borrowings
under the agreements that contain such prohibition. If the Company does not
obtain such a consent or repay such borrowings, the Company would remain
contractually prohibited from purchasing Notes. In such case, the Company's
failure to make the required Change of Control Offer or Asset Sale Offer or to
purchase tendered Notes would constitute an Event of Default under the Indenture
which would, in turn, constitute a default under the Bank of Credit Facility and
any other Senior Indebtedness which contains terms which would result in any
event of default upon the occurrence of an Event of Default under the Notes. In
such circumstances, the Company's ability to make payments to the Holders of
Notes would be subject to the subordination provisions of the Indenture.
Certain Covenants
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any other payment or distribution on account of the Company's Capital
Stock (including, without limitation, any payment in connection with any merger
or consolidation involving the Company) or to the direct or indirect holders of
the Company's Capital Stock in their capacity as such (other than dividends or
distributions payable in Capital Stock (other than Disqualified Stock) of the
Company or dividends or distributions payable to the Company or any Wholly Owned
Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire
for value any Capital Stock of the Company or any direct or indirect parent or
other Affiliate of the Company (other than a Wholly Owned Subsidiary of the
Company); (iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value prior to any scheduled maturity, scheduled
repayment or sinking fund payment date any Indebtedness that is subordinated to
the Notes; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph
of the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Subsidiaries after
the date of the Indenture (excluding Restricted Payments permitted by
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clauses (2), (3), (4), (5), (6) and (8) of the next succeeding paragraph),
is less than the sum of (i) 50% of the Consolidated Net Income of the
Company for the period (taken as one accounting period) from the beginning
of the first fiscal quarter commencing after the date of the Indenture to
the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit,
less 100% of such deficit), plus (ii) 100% of the aggregate net cash
proceeds received by the Company from the issue or sale since the date of
the Indenture of Capital Stock of the Company (to the extent not used as
described under the caption "Special Redemption") or of debt securities of
the Company that have been converted into such Capital Stock (other than
Capital Stock (or convertible debt securities) sold to a Subsidiary of the
Company or Disqualified Stock or debt securities that have been converted
into Disqualified Stock), plus (iii) to the extent that any Restricted
Investment that was made after the date of the Indenture is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the
cost of disposition, if any) and (B) the initial amount of such Restricted
Investment.
The foregoing provisions will not prohibit (1) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (2) the payment of dividends on Series A Preferred Stock pursuant to
the Certificate of Designation for such Series A Preferred Stock in effect on
the date of the Indenture, provided that the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
payment of dividends is made would have been at least 2.25 to 1, determined on a
pro forma basis, as if the Restricted Payment had been made at the beginning of
such four-quarter period, provided that the amount of any such dividends paid on
Series A Preferred Stock shall, after the date of payment, be subtracted from
the computation of Consolidated Net Income solely for purposes of clause (c)(i)
of the preceding paragraph; (3) the redemption, repurchase, retirement or other
acquisition of Series A Preferred Stock pursuant to the Certificate of
Designation for such Series A Preferred Stock in effect on the date of the
Indenture, provided that (a) such redemption, repurchase, retirement or other
acquisition is for at least $2 million of Series A Preferred Stock, and (b) the
Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such redemption, repurchase, retirement
or other acquisition is made would have been at least 2.5 to 1, determined on a
pro forma basis, as if the Restricted Payment had been made at the beginning of
such four-quarter period; (4) the redemption, repurchase, retirement or other
acquisition of any Capital Stock of the Company in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to a Subsidiary of
the Company) of other Capital Stock of the Company other than Disqualified
Stock, provided that the amount of any such net cash proceeds that are utilized
for any such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (c)(ii) of the preceding paragraph; (5) the defeasance,
redemption or repurchase of subordinated Indebtedness with the net cash proceeds
from an incurrence of Permitted Refinancing Debt or the substantially concurrent
sale (other than to a Subsidiary of the Company) of Capital Stock of the Company
(other than Disqualified Stock), provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; (6) any Investment made by the Company or any of its Subsidiaries in
an Acquisition Subsidiary with the net cash proceeds of an issuance of
Designated Investment Stock within 30 days of such issuance, provided that the
amount of any such net cash proceeds that are utilized for any such Investment
shall be excluded from clause (c)(ii) of the preceding paragraph; (7) the
purchase or redemption of shares of Capital Stock of the Company held by present
or former officers, directors, employees or independent sales representatives of
the Company or by any employee stock ownership plan or similar trust for the
account of such present or former officers, directors, employees or independent
sales representatives upon such person's death, disability, retirement or
termination of employment or other association with the Company or under the
terms of any such plan or trust or any other agreement under which such Capital
Stock was issued in an aggregate amount not to exceed $500,000 per year,
provided that to the extent that less than $500,000 of Capital Stock is
purchased or redeemed in a given year, the difference between $500,000 and the
amount purchased or redeemed during that year shall be added to the amount
available to the Company for purchases and redemptions in the next subsequent
year only (for which purpose the amount so added shall be deemed to be the last
amount expended in such next subsequent year); (8) the payment to Castle Harlan,
Inc. of a management fee of up to $1.5 million per year pursuant to the
Management Agreement entered into between the Company and Castle Harlan, Inc.,
as in force on the Issue Date (the "Management Agreement") (the payment for the
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first year following the Issue Date to be a single installment payable at any
time during such year and payments thereafter to be payable in arrears in four
equal quarterly installments per annum), provided that, in the event the full
amount thereof is not paid in any year, the deficiency may cumulate and,
provided that there is no subsisting Default or Event of Default of a type
described in clause (i) or (ii) under the caption "--Events of Default and
Remedies" at the time of payment, may be paid together with the then current
management fee for such subsequent year and (9) a Subsidiary of an Acquisition
Subsidiary may purchase, redeem or otherwise acquire or retire for value any of
its Capital Stock.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officer's Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant entitled "Restricted Payments" were computed, which calculations
may be based upon the Company's latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, nor will it permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock, nor
will it permit any of its Subsidiaries to issue any shares of Preferred Stock
(other than to the Company or a Wholly Owned Subsidiary of the Company other
than an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary);
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock, if the Fixed Charge Coverage Ratio
for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 2.0 to 1.0, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period;
provided that (x) until the Company has internal financial statements for two
full fiscal quarters the Company will not, and will not permit any of its
Subsidiaries to, incur any additional Indebtedness or issue any shares of
Preferred Stock, and (y) after the Company has internal financial statements for
two full financial quarters, but before the Company has such internal financial
statements for four full financial quarters, the Fixed Charge Coverage Ratio
will be calculated by annualizing the available internal financial statements of
the Company on a pro rata basis. Notwithstanding the foregoing, neither the
Company nor any Subsidiary of the Company (other than an Acquisition Subsidiary
or a Subsidiary of an Acquisition Subsidiary) may incur Indebtedness in respect
of a Guarantee of Indebtedness of an Acquisition Subsidiary or a Subsidiary of
an Acquisition Subsidiary.
The foregoing provisions will not apply to the incurrence of the
following:
(i) the incurrence by the Company of Indebtedness under the term loan
portion of the Bank Credit Facility in an aggregate principal amount at any time
outstanding not to exceed $25 million less the aggregate amount of all
repayments, optional or mandatory, of the principal thereof that have been made
since the date of the Indenture;
(ii) the incurrence by the Company of Indebtedness under the revolving
credit and/or the gold consignment portions of the Bank Credit Facility in an
aggregate principal amount at any time outstanding not to exceed the greater of
(x) $35 million less the aggregate amount of all Net Proceeds of Asset Sales or
other dispositions of assets that have been applied since the date of the
Indenture to permanently reduce the commitments with respect to such
Indebtedness pursuant to the covenant described above under the caption "--Asset
Sales," and (y) the "Borrowing Base" (as determined and calculated under the
terms of the Bank Credit Facility);
(iii) the incurrence by the Company and its Subsidiaries of Existing
Indebtedness;
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(iv) the incurrence by the Company of Indebtedness represented by the
Notes;
(v) the incurrence by the Company or any of its Subsidiaries (other than
an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary) of
additional Indebtedness (including Acquired Debt) represented by Capital Lease
Obligations, mortgage financings, or purchase money obligations, in each case
incurred for the purpose of financing or refinancing all or any part of the
purchase price or cost of construction or improvement of property, plant or
equipment used in the business of the Company or such Subsidiary, in an
aggregate principal amount not to exceed $5.0 million at any time outstanding;
(vi) the incurrence by the Company or any of its Subsidiaries of Permitted
Refinancing Debt in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund, Indebtedness that was
permitted by the Indenture to be incurred;
(vii) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its Wholly
Owned Subsidiaries; provided, however, that (x) neither the Company nor any of
its Subsidiaries may incur any Indebtedness to any Acquisition Subsidiary of the
Company; (y) if the Company is the obligor of such Indebtedness, such
Indebtedness is evidenced in writing and expressly subordinate to the payment in
full of all obligations with respect to the Notes and (z)(I) any subsequent
issuance, transfer or other disposition of Capital Stock that results in any
such Indebtedness being held by a Person other than the Company or a Wholly
Owned Subsidiary which is not an Acquisition Subsidiary or a Subsidiary of an
Acquisition Subsidiary and (II) any sale, transfer or other disposition of any
such Indebtedness to a Person that is not either the Company or a Wholly Owned
Subsidiary which is not an Acquisition Subsidiary or a Subsidiary of an
Acquisition Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Subsidiary, as the case
may be;
(viii) the incurrence by the Company or any of its Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest
rate, commodity or currency risk, in connection with the conduct of its business
and not for speculative purposes;
(ix) the incurrence by the Company of Indebtedness under a Guarantee of
any Indebtedness permitted under the Indenture to be incurred by a Subsidiary of
the Company which is not an Acquisition Subsidiary or a Subsidiary of an
Acquisition Subsidiary;
(x) the incurrence by any Subsidiary of the Company of Indebtedness under
a Guarantee of any Indebtedness permitted under the Indenture to be incurred by
the Company; provided that (a) in the case such Guarantee is of Indebtedness
that is pari passu in right of payment with the Notes, all obligations with
respect to the Notes are Guaranteed on an equal and ratable basis with the
Indebtedness so Guaranteed, and (b) in the case such Guarantee is of
Indebtedness that is subordinated in right of payment to the Notes, all
obligations with respect to the Notes are Guaranteed on a senior basis
reflecting the subordination of the Indebtedness so Guaranteed on terms
substantially similar to, or more favorable to senior creditors than, those
contained in the Indenture;
(xi) the incurrence by the Company of Indebtedness (in addition to
Indebtedness permitted by any other clause of this paragraph) in an aggregate
principal amount (or accreted value, as applicable) at any time outstanding not
to exceed $8.0 million;
(xii)the incurrence by the Company or any of its Subsidiaries of
Indebtedness in respect of bid, performance or advance payment bonds, and appeal
and surety bonds;
(xiii) the incurrence of Indebtedness by an Acquisition Subsidiary or a
Subsidiary or an Acquisition Subsidiary, provided that (a) any such Indebtedness
is without recourse to, and is not Guaranteed by, the Company or any other
Subsidiary of the Company (other than an Acquisition Subsidiary or a Subsidiary
of an Acquisition Subsidiary) without regard to whether such recourse complies
or would comply with the provisions described under the caption "--Restricted
Payments," and (b) no Default or Event of Default is in existence and continuing
after giving effect to such issuance or incurrence:
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(xiv) the issuance of Capital Stock, including Disqualified Stock, by a
Subsidiary of an Acquisition Subsidiary, provided that (a) such Disqualified
Stock, is without recourse to, and is not Guaranteed by, the Company or any
other Subsidiary of the Company (other than a Subsidiary of an Acquisition
Subsidiary) without regard to whether such recourse complies or would comply
with the provisions described under the caption "--Restricted Payments," and (b)
no Default or Event of Default is in existence and continuing after giving
effect to such issuance;
(xv) the incurrence by the Company of Indebtedness for the purpose of
effecting a Restricted Payment described in clause (7) of the second paragraph
under the caption "--Restricted Payments" above, provided that (a) the aggregate
original issue price of such Indebtedness at any time outstanding does not
exceed $1 million, (b) such Indebtedness pays no current interest and matures no
earlier than six months after the scheduled maturity date of the Notes, and (c)
such Indebtedness is subordinated to the Notes on terms substantially similar
to, or more favorable to senior creditors than, those contained in the
Indenture; and
(xvi) the incurrence by the Company or any of its Subsidiaries of
interest, fees or other expenses on Indebtedness otherwise permitted under this
covenant, provided that such interest, fees or other expenses are payable on a
current basis no less frequently than semi-annually and are paid when due or
within any applicable customary grace period thereafter, not to exceed thirty
days.
For purposes of determining compliance with this covenant, (i) in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness permitted by this covenant, the Company in its sole
discretion will classify such item of Indebtedness and will only be required to
include the amount and type of each class of Indebtedness in the test specified
in the first paragraph of this covenant or in one of the clauses of the second
paragraph of this covenant; (ii) the amount of Indebtedness issued at a price
which is less than the principal amount thereof shall be equal to the amount of
liability in respect thereof determined in accordance with GAAP; and (iii) the
amount of Indebtedness represented by a Guarantee of a primary obligation of
another Person shall be deemed to be the lower of (x) an amount equal to the
maximum amount of the primary obligation (including without limitation all
principal, premiums (if any), interest, fees and all other amounts in respect
thereof) in respect of which such Guarantee is made and (y) the maximum amount
for which such guaranteeing Person may be liable pursuant to the terms of the
applicable Guarantee, which, in any case in which such Guarantee consists solely
of the granting of a Lien on any asset of such guaranteeing Person, shall be
limited to the fair market value of such asset.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries (other than an Acquisition Subsidiary or a Subsidiary
thereof) to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of such
Subsidiary to (i)(a) pay dividends or make any other distributions to the
Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect
to any other interest or participation in, or measured by, its profits, or (b)
pay any Indebtedness owed to the Company or any of its Subsidiaries, (ii) make
loans or advances to the Company or any of its Subsidiaries, or (iii) transfer
any of its properties or assets to the Company or any of its Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
written agreements evidencing Existing Indebtedness as in effect on the date of
the Indenture, (b) the Bank Credit Facility as in effect from time to time,
provided that such provisions are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the Bank Credit
Facility as in effect on the date of the Indenture, (c) the Indenture and Notes,
(d) applicable law, (e) any instrument or agreement governing Acquired Debt of
the Company or any of its Subsidiaries or Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Subsidiaries as in effect at the
time of such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrances or
restrictions are not applicable to any Person, or the properties or assets of
any Person, other than
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the Person, or the property or assets of the Person, so acquired, (f) by reason
of customary non-assignment provisions in leases entered into in the ordinary
course of business, (g) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired, (h) Permitted Refinancing Debt,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Debt are not more restrictive than those contained in the
agreements governing the Indebtedness being refinanced, or (i) in the case of
any Foreign Subsidiary, the laws, rules or regulations of any foreign nation.
Limitation on Mergers, Consolidations and Sales of Assets
The Indenture provides that the Company will not consolidate or merge with
or into any other Person (other than a Wholly Owned Subsidiary which is not an
Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary), or permit
any other Person to consolidate or merge with or into the Company, nor will the
Company sell, lease, convey or otherwise dispose of all or substantially all of
its assets unless (i) the Company shall be the continuing corporation or the
entity formed by or surviving any such consolidation or merger, or to which such
sale, lease, conveyance or other disposition shall have been made (the
"Surviving Entity"), is a corporation organized and existing under the laws of
the United States, any state thereof, or the District of Columbia; (ii) the
Surviving Entity assumes by supplemental indenture all of the obligations of the
Company under the Notes and the Indenture; (iii) immediately after giving effect
to such transaction, no Default or Event of Default shall have occurred and be
continuing; (iv) immediately after giving effect to such transaction, the
Consolidated Net Worth of the Company or the Surviving Entity, as the case may
be, would be at least equal to the Consolidated Net Worth of the Company
immediately prior to such transaction; and (v) immediately after giving effect
to such transaction, the Company or the Surviving Entity, as the case may be,
could incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described above under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will 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,
loan, advance or guarantee with any Affiliate or with any Person (other than an
Affiliate) for the benefit of any Affiliates (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 Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $2.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to the Company of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing experienced in the appraisal or similar review of similar types of
transactions; provided that (w) any employment or consulting agreement entered
into or any employee benefit plan adopted by the Company or any of its
Subsidiaries in the ordinary course of business, (x) transactions between or
among the Company and/or its Wholly Owned Subsidiaries (other than Acquisition
Subsidiaries and Subsidiaries of Acquisition Subsidiaries) and transactions
between or among an Acquisition Subsidiary and/or its Subsidiaries, (y)
Restricted Payments (including the management fee payable to Castle Harlan, Inc.
pursuant to the Management Agreement) that are permitted by the provisions of
the Indenture described above under the caption "--Restricted Payments" and
Permitted Investments, and (z) reasonable and customary payments and other
benefits (including indemnification) provided to directors for service on the
Board of Directors of the Company or any of its Subsidiaries, including the
reimbursement or advancement of out-of-pocket expenses and directors' and
officers' liability insurance, in each case, shall not be deemed Affiliate
Transactions. For the purposes of determining if a transaction is an Affiliate
Transaction, Castle Harlan Partners II, L.P., Castle Harlan, Inc. and their
respective Affiliates shall be deemed to be an Affiliate of the Company and each
of its Subsidiaries.
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Limitation on Issuances and Sales of Capital Stock of Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Subsidiary of the Company to, transfer, convey, sell, lease or otherwise
dispose of any Capital Stock of any Subsidiary of the Company to any Person
(other than the Company or a Wholly Owned Subsidiary of the Company which is not
an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary), unless
(a) such transfer, conveyance, sale, lease or other disposition (unless made by
an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary) is of
all the Capital Stock of such Subsidiary and (b) the Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with the covenant described above under the caption "--Asset Sales," and (ii)
will not permit any Subsidiary of the Company (other than a Subsidiary of an
Acquisition Subsidiary) to issue any of its Capital Stock (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying shares
or, in the case of a Foreign Subsidiary, shares issued to foreign nationals
pursuant to applicable law, provided, that such Foreign Subsidiary remains a
Wholly Owned Subsidiary) to any Person other than to the Company or a Wholly
Owned Subsidiary of the Company which is not an Acquisition Subsidiary or a
Subsidiary of an Acquisition Subsidiary.
Business Activities
The Indenture provides that the Company will not, nor will it permit any
of its Subsidiaries to, engage in any business other than a Permitted Line of
Business.
Limited on Future Senior Subordinated Indebtedness
The Indenture provides that the Company will not incur any Indebtedness,
other than Notes, that is subordinated in right of payment to any other
Indebtedness of the Company unless such Indebtedness, by its terms is pari passu
with the Notes or subordinated to the Notes pursuant to subordination provisions
substantially similar to, or more favorable to senior creditors than, those
contained in the Indenture.
Payments for Consent
The Indenture provides that neither the Company, nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes unless such consideration
is offered to be paid or is paid to all Holders of the Notes that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company, and, if the Company is required to file financial statements for any
Subsidiary Guarantor, such Subsidiary Guarantor, will furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be required
to be contained in filings with the Commission on Forms 10-Q and 10-K if the
Company and/or any Subsidiary Guarantor was required to file such forms,
including "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to annual consolidated financial
statements and schedules only, a report thereon by the independent auditors of
the Company and/or any Subsidiary Guarantor, and (ii) all information that would
be required to be contained in filings with the Commission on Form 8-K if the
Company and/or any Subsidiary Guarantor was required to file such form. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. In addition, the Company has agreed
that, for so long as any Notes remain outstanding, it will furnish to the
Holders, and to securities analysts and prospective investors upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
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Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest or
Liquidated Damages (if any) on the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due of
the principal, Redemption Price or Purchase Price of the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
the Company to comply with certain provisions described under the caption
"--Repurchase at the Option of Holders" or the provisions described under the
caption "--Limitation on Mergers, Consolidations and Sales of Assets"; (iv)
failure by the Company for 30 days after notice from Trustee or Holders of not
less than 25% of the aggregate principal amount of the Notes outstanding to
comply with the provisions described under the captions "Covenants--Restricted
Payments" or "Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," (v) failure by the Company for 60 days after notice from the Trustee or
Holders of not less than 25% of the aggregate principal amount of the Notes
outstanding to comply with any of its other agreements in the Indenture or the
Notes, (vi) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries or the
payment of which is Guaranteed by the Company or any of such Subsidiaries,
whether such Indebtedness or Guarantee now exists or is created after the date
of the Indenture, which default (a) is caused by a failure to pay any amount due
with respect to Indebtedness at the stated maturity thereof (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vii) failure by the Company or
any of its Subsidiaries to pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; (viii) certain events of bankruptcy or insolvency with respect to the
Company, any Significant Subsidiary or any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes by
written notice to the Company (and the Trustee, if such notice is given by such
Holders) may declare all the Notes to be due and payable immediately. Upon such
acceleration, the entire principal amount of, and accrued and unpaid interest
and Liquidated Damages, if any, on the Notes (i) shall become immediately due
and payable; or (ii) if there is any Designated Senior Indebtedness outstanding,
shall become due and payable upon the first to occur of (a) an acceleration
under such Designated Senior Indebtedness or (b) five days after receipt by the
Company and the Senior Representative for such Designated Senior Indebtedness of
such acceleration notice, unless all Events of Default specified in such
acceleration notice (other than any Event of Default in respect of non-payment
of principal, premium or interest, if any, which has become due solely by reason
of such declaration of acceleration) shall have been cured. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. The Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
January 15, 2005 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to January 15, 2005, then the
premium specified in the Indenture will also become immediately due and payable
to the extent permitted by law upon the acceleration of the Notes.
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The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
the principal, Redemption Price or Purchase Price of, or interest or Liquidated
Damages (if any) on, the Notes. In addition, after a declaration of acceleration
has been made, but before a judgment or decree for payment of the money due has
been obtained by the Trustee, the Holders of at least a majority in aggregate
principal amount of Notes outstanding, by written notice to the Company and the
Trustee, may annul such declaration if (i) the Company has paid or deposited
with the Trustee a sum sufficient to pay (a) all sums paid or advanced by the
Trustee under the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, (b) all
overdue interest on all Notes, and (c) to the extent that payment of such
interest is lawful, interest upon overdue interest and Liquidated Damages, if
any, at the rate borne by the Notes; and (ii) all Events of Default, other than
the non-payment of principal of the Notes which has become due solely by such
declaration of acceleration, have been cured of waived.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
Under the Indenture, no past or future director, officer, employee,
incorporator or stockholder of the Company, as such, shall have any liability
for any obligations of the Company under the Notes, the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of the
obligations of the Company and the Subsidiary Guarantors discharged with respect
to the outstanding Notes ("Legal Defeasance") except for (i) the rights of
Holders of outstanding Notes to receive payments in respect of the principal of,
and premium (if any), interest and Liquidated Damages (if any) on such Notes
when such payments are due from the trust referred to below, (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith, and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company, at its
option at any time, may elect to have the obligations of the Company released
with respect to certain covenants that are contained in the Indenture, including
without limitation those described under the caption "--Repurchase at the Option
of the Holders" ("Covenant Defeasance"), and thereafter any omission to comply
with such obligations shall not constitute a Default or Event of Default with
respect to the Notes. In the event a Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, U.S. Government Securities,
or a combination thereof, in such amounts as will be sufficient (without
reinvestment), in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of and premium (if any), interest and
Liquidated Damages (if any) on the outstanding Notes on the stated maturity or
on the applicable Redemption Date, as the case may be, and the Company must
specify whether the Notes are being defeased to maturity or to a particular
Redemption Date; (ii) in the case of a Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of the
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Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of a Covenant Defeasance, the
Company shall have delivered to the Trustee as opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred; (iv) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit after giving effect thereto or insofar as Events of Default from
bankruptcy or insolvency events are concerned, no such Event of Default shall
occur at any time during the period ending on the ninety-first day after the
date of deposit (it being understood that such condition shall not be deemed to
be satisfied until such ninety-first day); (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or constitute a default
under any material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must be delivered to the Trustee an opinion of counsel
to the effect that after the ninety-first day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents, and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note during the period commencing 15 days before a selection of Notes to be
redeemed. The registered Holder of a Note will be treated as the owner of it for
all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture
and the Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes), and any existing Default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal or Redemption Price of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than a payment required by one the covenants described above
under the caption "--Repurchase at the Option of Holders"), (iii) reduce the
rate of or change the time for payment of interest or Liquidated Damages (if
any) on or with respect to any Note, (iv) waive a Default or Event of Default in
the payment of principal, Redemption Price or Purchase Price of, or interest or
Liquidated Damages (if any) on the Notes (except a rescission of acceleration of
the Notes by the Holders of at least a majority in aggregate principal amount of
the Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Note payable in money other than that stated in the
Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal, Redemption Price or Purchase Price of, or interest or Liquidated
Damages (if any) on the Notes (except
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as described above under the caption "--Repurchase at the Option of Holders"),
(vii) waive a redemption or repurchase payment with respect to any Note (other
than a payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders") or (viii) make any change in
the foregoing amendment and waiver provisions. Without the consent of the
Holders of at least 75% in principal amount of the Notes then outstanding
(including consents obtained in connection with a purchase of, tender offer or
exchange offer for, the Notes), no waiver or amendment to the Indenture may make
any change in the provisions described above under the captions
"--Subordination" and "--Repurchase at the Option of the Holders" that adversely
affect the rights of any Holder of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims on
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 will be
required to (i) eliminate such conflict within 90 days, (ii) subject to the
consent of the Company, apply to the Commission for permission to continue or
(iii) resign.
The Holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing (which shall not be cured or waived in conformity
with the Indenture), the Trustee will be required, in the exercise of its power,
to use the degree of care and skill of a prudent man under the circumstances in
the conduct of his own affairs. Subject to provisions, the Trustee will be under
no obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
Book Entry, Delivery and Form
The certificates representing the Initial Notes were issued, and the
certificates representing the Exchange Notes will be issued, in fully registered
form (the "Global Note") without interest coupons and will be deposited with the
Trustee, as custodian for The Depositary Trust Company, New York, New York
("DTC") and registered in the name of a nominee of DTC for the accounts of
Euroclear and Cedel. Except as set forth below, the record ownership of the
Global Note may be transferred, in whole or in part, only to another nominee of
DTC or to a successor of DTC or its nominee.
Holders may hold their interests in the Global Note directly through DTC
if such holder is a participant in DTC, or indirectly through organizations
which are participants in DTC (the "Participants"). Transfers between
Participants will be effected in the ordinary way in accordance with DTC rules
and will be settled in immediately available funds. The laws of some states
require that certain persons take physical delivery of securities in definitive
form. Consequently, the ability to transfer beneficial interests in the Global
Note to such persons may be limited.
Foreign Persons may hold their interest in the Global Note directly
through Cedel or Euroclear, or indirectly through organizations that are
participants in Cedel or Euroclear. Cedel and Euroclear will hold interests in
the Global Note on behalf of their participants through DTC. Transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
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Holders who are not Participants may beneficially own interests in the
Global Note held by DTC only through Participants, including Euroclear and
Cedel, or certain banks, brokers, dealers, trust companies and other parties
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly ("Indirect Participants"). So long as Cede, as the
nominee of DTC, is the registered owner of the Global Note, Cede for all
purposes will be considered the sole holder of the Global Note. Except as
provided below, owners of beneficial interests in the Global Note will not be
entitled to have certificates registered in their names, will not receive or be
entitled to receive physical delivery of certificates in definitive form, and
will not be considered holders thereof.
Payment of the principal, Redemption Price and Purchase Price of, and
interest and Liquidated Damages (if any) on the Global Note will be made to
Cede, the nominee for DTC, as the registered owner of the Global Note, by wire
transfer of immediately available funds on each applicable payment date. 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 Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
The Company has been informed by DTC that, with respect to the principal,
Redemption Price and Purchase Price of, and interest and Liquidated Damages (if
any) on the Global Note, DTC's practice is to credit Participants' accounts on
the payment date therefor with payments in amounts proportionate to their
respective beneficial interests in the principal amount represented by the
Global Note, as shown on the records of DTC (adjusted as necessary so that such
payments are made with respect to whole Notes only), unless DTC has reason to
believe that it will not receive payment on such payment date. Payments by
Participant to owners of beneficial interests in the principal amount
represented by the Global Note held through such Participants will be the
responsibility of such Participants, as is now the case with securities held for
the accounts of customers registered in "street name."
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in the principal amount represented by the Global
Note to pledge such interest to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) will have any responsibility for the
performance of DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised the Company that it will take any action permitted
to be taken by a holder of Notes (including, without limitation, the
presentation of Notes for exchange as described below), only at the direction of
one or more Participants to whose account with DTC interests in the Global Note
are credited, and only in respect of the principal amount of the Notes
represented by the Global Note as to which such Participant or Participants has
or have given such direction.
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 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
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes to 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 may include
certain other organizations such as the Initial Purchasers. Certain of such
Participants (or their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through, or maintain a custodian
relationship, with a Participant, either directly or indirectly.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
in order to facilitate transfers of interests in the Global Note among
Participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time.
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Certificated Securities
Exchange Notes exchanged for Initial Notes held in certificated form will
be issued in the form of definitive registered certificates (the "Certificated
Securities") and may not be represented by the Global Note. Subject to certain
conditions, any person having a beneficial interest in the Global Note may, upon
request to the Trustee, exchange such beneficial interest for Notes in the form
of Certificated Securities. Upon any such issuance, the Trustee is required to
register such Certificated Securities in the name of, and cause the same to be
delivered to, such person or persons (or the nominee of any thereof). In
addition, if (i) the Company notifies the Trustee in writing that the Depositary
is no longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
the form of Certificated Securities under the Indenture, then, upon surrender by
the Global Note holder of its Global Note, Notes in such form will be issued to
each person that the Global Note holder and the Depositary identify as being the
beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note holder or the
Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented
by the Global Note, including principal, Redemption Price, Purchase Price,
interest and Liquidated Damages (if any), be made by wire transfer of
immediately available funds to the amounts specified by the Global Note Holder.
With respect to Certificated Notes, the Company will make all payments of
principal, premium (if any), interest and Liquidated Damages (if any) by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof or, if no such account is specified, by mailing a check to each such
Holder's registered address. The Company expects that secondary trading in the
Certificated Notes will be settled in immediately available funds.
Registration Rights; Liquidated Damages
The Company and the Initial Purchasers entered into the Registration
Rights Agreement on December 16, 1996. The summary herein of certain provisions
of the Registration Rights Agreement does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Registration Rights Agreement, a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Pursuant to the Registration Rights Agreement, the Company agreed to file
with the Commission within 45 days after the Issue Date, and use its best
efforts to cause to become effective within 120 days after the Issue Date, the
Exchange Offer Registration Statement with respect to the Exchange Notes and,
upon becoming effective, to offer the Holders of Transfer Restricted Securities
who are able to make certain representations the opportunity to exchange their
Transfer Restricted Securities for the Exchange Notes (the "Exchange Offer"). If
(i) the Company is not required to file the Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any Holder
of Transfer Restricted Securities that is a QIB or an Accredited Investor
notifies the Company within the specified time period that (A) it is prohibited
by law or Commission policy from participating in the Exchange Offer or (B) that
it may not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales or (C) that it is a broker-dealer and owns Notes acquired directly from
the Company or an affiliate of the Company, the Company will use its best
efforts to file with the Commission a Shelf Registration Statement to cover
resales of the Notes by the Holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. The Company will use its best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission.
For purposes of the foregoing, "Transfer Restricted Securities" means each
Note until the earliest to occur of (i) the date on which such Note has been
exchanged for an Exchange Note in the Exchange Offer and is entitled to be
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resold to the public by the Holder thereof without complying with the prospectus
delivery requirements of the Securities Act, (ii) the date on which such Note
has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iii) the date on which such
Note is distributed to the public pursuant to Rule 144 under the Securities Act
or by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
registration statement for such Exchange Offer Registration Statement (including
delivery of the Prospectus contained therein).
The Registration Rights Agreement provides that (i) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to 45
days after the Issue Date, (ii) the Company will use its best efforts to have
the Exchange Offer Registration Statement declared effective by the Commission
on or prior to 120 days after the Issue Date, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company will
commence the Exchange Offer and use its best efforts to issue on or prior to 30
days after the date on which the Exchange Offer Registration Statement was
declared effective by the Commission, Exchange Notes in exchange for all Notes
tendered prior thereto in the Exchange Offer and (iv) if obligated to file the
Shelf Registration Statement, the Company will use its best efforts to file the
Shelf Registration Statement with the Commission on or prior to 30 days after
such filing obligation arises and to cause the Shelf Registration to be declared
effective by the Commission on or prior to 60 days after such obligation arises.
If (a) the Company fails to file any of the Registration Statements
required by the Registration Rights Agreement on or before the date specified
for such filing, (b) any of such Registration Statements is not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), or (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Notes during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
liquidated damages ("Liquidated Damages") to each Holder of Notes, with respect
to the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $.05 per week per $1,000 principal
amount of Notes held by such Holder. The amount of the Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of Notes
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Liquidated Damages of $.50 per week
per $1,000 principal amount of Notes. All accrued Liquidated Damages will be
paid by the Company on each Damages Payment Date to the Holder of record by wire
transfer of immediately available funds or by federal funds check. Following the
cure of all Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidating Damages set forth above.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person or assumed
in connection with the acquisition of assets from such other Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person or such acquisition of assets, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such specified
Person.
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"Acquisition Subsidiary" means any Wholly Owned Subsidiary of the Company
or any of its Wholly Owned Subsidiaries which is newly formed in anticipation of
and in order to effectuate the acquisition by such entity of the capital stock
or assets of another Person; provided that the making of an Investment in such
Subsidiary by the Company or any other Subsidiary shall be made in compliance
with the covenant described under the caption "--Restricted Payments."
"Affiliate" means with respect to any specified Person, 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 term "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.
"Asset Sale" means (i) the sale (other than sales of inventory), lease,
conveyance or other disposition of any assets (including, without limitation, by
way of a sale and leaseback) other than in the ordinary course of business
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole will be governed by the provisions of the Indenture described above under
the caption "--Change of Control" and/or the provisions described above under
the caption "--Merger, Consolidation or Sales of Assets" and not by the
provisions of the Asset Sale covenant), and (ii) the issue or sale by the
Company or any of its Subsidiaries of Capital Stock of any of the Company's
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Wholly Owned Subsidiary of the Company or by a Wholly Owned Subsidiary of
the Company to the Company or to another Wholly Owned Subsidiary, (ii) an
issuance or sale of Capital Stock by a Wholly Owned Subsidiary of the Company to
the Company or to another Wholly Owed Subsidiary of the Company, (iii) a
Permitted Investment or a Restricted Payment that is permitted by the covenant
described above under the caption "--Restricted Payments," (iv) a Permitted
Lien, provided that no steps or actions have been taken by the holder of such
Permitted Lien to realize upon or dispose of the assets subject thereto, (v) a
sale or other disposition or abandonment of damaged, worn out or obsolete
property, (vi) the licensing of any intellectual property for a period of not
more than five years which is not in connection with the sale of any other
assets of the Company (except for any such licensing of intellectual property
that causes a reduction of the assets of the Company or any of its Subsidiaries
under GAAP), and (vii) the sale of owned gold to consignment banks under the
Bank Credit Facility in the ordinary course of business, will not be deemed to
be Asset Sales.
"Attributable Debt" means, in respect of a sale and leaseback transaction,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessee, be extended).
"Bank Credit Facility" means the Revolving Credit, Term Loan and Gold
Consignment Agreement among the Company, the Banks from time to time parties
thereto, and The First National Bank of Boston and Rhode Island Hospital Trust
National Bank, as agents for such Banks, together with the related documents
thereto (including, without limitation, any letters of credit issued pursuant
thereto, and any related guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified or replaced (including with other
lenders or consignors), from time to time and including any agreement extending
the maturity of, refinancing, modifying, increasing, substituting for or
otherwise restructuring (including, but not limited to, the inclusion of
additional or different or substitute lenders, consignors or bank agents
thereunder) all or any portion of the Indebtedness, including changing the
borrowing limits, under such agreements or any successor or replacement
agreements, regardless of whether the Bank Credit Facility or any portion
thereof was outstanding or in effect at the time of such replacement,
refinancing, increase, substitution, extension, restructuring, supplement or
modification.
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"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of a partnership, partnership interests (whether general or
limited), (iii) in the case of an association or any other business entity, any
and all shares, interests, participations, rights or other equivalents (however
designated) in the equity of such association or entity, and (iv) any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States Dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) demand and time deposits,
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
million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii) above
and (v) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's and in each case maturing within
six months after the date of acquisition.
"Common Stock" means, with respect to any Person, Capital Stock of such
Person that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, to the extent
deducted in computing Consolidated Net Income: (i) an amount equal to any
extraordinary loss plus any net loss realized in connection with any Asset Sale
plus any loss realized on any extraordinary or non-recurring actuarial
assumption adjustment with regard to post-retirement medical and other benefits,
in each case for such periods, plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, plus (iii)
consolidated interest expense of such Person and its Subsidiaries for such
period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), plus (iv) depreciation, amortization (including amortization of
goodwill, other intangibles and other assets) and other non-cash charges
(excluding any such non-cash charge to the extent that it represents an accrual
of or reserve for cash charges in any future period) of such Person and its
Subsidiaries for such period, in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing, the provision
for taxes on the income or profits of, and the depreciation and amortization and
other non-cash charges of, a Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in same proportion) that the Net Income of such Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior governmental approval
(that has not been obtained), and without direct or indirect restriction
pursuant to, the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the net income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that there shall be excluded therefrom, without duplication:
(i) all items classified as extraordinary, unusual or nonrecurring
gains (but not losses);
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(ii) any net loss or net income of any other Person (other than a
Subsidiary of such Person), except to the extent of the amount of
dividends or other distributions actually paid to such Person or its
Subsidiaries by such other Person during such period;
(iii) the net income of any Person acquired by such Person or a
Subsidiary thereof in a pooling-of-interests transaction for any period
prior to the date of such acquisition;
(iv) any gain or loss, net of taxes, realized on the termination of
any employee pension benefit plan;
(v) gains (but not losses) in respect of Asset Sales by such Person
or its Subsidiaries;
(vi) the net income (but not net loss) of any Subsidiary of such
Person to the extent that the declaration or payment of dividends or
distributions to such Person is restricted by the terms of its constituent
documents or any agreement, instrument, contract, judgment, order, decree,
statute, rule, governmental regulation or otherwise, except for any
dividends or distributions actually paid by such Subsidiary to such Person
or other Subsidiary of such Person;
(vii) with regard to a Subsidiary of such Person (other than a
Wholly Owned Subsidiary of such Person), any aggregate net income (or
loss) in excess of such Person's pro rata share of such Subsidiary's net
income (or loss); and
(viii) the cumulative effect of any change in accounting principles.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the consolidated stockholders' equity of such Person and its consolidated
Subsidiaries, as determined in accordance with GAAP, less, to the extent
included therein, all amounts, if any, attributable to Disqualified Stock.
"Default" means any event, occurrence or condition that, with the passage
of time, the giving of notice or both, would constitute an Event of Default.
"Designated Investment Stock" means any Capital Stock of the Company,
designated as such by the Board of Directors of the Company upon issuance for
use in the capitalization of an Acquisition Subsidiary of the Company, up to a
maximum net cash proceeds of $12.0 million.
"disposition" or "sale" or "transfer" or other words of similar meaning do
not include the granting or suffering of a Permitted Lien in order to secure
Indebtedness permitted by the Indenture, provided that no steps or actions have
been taken by the holder of such Permitted Lien to realize upon or dispose of
the assets subject thereto.
"Disqualified Stock" means any Capital Stock of any Person which, by its
terms, or upon the happening of any event or with the passage of time, matures
or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in
part, on or prior to 91 days after the maturity date of the Notes, or which is
exchangeable or convertible into debt securities of such Person, except to the
extent that such exchange or conversion rights cannot be exercised prior to 91
days after the maturity date of the Notes. Series A Preferred Stock is not
Disqualified Stock.
"Escrow Agreement" means the escrow or other similar arrangement referred
to in Exhibit D to the Balfour Purchase Agreement, as such may be amended.
"Existing Indebtedness" means all Indebtedness of the Company and its
Subsidiaries (other than under the Bank Credit Facility) in existence on the
Issue Date, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period.
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In the event that such specified Person or any of its Subsidiaries incurs,
assumes, Guarantees, repays or redeems any Indebtedness (other than ordinary
course repayments of revolving credit borrowings under the Revolving Credit
Facility or payments in connection with the consignment of gold under the Gold
Facility) or such specified Person issues or redeems Disqualified Stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee, repayment or redemption of
Indebtedness or such issuance or redemption of Disqualified Stock (including
giving pro forma effect to the application of any cash net proceeds therefrom),
as if the same had occurred at the beginning of the applicable four-quarter
reference period.
In addition, for purposes of making the computation referred to above, (i)
acquisitions that have been made by the specified Person or any of its
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the definition
of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the specified
Person or any of its Subsidiaries following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Subsidiaries
(other than an Acquisition Subsidiary or any Subsidiary thereof) for such
period, whether paid or accrued and whether expensed or capitalized, determined
on a consolidated basis and in accordance with GAAP (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), excluding, however, in the case of
the Company, obligations of the Company resulting from any extraordinary or
non-recurring actuarial adjustment assumptions with respect to post-retirement
medical and other benefits, and (ii) any interest expense on Indebtedness of
another Person that is Guaranteed by such Person or one of its Subsidiaries
(other than an Acquisition Subsidiary or any Subsidiary thereof) or secured by a
Lien on assets of such Person or one of its Subsidiaries (other than an
Acquisition Subsidiary or any Subsidiary thereof) (whether or not such Guarantee
or Lien is called upon) and (iii) the product of (a) all cash dividend payments
(and non-cash dividend payments in the case of a Person that is a Subsidiary) on
any series of Preferred Stock of such Person, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP.
"Foreign Subsidiary" means any Subsidiary formed under the laws of any
jurisdiction other than the United States of America or any state, territory,
possession or political subdivision thereof.
"FTC Order" means any order of the Federal Trade Commission requiring the
Company to sell certain Assets or to refrain from certain business activities or
lines of business.
"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 may be approved by a significant segment of the accounting
profession of the United States, as in effect on the Issue Date; provided,
however, that all financial statements of the Company (but not any other
financial information or ratios calculated pursuant hereto) provided by the
Company to the Holders of the Notes or the Trustee shall be prepared in
accordance with GAAP as in effect on the date of such report or other financial
information.
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"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.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under interest rate swap agreements, interest rate cap
agreements, interest rate collar agreements, foreign currency exchange
contracts, foreign currency swaps, commodities futures and any other agreement
designed to protect such Person against fluctuations in interest rates, currency
valuations or commodity prices.
"Indebtedness" means, with respect to any Person, without duplication (i)
any liability of such Person (a) for borrowed money, or under any reimbursement
obligation relating to a letter of credit, bankers' acceptance or note purchase
facility; (b) evidenced by a bond, note, debenture or similar instrument; (c)
for the balance deferred and unpaid of the purchase price for any property or
service or any obligation upon which interest charges or consignment fees are
customarily paid (except for trade payables (other than consignments) arising in
the ordinary course of business); (d) for the payment of money relating to a
lease that is required to be classified as a Capitalized Lease Obligation in
accordance with GAAP; or (e) for the maximum fixed repurchase price of any
Disqualified Stock of such Person plus accrued and unpaid dividends thereon;
(ii) any obligation of others secured by a Lien on any asset of such Person,
whether or not any obligation secured thereby has been assumed, by such Person;
(iii) any obligations of such Person under any Hedging Obligation; and (iv) any
Guarantee of such Person or any obligation of such Person which in economic
effect is a guarantee with respect to any Indebtedness of another Person.
For purposes of this definition, "maximum fixed repurchase price" of any
Disqualified Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were purchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture, and if such price is based
upon, or measured by, the fair market value of such Disqualified Stock, such
fair market value shall be determined in good faith by the board of directors of
the Person issuing such Disqualified Stock.
"Investment" by any Person means any direct or indirect loan, advance (or
other extension of credit) or capital contribution (by means of any transfer of
cash or other Property) to another Person or any other payments for Property or
services for the account or use of another Person, including without limitation
the following:
(i) the purchase or acquisition of any Capital Stock or other
evidence of beneficial ownership in another Person;
(ii) the purchase, acquisition or Guarantee of the Indebtedness of
another Person or the issuance of a "keep well" with respect thereto; and
(iii) the purchase or acquisition of the business or assets of
another Person;
but shall exclude:
(a) accounts receivable and other extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices;
(b) the acquisition of property and assets from equipment suppliers
and other vendors in the ordinary course of business, provided that such
property and assets do not represent all or substantially all of the
production capacity of the supplier or other vendor; and
(c) the acquisition of assets, Capital Stock or other securities by
the Company for consideration consisting solely of the Capital Stock of
the Company other than Disqualified Stock.
"Issue Date" means the date on which the Notes are first authenticated and
delivered under the Indenture.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Proceeds" means the sum of the aggregate cash proceeds received by
the Company or any of its Subsidiaries (other than an Acquisition Subsidiary or
a Subsidiary of an Acquisition Subsidiary) in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), and any
funds received by the Company pursuant to the Escrow Agreement, net of (i) the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation, severance or shut-down costs expenses incurred as a result thereof,
(ii) taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), (iii)
amounts required to be applied to the repayment of Indebtedness that is (a)
secured by a Lien on the asset or assets that were the subject of such Asset
Sale, (b) Senior Indebtedness, the repayment of which is required either
pursuant to the terms thereof, by applicable law, or in order to obtain a
necessary consent to such transaction, or (c) Indebtedness pari passu with
Notes, the repayment or purchase of which is required pursuant to the terms
thereof on a pro rata basis with the Notes in the event of an Asset Sale, and
(iv) any reserves established in accordance with GAAP for adjustment in respect
of the sale price of such asset or assets or for any liabilities associated with
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities relating to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale; provided that any reversal of any such reserve shall be added
back in the determination of Net Proceeds.
"Paying Agent" means Marine Midland Bank.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Subsidiary of the Company (other than an Acquisition Subsidiary or
a Subsidiary thereof); (b) any Investment in Cash or Cash Equivalents; (c) any
Investment by the Company or any Subsidiary of the Company in a Person, if as a
result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of
the Company (other than an Acquisition Subsidiary or a Subsidiary thereof) 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 (other than an
Acquisition Subsidiary or a Subsidiary thereof); (d) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with the covenant described above under the
caption "--Certain Covenants--Asset Sales"; (e) any obligations or shares of
Capital Stock received in connection with or as a result of bankruptcy, workout
or reorganization of the issuer of such obligations or shares of Capital Stock;
(f) any Investment received involuntarily; (g) any Investment existing on the
date of the Indenture; (h) Investments by the Company or any Subsidiary of the
Company in Permitted Lines of Business that do not exceed $5.0 million in the
aggregate at any one time outstanding; (i) Investments by any Acquisition
Subsidiary or any Subsidiary of an Acquisition Subsidiary in Permitted Lines of
Business (without regard to the aggregate amount thereof) but excluding any
Investment in Capital Stock or Indebtedness of the Company or any of its
Subsidiaries (other than an Acquisition Subsidiary or any Subsidiary thereof),
(j) Investments representing loans or advances made to employees in the ordinary
course of business not exceeding $500,000 at any one time; and (k) Investments
representing loans or advances made to independent sales representatives made in
the ordinary course of business.
"Permitted Liens" means (i) Liens on assets of the Company or its
Subsidiaries securing the Bank Credit Facility; (ii) Liens on assets of the
Company or its Subsidiaries securing Senior Indebtedness which is permitted by
the terms of the Indenture to be incurred; (iii) Liens securing Existing
Indebtedness; (iv) Liens in favor of the Company; (v) Liens on property of a
Person existing at the time such Person is merged into or consolidated with the
Company or any Subsidiary of the Company; provided that such Liens were not
incurred in contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with the
Company or any Subsidiary of the Company; (vi) Liens on property existing at the
time of acquisition thereof by the Company or any Subsidiary of the Company,
provided that such Liens were not incurred in
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contemplation of such acquisition and do not extend to any assets other than
those so acquired by the Company or any Subsidiary of the Company; (vii) Liens
to secure the performance of statutory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the ordinary
course of business (or to secure reimbursement obligations in respect of letters
of credit issued in connection with any of the foregoing obligations); (viii)
Liens to secure Indebtedness (including Capital Lease Obligations) permitted by
clause (v) of the second paragraph of the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock" covering only the assets acquired
with such Indebtedness; (ix) Liens existing on the Issue Date; (x) Liens for
taxes, assessments or governmental charges or claims that are not yet delinquent
or that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (xi) Liens incurred in the ordinary course of business of
the Company or any Subsidiary of the Company with respect to obligations that do
not exceed $5.0 million at any one time outstanding and that (a) are not
incurred in connection with the borrowing of money or the obtaining of advances
or credit (other than trade credit in the ordinary course of business) and (b)
do not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company or
such Subsidiary; (xii) Liens to secure any Indebtedness which is pari passu with
or subordinate in right of payment to the Notes, where (a) in the case of any
Lien securing Indebtedness that is pari passu in right of payment with the
Notes, all obligations with respect to the Notes are secured on an equal and
ratable basis with the Indebtedness so secured and (b) in the case of any Lien
securing Indebtedness that is subordinated in right of payment to the Notes, all
obligations with respect to the Notes are secured on a senior basis reflecting
the subordination of the Indebtedness so secured on terms substantially similar
to, or more favorable to senior creditors than, those contained in the
Indenture, in each case, until such time as such pari passu or subordinated
Indebtedness is no longer secured by such Lien, at which time such Lien securing
the Notes shall be automatically released; (xiii) Liens granted by an
Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary to secure
Indebtedness incurred by such Acquisition Subsidiary or Subsidiary of an
Acquisition Subsidiary which is permitted by the terms of the Indenture.
"Permitted Line of Business" means (i) the scholastic, graduation-related
and commemorative products business, the fine paper and non-textbook graphics
products business, the recognition, affinity and insignia products business, and
such business activities as are incidental or related thereto, and (ii) such
other businesses as the Company or its Subsidiaries are engaged in on the Issue
Date.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
of the Company or any of its Subsidiaries (other than an Acquisition Subsidiary
or a Subsidiary of an Acquisition Subsidiary); provided that, except with
respect to Indebtedness incurred to repay, repurchase, redeem or defease all of
the outstanding Notes at one time: (i) the principal amount (or accreted value,
if applicable) of such Permitted Refinancing Debt does not exceed the principal
amount (or accreted value, if applicable) of the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of up to
six months of accrued and unpaid interest on such Indebtedness and reasonable
premiums, fees and expenses incurred in connection therewith); (ii) such
Permitted Refinancing Debt has a final maturity date later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes, such Permitted Refinancing
Debt has a final maturity date later than the final maturity date of, and is
subordinated in right of payment to, the Notes on terms at least as favorable to
the Holders of Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by the
Subsidiary who is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, limited or general
partnership, limited liability company, joint venture, association, joint stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
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"Preferred Stock" means, with respect to any Person, all Capital Stock of
such Person of any class or classes (however designated, whether voting or
non-voting) that ranks prior, as to distribution in profit or liquidation, to
shares of Common Stock of such Person.
"Public Equity Offering" means any underwritten primary public offering of
the Common Stock or other Voting Stock of the Company, pursuant to an effective
registration statement (other than a registration statement on Form S-4, Form
S-8, or any successor or similar form) under the Securities Act.
"Purchase Price" means the amount payable for the repurchase of any Note
on a Purchase Date, exclusive of accrued and unpaid interest and Liquidated
Damages (if any) thereon to the Purchase Date, unless otherwise specifically
provided.
"Redemption Price" means the amount payable for the redemption of any
Note, exclusive of accrued and unpaid interest and Liquidated Damages (if any)
thereon to the date of redemption, unless otherwise specifically provided.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Senior Representative" means any trustee, agent or representative (if
any) for the holders of any Designated Senior Indebtedness.
"Series A Preferred Stock" means the Series A preferred stock of the
Company, par value $.01 per share.
"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 date
hereof.
"Subsidiary" of any Person means any other Person, the majority of the
Voting Stock or other ownership interests having ordinary voting power to elect
a majority of the board of directors of which is directly or indirectly owned by
such Person.
"U.S. Government Securities" shall mean securities which are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America , the 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 or trust company as custodian with
respect to any such U.S. Government Securities or a specific payment of interest
on or principal of any such U.S. Government Securities held by such custodian
for the account of the holder of a depository receipt; provided that (except as
required by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Securities or the specific
payment of interest on or principal of the U.S. Government Securities evidenced
by such depository receipt.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times that such class of Capital Stock has voting power by
reason of the happening of any contingency) to vote in the election of members
of the board of directors or other governing body of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
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"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person,
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares or, in the case of a Foreign Subsidiary
of the Company, shares otherwise required by law to be owned by Persons
domiciled in the jurisdiction in which such Subsidiary is organized, up to a
maximum of 5% of the outstanding Capital Stock, Voting Stock or other ownership
interests of such Subsidiary) is at the time owned by (i) such Person or (ii)
one or more Wholly Owned Subsidiaries of such Person or (iii) such Person and
one or more Wholly Owned Subsidiaries of such Person.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion sets forth the material U.S. federal income tax
consequences of the exchange of Initial Notes for Exchange Notes and of the
ownership and disposition of the Exchange Notes. The discussion does not deal
with all possible tax consequences relating to an investment in the Exchange
Notes. In particular, the discussion does not address the tax consequences under
state, local and foreign tax laws. In addition, the discussion does not address
U.S. federal income tax consequences to persons who do not hold the Exchange
Notes as capital assets. The discussion also does not address the tax treatment
of holders that may be subject to special tax rules, such as banks, insurance
companies, dealers in securities and holders whose functional currency is not
the dollar. Accordingly, each prospective investor should consult its own tax
advisor regarding the tax consequences to it of an investment in the Exchange
Notes. The following discussion is based upon provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), and regulations, rulings and judicial
decisions as of the date of this Prospectus, and such authorities may be
repealed, revoked or modified so as to result in federal income tax consequences
different from those discussed below, possibly with retroactive effect. As used
herein, a U.S. Holder is a beneficial owner who 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 U.S. federal income
taxation regardless of its source. A Non-U.S. Holder is a beneficial owner who
is not a U.S. Holder.
PERSONS CONSIDERING THE EXCHANGE OF INITIAL NOTES FOR EXCHANGE NOTES
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE U.S.
FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS, AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION.
U.S. Holders
The exchange of Exchange Notes for Initial Notes pursuant to the Exchange
Offer should be disregarded for federal income tax purposes, and each Exchange
Note should be treated as a continuation of the corresponding Initial Note.
Accordingly, holders of Initial Notes should not recognize gain or loss on the
exchange, and should have a basis in the New Notes equal to their basis in the
Old Notes.
Interest on a Note will generally be taxable to a U.S. Holder as ordinary
income at the time it is paid or accrued in accordance with the U.S. Holder's
method of tax accounting. Upon the sale, exchange or retirement of a Note, a
U.S. Holder will recognize gain or loss equal to the difference between the
amount realized and the adjusted tax basis of the Note. Such gain or loss will
be capital gain or loss if such Holder holds the Note as a capital asset, and
will be long-term capital gain or loss if the Holder held the Note for more than
one year at the time of such sale, exchange or retirement. The deductibility of
capital losses is subject to limitations.
Non-U.S. Holders
Income, Withholding and Estate Tax
Under present U.S. federal income and estate tax law, and subject to the
discussion below concerning backup withholding:
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(a) payments of principal, interest and premium on the Notes by the
Company or any paying agent to any Non-U.S. Holder will not be subject to
U.S. federal withholding tax, provided that, in the case of interest, (i)
(A) such Holder does not own, actually or constructively, 10 percent or
more of the total combined voting power of all classes of stock of the
Company entitled to vote, is not a controlled foreign corporation related,
directly or indirectly, to the Company through stock ownership, and is not
a bank receiving interest described in Section 881(c)(3)(A) of the Code
and (B) either (I) such Holder certifies to the person otherwise required
to withhold United States federal income tax from such interest, under
penalties of perjury, that it is not a United States person and provides
its name and address or (II) a securities clearing organization, bank or
other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "financial institution") and
holds the Note certifies to the person otherwise required to withhold
United States federal income tax from such interest, under penalties of
perjury, that such statement has been received from such Holder by it or
by a financial institution between it and such Holder and furnishes the
payer with a copy thereof; (ii) such Holder is entitled to the benefits of
an income tax treaty under which the interest is exempt from United States
federal withholding tax and such Holder or such Holder's agent provides
U.S. Internal Revenue Service ("IRS") Form 1001 claiming the exemption; or
(iii) such Holder conducts a trade or business in the United States to
which the interest is effectively connected and such Holder or such
Holder's agent provides an IRS Form 4224 (in which case interest on the
Note would be subject to U.S. income tax as if such interest was earned by
a U.S. Holder and, in the case of any such Holder that is a corporation,
would be subject to the so-called "Branch Profits Tax" unless an
applicable income tax treaty exempts such owner from the imposition of
such tax); provided that in each such case, the relevant certification or
IRS form is delivered pursuant to applicable procedures and is properly
transmitted to the person otherwise required to withhold United States
federal income tax and none of the persons receiving the relevant
certification or IRS form has actual knowledge that the certification or
any statement on the IRS form is false;
(b) a Non-U.S. Holder of a Note will not be subject to U.S. federal
income tax on gain realized on the sale, exchange or other disposition of
such Note, if (i) such gain is not effectively connected with a U.S. trade
or business and (ii) in the case of an individual, such holder is not
present in the United States for 183 days or more in the taxable year of
disposition and certain other requirements are met; and
(c) a Note held by an individual who is not a citizen or resident of
the United States at the time of his death will not be subject to U.S.
federal estate tax as a result of such individual's death, provided that
the individual does not own, actually or constructively, 10 percent or
more of the total combined voting power of all classes of stock of the
Company entitled to vote and, at the time of such individual's death,
payments with respect to such Note would not have been effectively
connected to the conduct by such individual of a trade or business in the
United States.
If the conditions set forth in the preceding clause (a) are not satisfied,
payments of interest and premium on the Exchange Notes would be subject to a 30%
U.S. Federal Withholding Tax (or such lower rate as may apply pursuant to an
applicable treaty).
Proposed Regulations. On April 15, 1996, the IRS issued proposed Treasury
Regulations that revise the procedures, discussed in the preceding paragraph
(a), for securing an exemption from U.S. federal withholding tax (the "Proposed
Regulations"). If adopted in final form, the Proposed Regulations would apply to
payments made on the Notes after December 31, 1997. In general, the Proposed
Regulations would (a) provide additional methods for avoiding such withholding
in the case of payment of "portfolio interest" described in clause (i) of such
paragraph (a), (b) replace Forms 1001 and 4224 with a new Form W-8, and (c)
require beneficial owners who claim entitlement to the benefits of a United
States income tax treaty to include a taxpayer identification number that has
been certified by the IRS on such Form W-8. Additionally, in the case of Notes
held by a foreign partnership, the Proposed Regulations would require both that
the certification described in clause (a)(i)(B) above be provided by the
partners rather than by the foreign partnership and that the partnership provide
certain information, including a taxpayer identification number. A look-through
rule would apply in the case of tiered partnerships. There can be no assurance
that the Proposed Regulations will be adopted or as to the provisions that they
will include if they are adopted.
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Backup Withholding and Information Reporting
In general, information reporting requirements will apply to payments of
principal, interest, and premium on the Notes, and to the proceeds of the sale,
exchange or retirement of a Note, other than to certain exempt recipients (such
as corporations). A 31% backup withholding tax will apply to such payments if
the holder fails to provide a taxpayer identification number or certificate of
exempt status, or fails to report in full dividend and interest income. Any
amounts withheld under backup withholding rules will be allowed as a refund or
credit against such holder's U.S. federal income tax liability provided the
required information is furnished to the IRS. Under current Treasury
Regulations, backup withholding will not apply to payments of (i) principal,
premium or interest made outside the United States on the Notes if the
certifications described in paragraph (a)(i)(B) under "U.S. Holders", above, are
received, provided, in each case, that the Company or such paying agent, as the
case may be, does not have actual knowledge that the payee is a U.S. person and
(ii) dividends that are subject to withholding at the 30% rate (or lower treaty
rate) discussed above.
PLAN OF DISTRIBUTION
Except as described below, a broker-dealer may not participate in the
Exchange Offer in connection with a distribution of the Exchange Notes. A
broker-dealer that participates in the Exchange Offer in connection with a
distribution of the Exchange Notes would be deemed an underwriter in connection
with such distribution, and such broker-dealer would be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any such secondary resale transactions. Any broker-dealer who
holds Initial Notes that are Transfer Restricted Securities and that were
acquired for its own account as a result of market-making activities or other
trading activities (other than Transfer Restricted Securities acquired directly
from the Company or an affiliate of the Company), may exchange such Initial
Notes pursuant to the Exchange Offer; however, such broker-dealer may be deemed
to be an "underwriter" within the meaning of the Securities Act and must
therefore deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of the Exchange Notes received by such broker-dealer
in the Exchange Offer, which prospectus delivery requirement may be satisfied by
the delivery by such broker-dealer (other than an "affiliate" of the Company) of
the Prospectus contained in this Registration Statement. The Company has agreed
that for a period of one year from the date on which the Registration Statement
of which this Prospectus is a part is declared effective, it will make this
Prospectus, as amended or supplemented, available to any such broker-dealer for
use in connection with any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of one year from the date on which the Registration Statement
of which this Prospectus is a part is declared effective, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer other than certain applicable taxes and
commissions or concessions of any brokers or dealers.
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The Company will indemnify the holders of the Initial Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the Notes offered hereby and certain legal matters will be
passed upon for the Company by Schulte Roth & Zabel LLP, New York, New York.
EXPERTS
The financial statements of ArtCarved included in this Prospectus to the
extent and for the periods indicated in their report dated November 13, 1996
(except for the matter discussed in Note 12, for which the date is December 16,
1996), have been audited by Arthur Andersen LLP, independent public accountants,
and are included herein in reliance upon the authority of said firm as experts
in giving said report.
The financial statements of Balfour included in this Prospectus to the
extent and for the periods indicated in their report dated September 30, 1996
(except for the matter discussed in Note 10, for which the date is December 30,
1996), have been audited by Arthur Andersen LLP, independent public accountants,
and are included herein in reliance upon the authority of said firm as experts
in giving said report.
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INDEX TO FINANCIAL STATEMENTS
CJC HOLDINGS, INC.
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheets as of August 27, 1994, August 26, 1995, August 31, 1996 and
November 30, 1996 (Unaudited)............................................................................ F-3
Statements of Income (Loss) for the Years Ended August 27, 1994, August 26, 1995 and August 31, 1996 and to
the Three Months Ended November 25, 1995 (Unaudited) and
November 30, 1996 (Unaudited)............................................................................ F-4
Statements of Changes in Advances and Equity (Deficit) for the Years Ended August 27, 1994, August 26, 1995
and August 31, 1996 and to the Three Months Ended November 25, 1995 and November 30, 1996 (Unaudited).... F-5
Statements of Cash Flows for the Years Ended August 27, 1994, August 26, 1995
and August 31, 1996 and the Three Months Ended November 25, 1995 (Unaudited) and
November 30, 1996 (Unaudited)............................................................................ F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
L.G. BALFOUR COMPANY, INC.
<TABLE>
<S> <C>
Report of Independent Public Accountants............................................. F-20
Balance Sheets as of February 27, 1994, February 26, 1995, February 25, 1996 and
November 24, 1996 (Unaudited)...................................................... F-21
Statement of Operations for the Years ended February 27, 1994, February 26, 1995 and
February 25, 1996 and for the Nine Months Ended November 26, 1995 (Unaudited) and
November 24, 1996 (Unaudited)...................................................... F-22
Statements of Stockholder's Equity for the Years Ended February 27, 1994, February
26, 1995, and February 25, 1996 and for the Nine Months Ended November 24, 1996
(Unaudited)........................................................................ F-23
Statements of Cash Flows for the Years Ended February 27, 1994, February 26, 1995 and
February 25, 1996 and for the Nine Months Ended November 26, 1995 (Unaudited) and
November 24, 1996 (Unaudited)...................................................... F-24
Notes to Financial Statements (Including Data Applicable to Unaudited Periods)....... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors,
CJC Holdings, Inc.:
We have audited the accompanying balance sheets of the class rings business
(the Business) of CJC Holdings, Inc. (a Texas corporation), as of August 27,
1994, August 26, 1995, and August 31, 1996, and the related statements of income
(loss), changes in advances and equity (deficit) and cash flows for each of the
three fiscal years ended August 31, 1996. These financial statements are the
responsibility of 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.
As discussed in Note 1, the Business has been a member of a group of
affiliated entities and, as disclosed in the financial statements, has many
transactions with other members of the group and is allocated certain costs
within the group. Because of these relationships, the terms of some or all of
the transactions and allocations between the Business and affiliated entities
included in the accompanying financial statements are not necessarily indicative
of those which would have resulted had the Business operated as a stand-alone
entity.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Business (as defined
above) as of August 27, 1994, August 26, 1995, and August 31, 1996, and the
results of its operations and its cash flows for each of the three fiscal years
in the period ended August 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, effective
September 1, 1993, the Business changed its fiscal year to a 52/53-week fiscal
year.
/S/ ARTHUR ANDERSEN LLP
Houston, Texas
November 13, 1996
(except for the matter discussed in Note 12,
for which the date is December 16, 1996)
F-2
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
BALANCE SHEETS
AUGUST 27, 1994, AUGUST 26, 1995, AUGUST 31, 1996, AND NOVEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 27, AUGUST 26, AUGUST 31,
1994 1995 1996
----------- ----------- ----------- NOVEMBER 30,
1996
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................. $ -- $ -- $ -- $ 4,456
Receivables--
Trade, net of allowance for doubtful accounts of $540, $630,
$633, and $701 $ 8,072 $ 9,312 $ 8,959 $ 14,248
Other.......................................................... 250 554 432 433
Inventories...................................................... 4,081 3,902 5,402 5,298
Prepaid expenses................................................. 2,209 2,495 2,115 784
----------- ----------- ----------- ------------
Total current assets....................................... 14,612 16,263 16,908 25,219
PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated
depreciation of $11,373, $13,037 and $14,884...................... 12,692 12,148 11,149 10,848
TRADEMARKS, net of accumulated amortization of $4,275, $4,950 and
$5,626............................................................ 22,725 22,050 21,421 21,207
GOODWILL, net of accumulated amortization of $2,457, $2,846 and
$3,232............................................................ 13,059 12,670 12,284 12,186
IDENTIFIABLE INTANGIBLE ASSETS, net of accumulated amortization of
$2,846, $3,296 and $3,745......................................... 2,974 2,524 2,075 1,963
OTHER ASSETS, net of accumulated amortization of $15,575, $21,070
and $22,731....................................................... 12,838 10,300 10,705 11,970
----------- ----------- ----------- ------------
Total assets............................................... $ 78,900 $ 75,955 $ 74,542 $ 83,393
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
LIABILITIES, ADVANCES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................................................. $ 2,649 $ 2,344 $ 1,953 $ 2,385
Accrued interest payable......................................... 12,708 10,229 1,429 2,345
Accrued expenses................................................. 1,705 2,054 2,088 4,312
Gold loan........................................................ 14,614 14,614 6,375 2,116
Current portion of long-term debt................................ -- 8,200 2,000 --
----------- ----------- ----------- ------------
Total current liabilities.................................. 31,676 37,441 13,845 11,158
LONG-TERM DEBT, net of current maturities.......................... 98,728 91,700 89,221 80,144
COMMITMENTS AND CONTINGENCIES
ADVANCES AND EQUITY (DEFICIT)...................................... (51,504) (53,186) (28,524) (7,909)
----------- ----------- ----------- ------------
Total liabilities, advances and equity (deficit)........... $ 78,900 $ 75,955 $ 74,542 $ 83,393
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED AUGUST 27, 1994, AUGUST 26, 1995, AND AUGUST 31, 1996
AND FOR THE THREE MONTHS ENDED NOVEMBER 25, 1995 AND NOVEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FOR THE THREE MONTHS ENDED
------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
AUGUST 27, AUGUST 26, AUGUST 31, NOVEMBER 25, NOVEMBER 30,
1994 1995 1996 1995 1996
----------- ----------- ----------- ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES....................................... $ 69,820 $ 71,994 $ 70,671 $ 21,923 $ 21,963
COST OF SALES................................... 30,572 32,879 32,655 9,209 9626
----------- ----------- ----------- ------------ ------------
Gross profit.............................. 39,248 39,115 38,016 12,714 12,337
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.... (26,618) (28,224) (27,940) (8,484) (8,110)
RESTRUCTURING CHARGES........................... -- (3,244) -- -- --
----------- ----------- ----------- ------------ ------------
OPERATING INCOME................................ 12,630 7,647 10,076 4,230 4,227
INTEREST INCOME................................. 463 995 651 151 78
INTEREST EXPENSE................................ (11,969) (14,608) (12,558) (3,506) (2581)
----------- ----------- ----------- ------------ ------------
Income (loss) before income tax expense....... 1,124 (5,966) (1,831) 875 1,724
INCOME TAX EXPENSE.............................. (137) -- -- --
----------- ----------- ----------- ------------ ------------
NET INCOME (LOSS)............................... $ 987 $ (5,966) $ (1,831) $ 875 $ 1,724
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
STATEMENTS OF CHANGES IN ADVANCES AND EQUITY (DEFICIT)
FOR THE YEARS ENDED AUGUST 27, 1994, AUGUST 26, 1995, AND AUGUST 31, 1996
AND FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
BALANCE AT AUGUST 31, 1993........................................................ $ (27,931)
Net decrease in advances from parent.............................................. (24,560)
Net income for the year ended August 27, 1994..................................... 987
---------
BALANCE AT AUGUST 27, 1994........................................................ (51,504)
Net increase in advances from parent.............................................. 4,284
Net loss for the year ended August 26, 1995....................................... (5,966)
---------
BALANCE AT AUGUST 26, 1995........................................................ (53,186)
Net increase in advances from parent.............................................. 26,493
Net loss for the year ended August 31, 1996....................................... (1,831)
---------
BALANCE AT AUGUST 31, 1996........................................................ (28,524)
Net increase in advances from parent.............................................. 18,891
Net income for the three months ended November 30, 1996........................... 1,724
---------
BALANCE AT NOVEMBER 30, 1996 (Unaudited).......................................... $ (7,909)
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 27, 1994, AUGUST 26, 1995, AND AUGUST 31, 1996
AND FOR THE THREE MONTHS ENDED NOVEMBER 25, 1995 AND NOVEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
FOR THE YEARS ENDED
------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
AUGUST 27, AUGUST 26, AUGUST 31, NOVEMBER 25, NOVEMBER 30,
1994 1995 1996 1995 1996
----------- ----------- ----------- ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................... $ 987 $ (5,966) $ (1,831) $ 875 $ 1,724
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities--
Deferred income tax expense....................... 137 -- -- -- --
Depreciation...................................... 1,395 1,664 1,843 455 483
Amortization of other assets...................... 3,299 3,950 3,172 809 981
Provisions for doubtful accounts.................. 292 522 596 118 108
Discount accretion................................ 242 1,172 -- -- --
Restructuring charges............................. -- 3,244 -- -- --
Change in assets and liabilities:
Increase in receivables......................... (942) (2,066) (121) (5,542) (5,398)
(Increase) decrease in inventories.............. (992) 179 (1,500) (1,424) 104
(Increase) decrease in prepaid expenses......... (578) (286) 1,880 1,723 1,331
Increase in other assets........................ (4,179) (3,138) (2,113) (724) (1,822)
Increase (decrease) in accounts payable......... 533 (305) (391) 243 432
Increase (decrease) in accrued expenses......... 10,938 (2,134) 128 2954 3,140
----------- ----------- ----------- ------------ ------------
Net cash provided by (used in) operating
activities...................................... 11,132 (3,164) 1,663 (513) 1,083
----------- ----------- ----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment.......... (1,186) (1,120) (844) (52) (182)
----------- ----------- ----------- ------------ ------------
Net cash used in investing activities............. (1,186) (1,120) (844) (52) (182)
----------- ----------- ----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in advances.............................. (24,560) 4,284 15,620 565 18,891
Note payments....................................... -- -- (16,439) -- (15,336)
Note borrowings..................................... 14,614 -- -- -- --
----------- ----------- ----------- ------------ ------------
Net cash provided by (used in) financing
activities...................................... (9,946) 4,284 (819) 565 3,555
----------- ----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... -- -- -- -- 4,456
CASH AND CASH EQUIVALENTS, beginning of period........ -- -- -- -- --
----------- ----------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of period.............. $ -- $ -- $ -- $ -- $ 4,456
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
NOTES TO FINANCIAL STATEMENTS
AUGUST 27, 1994, AUGUST 26, 1995, AUGUST 31, 1996
AND NOVEMEBER 30, 1996 (UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF FINANCIAL STATEMENT PRESENTATION:
The accompanying financial statements represent the class rings business
(the Business) of CJC Holdings, Inc. (CJC). Since the Business is not operated
nor accounted for as a separate entity for the periods presented in the
accompanying financial statements, it was necessary for management to make
allocations (carve-outs) for certain accounts to reflect the financial
statements of the Business. Management considers the allocations to be
reasonable and believes the accompanying financial statements materially
represent the operations of the Business on a stand-alone basis. Selling,
general and administrative expenses from the operations of the Business as shown
in the accompanying statements of income (loss) represent all the expenses
incurred by CJC excluding only the expenses directly related to the non-Business
operations of CJC. CJC has entered into an agreement to sell the assets of the
Business as defined (see Note 12), and CJC intends to use the sale proceeds to
repay its outstanding debt obligations. Accordingly, the debt obligations of CJC
to be repaid with the sale proceeds have been recorded on the accompanying
balance sheets with the offsetting charge included in the advances and equity
(deficit) account, and the accompanying statements of income (loss) of the
Business presented herein include all of CJC's debt-related interest expense on
such debt obligations. Interest income of CJC is included in the statements of
income (loss) since all excess cash balances are used to pay principal and
interest on debt obligations.
All cash balances are intended to remain with CJC after sale of the assets.
No cash balances have been included in the accompanying balance sheets. All
amounts due to/from CJC for the Business's operations have been included in
advances and equity (deficit). Also, included in advances and equity (deficit)
are all intercompany accounts.
Although management considers the above allocation (carve-out) methods to be
reasonable, due to the relationship between the Business and other operations
and activities of CJC, the terms of some or all of the transactions and
allocations discussed above may not necessarily be indicative of that which
would have resulted had the Business been a stand-alone entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR-END
Effective September 1, 1993, CJC (and the Business) changed its fiscal year
to a 52/53-week fiscal year ending on the last Saturday of August. This change
in accounting period did not have a material effect on the Business's financial
position or results of operations.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined by
the last-in, first-out (LIFO) method.
F-7
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 27, 1994, AUGUST 26, 1995, AUGUST 31, 1996
AND NOVEMEBER 30, 1996 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, net of accumulated
depreciation. Depreciation is provided principally using the straight-line
method based on estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
DESCRIPTION USEFUL LIFE
- - ---------------------------------------------------------------------------- ----------------
<S> <C>
Land improvements........................................................... 15 years
Buildings and improvements.................................................. 10 to 25 years
Tools and dies.............................................................. 5 to 10 years
Machinery and equipment..................................................... 3 to 10 years
</TABLE>
Maintenance, repairs and minor replacements are charged against income as
incurred; major replacements and betterments are capitalized. The cost of assets
sold or retired and the related accumulated depreciation are removed from the
accounts at the time of disposition, and any resulting gain or loss is reflected
as other income or expense for the period.
INTANGIBLE ASSETS
Costs in excess of fair value of net tangible assets acquired and related
acquisition costs are included in goodwill and identifiable intangible assets in
the accompanying balance sheets. Intangible assets are being amortized on a
straight-line basis over their estimated lives, not exceeding 40 years.
OTHER ASSETS
Other assets include debt costs, software and software development costs,
and engineering and design costs. Debt costs are amortized over the lives of the
specific debt instruments, one to six years. Software and software development
have a useful life of three to five years, and engineering and design costs are
amortized over six years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Business' financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and long-term debt (including
current maturities). The carrying amounts of the Business' cash and cash
equivalents, accounts receivable and accounts payable approximate fair value due
to their short-term nature. The fair value of the Business' long-term debt is
estimated based on current rates offered to the Business for debt with the same
or similar terms.
CASH FLOWS
Total cash interest paid during the fiscal years 1994, 1995 and 1996 was
approximately $359,000, $15,905,000 and $12,464,000, respectively. Total cash
paid for income taxes during the fiscal years 1994, 1995 and 1996 was
approximately $159,000, $89,000 and $83,000, respectively. Noncash financing
activities during the year ended August 31, 1996, include $7,021,000 of accrued
interest, which was converted to New Subordinated Notes, and $7,500,000 of
Original Subordinated Notes and $1,873,000 of related accrued interest that were
both converted to Series 2 common stock (see Note 7).
F-8
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 27, 1994, AUGUST 26, 1995, AUGUST 31, 1996
AND NOVEMEBER 30, 1996 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ACCOUNTING FOR INCOME TAXES
Effective September 1, 1992, CJC (and the Business) adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which requires the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recorded for the
tax consequences of applying currently enacted statutory tax rates applicable to
differences between the financial reporting and income tax basis of assets and
liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
RECLASSIFICATIONS
Certain reclassifications of amounts previously reported have been made to
conform to the current-year presentation.
SEASONALITY
The Business's sales are highly seasonal. Historically, the Business has
achieved its highest sales and income levels in its first fiscal quarter
(September through November), followed in descending order by the third, second
and fourth fiscal quarters. This is primarily due to the fall "back-to-school"
selling season for class rings. The third fiscal quarter includes the spring
semester school activities including graduation events, while the fourth fiscal
quarter (and the second fiscal quarter to a lesser extent) includes the periods
when school is not in session.
CONCENTRATION OF CREDIT RISK
Credit is extended to various companies in the retail industry which may be
affected by changes in economic or other external conditions. The Business's
policy is to manage its exposure to credit risk through credit approvals and
limits.
PENDING ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets to Be Disposed Of," which
will be effective for fiscal year 1997. The statement sets forth guidelines
regarding when to recognize an impairment of long-lived assets, including
goodwill and other intangible assets, and how to measure such impairment.
Management does not expect the adoption of SFAS No. 121 to have a significant
effect on the Business's financial statements.
F-9
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 27, 1994, AUGUST 26, 1995, AUGUST 31, 1996
AND NOVEMEBER 30, 1996 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INTERIM FINANCIAL STATEMENTS
The financial statements for the three months ended November 25, 1995, and
November 30, 1996, are unaudited. In management's opinion, these unaudited
financial statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair statement of the financial data
for such periods. The unaudited results for the three months ended November 30,
1996, are not necessarily indicative of the results expected for the entire
fiscal year.
3. RESTRUCTURING CHARGES:
During fiscal 1995, the Business provided for restructuring charges totaling
$3,244,000. Charges include professional advisory fees and the write-down of
previously incurred financing costs.
4. INVENTORIES:
Inventory components are as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 27, AUGUST 26, AUGUST 31, NOVEMBER 30,
1994 1995 1996 1996
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Raw materials.................................................. $ 2,150 $ 2,699 $ 4,007 $ 3,601
Work in process................................................ 1,253 890 1,010 1,155
Finished goods................................................. 678 313 385 542
----------- ----------- ----------- ------
$ 4,081 $ 3,902 $ 5,402 $ 5,298
----------- ----------- ----------- ------
----------- ----------- ----------- ------
</TABLE>
Inventories are priced using the dollar-value LIFO link-chain method. The
carrying value of LIFO inventories at August 27, 1994, August 26, 1995, August
31, 1996 and November 30, 1996, was approximately $519,000, $356,000, $355,000,
and $132,000, respectively, greater than costs as determined by the first-in,
first-out method.
The cost elements of inventory include raw materials, labor and overhead and
other manufacturing and production costs. Included in raw materials are supplies
inventory of approximately $916,000, $486,000, $451,000 and $459,000 at August
27, 1994, August 26, 1995, August 31, 1996, and November 30, 1996, respectively.
See Note 6 for discussion of gold inventory.
Cost of sales includes depreciation and amortization of approximately
$1,562,000, $1,674,000, $1,709,000 and $541,000 for the fiscal years 1994, 1995,
1996 and the three months ended November 30, 1996, respectively.
F-10
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 27, 1994, AUGUST 26, 1995, AUGUST 31, 1996
AND NOVEMEBER 30, 1996 (UNAUDITED)
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 27, AUGUST 26, AUGUST 31, NOVEMBER 30,
1994 1995 1996 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Land and improvements.......................................... $ 4,742 $ 4,742 $ 4,742 $ 4,742
Building and improvements...................................... 4,922 5,089 5,172 5,363
Tools and dies................................................. 6,241 6,241 6,241 6,241
Machinery and equipment........................................ 8,160 9,113 9,878 9,869
----------- ----------- ----------- ------------
24,065 25,185 26,033 26,215
Less--Accumulated depreciation................................. (11,373) (13,037) (14,884) (15,367)
----------- ----------- ----------- ------------
$ 12,692 $ 12,148 $ 11,149 $ 10,848
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
6. GOLD LOAN:
As a means of hedging against gold market price fluctuations and financing
its needs for gold in the manufacturing process, CJC had historically entered
into a fee-bearing gold consignment agreement with a bank (the Consignor).
During the term of the consignment agreement, title to the gold covered by the
consignment remained with the Consignor. CJC had a credit facility with a bank
which provided for a $25,000,000 letter-of-credit facility which could be
utilized to request letters of credit pursuant to the gold consignment
agreement. The consignment agreement expired in June 1994 and was not renewed.
In connection with the expiration of the gold consignment agreement, the
Consignor presented to the bank a draft for payment under the letter of credit
in the amount of $14,614,255, and such draft was honored by the bank in that
amount. The amount invoiced CJC was for 38,053 ounces of gold at a price of
$384.05 per ounce. At August 27, 1994, August 26, 1995, August 31, 1996, and
November 30, 1996 there are 7,439, 9,327, 10,555 and 10,319 ounces of gold,
respectively, with an approximate market value of $2,851,000, $3,573,000,
$4,079,000, and $3,849,000, respectively, included in the Business's balance
sheets. Although a substantial amount of gold is held by other operations of CJC
and serves as collateral for the loan, the entire Gold Loan is to be paid with
the proceeds from the asset sale and, therefore, the full amount of the loan is
included in the Business's balance sheets. See Note 7 for a discussion regarding
the refinancing of the Gold Loan.
F-11
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 27, 1994, AUGUST 26, 1995, AUGUST 31, 1996
AND NOVEMEBER 30, 1996 (UNAUDITED)
7. LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 27, AUGUST 26, AUGUST 31, NOVEMBER 30,
1994 1995 1996 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Senior secured notes........................................... $ 64,900 $ 64,900 $ 56,700 $ 45,623
Senior subordinated notes, net of unamortized discount of
$1,172, $--, $-- and $--, respectively....................... 33,828 35,000 34,521 34,521
----------- ----------- ----------- ------------
98,728 99,900 91,221 80,144
Less--Current portion.......................................... -- (8,200) (2,000) --
----------- ----------- ----------- ------------
Long-term debt................................................. $ 98,728 $ 91,700 $ 89,221 $ 80,144
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
The following is a summary of scheduled debt maturities by fiscal year (in
thousands):
<TABLE>
<S> <C>
1997............................................................... $ 2,000
1998............................................................... 4,000
1999............................................................... 10,677
2000............................................................... 40,023
2001............................................................... --
Thereafter......................................................... 34,521
---------
$ 91,221
---------
---------
</TABLE>
In November 1995, CJC's board of directors, shareholders and principal
creditors approved its Restructuring Plan and the Plan and Agreement of Merger
(as defined) whereby CJC's common and preferred shareholders agreed to a
recapitalization, and holders of senior secured, senior subordinated notes and
the Gold Loan agreed to restructure their debt obligations. On March 12, 1996,
the Restructuring Agreement was consummated. It is anticipated that the debt
obligations discussed below will be paid with the proceeds of the asset sale of
the Business and, therefore, they are included in the Business's financial
statements.
The significant components of the restructuring and recapitalization are as
follows:
a. New capital stock consisting of 30,000,000 authorized shares of
common stock designated as either Series 1, Series 2 or Series 3, as
defined, of CJC Newco, Inc. (Newco), was authorized and issued in the
following order:
(1) The holder of CJC's Series A preferred stock received an
aggregate of 100 percent or 8,750,000 shares of the Series 1 common
stock, such number to be reduced by that number of shares of Series 1
common stock to be issued to the subordinated noteholders.
(2) A holder of CJC's senior subordinated notes due 1998 and 1999
(the Original Subordinated Notes), pursuant to the restructuring,
received 4,410,000 shares of the Series 1 common stock in lieu of debt of
CJC. Holders of CJC's Original Subordinated Notes also received 94,000
shares of the Series 1 common stock as compensation for a payment-in-kind
(PIK), nondefault
F-12
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 27, 1994, AUGUST 26, 1995, AUGUST 31, 1996
AND NOVEMEBER 30, 1996 (UNAUDITED)
7. LONG-TERM DEBT: (CONTINUED)
rate interest option, as defined, contained in CJC's new senior
subordinated notes due 2002 (the New Subordinated Notes). In addition,
974,000 shares of the Series 1 common stock authorized to be issued to
the holders of CJC's New Subordinated Notes were not issued as of the
Restructuring Date but were reserved for issuance in accordance with the
terms of the New Subordinated Note agreement and the new shareholders'
agreement.
(3) The holders of CJC's Series B preferred stock received an
aggregate of 1,249,020 shares of Series 2 common stock. Each such holder
received 11.67 shares of Series 2 common stock for each previously held
share of Series B preferred stock.
(4) Previous holders of CJC's common stock received an aggregate of
9,992,317 shares of Series 3 common stock. Each such holder received 4.20
shares of Series 3 common stock for each previously held share of common
stock.
(5) Holders of CJC's warrants issued in 1990 received new warrants to
purchase 3,023,623 shares of Series 3 common stock. These warrants
expired on June 30, 1996. All other existing warrants, rights or options
outstanding immediately prior the to Merger were canceled and
extinguished.
Effective June 30, 1996, the Series 3 shares were redeemed at $0.001
per share.
b. Holders of CJC's Floating Rate Senior Secured Notes, Series A due
1996 (the Series A Notes), and holders of CJC's 12.12 percent Senior Secured
Notes, Series B-2 due 1998 (the Series B Notes, and together with the Series
A Notes, the Original Senior Notes), received all accrued interest on the
unpaid principal amount of such notes. Pursuant to the terms of a Senior
Note Purchase Agreement, the holders of the Series A Notes received New
Series A Notes and the holders of Series B Notes received New Series B
Notes.
The New Series A Notes were issued in the aggregate principal amount of
$14,677,000, the outstanding principal balance on the Restructuring Data.
The New Series A Notes are mandatorily redeemable under certain
circumstances. The maturity date of the New Series A Notes shall be July 15,
1999, and such notes bear interest at the Eurodollar Rate, as defined, plus
2.25 percent. In addition, the principal of the New Series A Notes will be
repaid in installments of $2.0 million on each semiannual period currently
anticipated to commence no later than July 15, 1997. Interest on the New
Series A Notes is due on the 15th day of each quarter, beginning April 15,
1996.
The New Series B Notes were issued in the aggregate principal amount of
$42,023,000, the outstanding principal balance on the Restructuring Date.
The New Series B Notes are mandatorily redeemable under certain
circumstances. The maturity date of the New Series B Notes shall be July 15,
2000 and bear interest at the rate of 12.12 percent. The New Series B Notes
shall be payable in full at maturity. After the New Series A Notes have been
repaid in full, the $2.0 million semiannual principal repayments shall be
applied to the New Series B Notes. Interest on the New Series B Notes shall
be due on the 15th day of each quarter beginning April 15, 1996. Finally,
the holders of the New Series B Notes may be entitled to certain
"make-whole" payments on the original amount issued once the New Series A
Notes have been repaid in full or replaced. The New Series A Notes and New
Series B Notes shall be secured by substantially all of CJC's assets.
F-13
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 27, 1994, AUGUST 26, 1995, AUGUST 31, 1996
AND NOVEMEBER 30, 1996 (UNAUDITED)
7. LONG-TERM DEBT: (CONTINUED)
Under the terms of the New Series A Notes and New Series B Notes, CJC,
among other restrictions, will be required to maintain a current ratio, as
defined (excluding current maturities of Funded Debt), of 3.2 to 1.0 for the
period March 12, 1996, to February 28, 1998, and 2.5 to 1.0 for the period
March 1, 1998, to maturity, minimum shareholders' equity (deficit), as
defined, of $(8,000,000) for the period March 12, 1996, to June 30, 1996,
$(9,000,000) for the period July 1, 1996, to May 31, 1997, $(10,000,000) for
the period June 1, 1997, to November 30, 1997, and beginning to increase to
$(5,000,000) until maturity, and an interest coverage ratio, as defined, of
1.25 to 1.0 for the period March 12, 1996, to February 28, 1998, 1.50 to 1.0
for the period March 1, 1998, to August 31, 1999, and 1.75 to 1.0 for the
period September 1, 1999, to maturity. CJC will also have certain
limitations relating to additional debt, liens, mergers, asset sales
transactions, restricted investments and payments of dividends and is
obligated to make certain reports periodically to the lenders. As of August
31, 1996, CJC was in compliance with these covenants.
c. Holders of CJC's Original Subordinated Notes in the amount of
$35,000,000 were issued either (1) New Subordinated Notes having an
aggregate principal amount equal to the unpaid principal under the Original
Subordinated Notes plus accrued interest through June 30, 1995, as well as
shares of Series 1 common stock as described in a.(2) above, or (2) New
Subordinated Notes having an aggregate principal amount equal to 50 percent
of the unpaid principal under the Original Subordinated Notes plus accrued
interest through June 30, 1995, as well as shares of Series 1 common stock
as described in a.(2) above. One holder elected to convert 50 percent of its
Original Subordinated Notes (principal amount of $7,500,000 plus accrued
interest through June 30, 1995, of approximately $1,873,000) into Series 1
common stock.
The New Subordinated Notes have a maturity of July 15, 2002, with
certain Mandatory Prepayments, as defined, based upon Net Cash Proceeds, as
defined. The New Subordinated Notes are subordinate to the New Senior Notes
and the New Gold Notes. The New Subordinated Notes have loan covenants that
are substantially identical to the New Senior Notes. Finally, the holders of
the New Subordinated Notes may be entitled to certain "make-whole" payments
on the original amount issued if both the New Senior Notes and New
Subordinated Notes are repaid in full prior to March 1997.
d. Each Gold Loan holder shall receive a new promissory note evidencing
the existing obligation having a maturity date of February 28, 1997 (the New
Gold Notes). The New Gold Notes shall be issued in an aggregate principal
amount of $8,641,125, the outstanding principal balance on the Restructuring
Date. The New Gold Notes shall bear interest at the lesser of the (1)
Alternate Base Rate, as defined, plus 1.5 percent or (2) the Highest Lawful
Rate, as defined. Principal payments under the New Gold Notes are $2,267,000
and $6,374,125 for fiscal years 1996 and 1997, respectively. CJC shall
prepay the New Gold Notes using available Net Cash Proceeds, as defined. The
New Gold Notes shall be secured by substantially all of CJC's assets.
In connection with the New Gold Notes, CJC purchased options for 24,053
ounces of gold, exercisable at $384.05 per ounce. The total premiums for
fiscal 1996 relating to these options were approximately $238,000. As of
August 31, 1996, CJC has options on 17,800 ounces of gold outstanding which
expire March 28, 1997. CJC is required to purchase the options under the New
Gold Notes to
F-14
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 27, 1994, AUGUST 26, 1995, AUGUST 31, 1996
AND NOVEMEBER 30, 1996 (UNAUDITED)
7. LONG-TERM DEBT: (CONTINUED)
hedge the collateral against changing gold prices. CJC does not engage in
gold option speculation. CJC has not recorded any significant gains or
losses related to such options as the price of gold has not fluctuated
significantly.
Under the terms of the New Gold Notes, CJC, among other restrictions,
will be required to maintain a current ratio, as defined (excluding current
maturities of Funded Debt), of 3.2 to 1.0, minimum shareholders' equity
(deficit), as defined, of $(8,000,000) for the period March 12, 1996, to
June 30, 1996, and $(9,000,000) for the period July 1, 1996, to maturity,
and an interest coverage ratio, as defined, of 1.25 to 1.0. CJC will also
have certain limitations relating to additional debt, liens, mergers, asset
sales transactions, restricted investments and payments of dividends and is
obligated to make certain reports periodically to the lenders. As of August
31, 1996, CJC was in compliance with these covenants.
Management believes the carrying amount of long-term debt, including the
current maturities, approximated fair value as of August 31, 1996, based upon
current rates offered for debt with the same or similar debt terms.
Subsequent to year-end, CJC was not in compliance with certain financial
covenants and, accordingly, applied for and has been granted a necessary waiver
through October 31, 1996, and an amendment with respect to such covenants from
its lenders.
8. INCOME TAXES:
For federal income tax purposes, the Business's operating results have been
included in CJC's consolidated federal income tax return. For financial
reporting purposes, the Business has provided federal income taxes as if it were
a stand-alone entity. However, since the Business is not a taxpaying entity with
respect to federal income taxes, deferred income taxes payable have been
included in the advances and equity (deficit) in the accompanying balance
sheets.
As discussed in Note 2, CJC (and the Business) adopted SFAS No. 109 as of
the beginning of fiscal year 1993. Under SFAS 109, deferred tax assets and
liabilities are computed based on the difference between the financial reporting
and income tax bases of assets and liabilities applying currently enacted
statutory tax rates. The components of deferred taxes of the Business are
comprised of the following (in thousands):
F-15
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 27, 1994, AUGUST 26, 1995, AUGUST 31, 1996
AND NOVEMEBER 30, 1996 (UNAUDITED)
8. INCOME TAXES: (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 27, AUGUST 26, AUGUST 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current deferred taxes--
Gross assets................................................................ $ 597 $ 1,835 $ 1,969
Gross liabilities........................................................... (508) (385) (328)
----------- ----------- -----------
Total, net.............................................................. 89 1,450 1,641
----------- ----------- -----------
Noncurrent deferred taxes--
Gross assets................................................................ 1,947 2,741 2,862
Gross liabilities........................................................... (1,586) (1,318) (1,067)
Less--Valuation allowance................................................... (450) (2,873) (3,436)
----------- ----------- -----------
Total, net.............................................................. (89) (1,450) (1,641)
----------- ----------- -----------
Net deferred income taxes..................................................... $ -- $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The significant increase in the valuation allowance as of August 26, 1995,
is due to the increase in deferred tax assets arising from the restructuring
charges being reserved.
The tax effect of significant temporary differences representing deferred
tax assets and liabilities is as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 27, AUGUST 26, AUGUST 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
UNICAP........................................................................ $ 597 $ 587 $ 658
Net operating loss and tax credit carryforwards............................... 1,947 2,741 2,862
Depreciation and amortization................................................. (1,586) (1,318) (1,067)
Deferred advertising.......................................................... (399) (385) (328)
Other, net.................................................................... (109) 1,248 1,311
----------- ----------- -----------
Net deferred tax asset........................................................ 450 2,873 3,436
Less--Valuation allowance..................................................... (450) (2,873) (3,436)
----------- ----------- -----------
Net deferred tax liability.................................................... $ -- $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The income tax provision for the fiscal year 1994, 1995 and 1996 consisted
of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current................................................................................. $ -- $ -- $ --
Deferred................................................................................ -- -- --
State Income taxes...................................................................... (137) -- --
--------- --------- ---------
$ (137) $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-16
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 27, 1994, AUGUST 26, 1995, AUGUST 31, 1996
AND NOVEMEBER 30, 1996 (UNAUDITED)
8. INCOME TAXES: (CONTINUED)
The following represents a reconciliation between tax computed by applying
the 35 percent statutory income tax rate to income (loss) before income taxes
and reported income tax expense for the years ended August 27, 1994, August 26,
1995, and August 31, 1996 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Pretax book income (loss)......................................................... 35.0% (35.0)% (35.0)%
Permanent differences............................................................. (8.7) 1.0 3.2
--------- --------- ---------
Addition to (utilization of) operating loss carryforwards......................... (26.3) 34.0 31.8
--------- --------- ---------
--% --% --%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Since the Business's financial results have been included in CJC's
consolidated federal income tax return, the Business's federal net operating tax
losses and other credits have been included in CJC's income tax return. As a
result, any carryovers of such losses or credits which might have existed had
the Business reported on a stand-alone basis will not be available to the
Business after the sale to Class Rings, Inc. is completed.
9. COMMITMENTS AND CONTINGENCIES:
Various lawsuits and claims arising in the ordinary course of business are
pending or threatened against CJC. While plaintiffs to these matters are seeking
recoveries from CJC and other relief, management believes that the ultimate
resolution of these matters will not have a material effect on CJC's financial
position or results of operations.
10. LEASES:
The Business leases certain of its manufacturing and office facilities and
equipment, under various noncancelable operating leases. Expenses under all
operating leases for the fiscal years ended August 27, 1994, August 26, 1995,
and August 31, 1996, were approximately $784,000, $577,000 and $577,000,
respectively. Future minimum payments under noncancelable operating leases with
initial or remaining terms of one year or more are as follows at August 31,
1996.
<TABLE>
<S> <C>
Fiscal 1997....................................................... $ 383,000
Fiscal 1998....................................................... 241,000
Fiscal 1999....................................................... 241,000
Fiscal 2000....................................................... 32,000
Fiscal 2001....................................................... --
---------
$ 897,000
---------
---------
</TABLE>
F-17
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 27, 1994, AUGUST 26, 1995, AUGUST 31, 1996
AND NOVEMEBER 30, 1996 (UNAUDITED)
11. EMPLOYEE BENEFIT PLANS:
DEFINED BENEFIT PLAN
CJC adopted an employee benefit plan for substantially all hourly class ring
employees. The benefits were based on the employee's years of service. CJC's
funding policy was to make contributions equal to or greater than the
requirements prescribed by the Employee Retirement Income Security Act of 1974.
The plan was frozen in 1989 and, effective September 5, 1995, the plan was
terminated. Upon receiving a favorable determination on termination, dated
December 1, 1995, all assets of the plan were distributed.
The following components of net periodic pension income are presented for
the hourly class ring employees' plan for the fiscal years ended August 27,
1994, August 26, 1995 and August 31, 1996:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Service cost, benefits earned during the year................................. $ -- $ -- $ --
Interest cost of projected benefit obligation................................. 64,000 69,200 --
Actual return on plan assets.................................................. (43,900) (51,800) --
Net amortization and deferral................................................. (40,300) (50,800) --
---------- ---------- ----------
Net periodic pension income................................................... $ (20,200) $ (33,400) $ --
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Assumptions used in accounting for the pension plan for the fiscal years
ended August 27, 1994, and August 26, 1995, are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Discount rate................................................................. 7.85% 7.30%
Rate of increase in compensation levels....................................... N/A N/A
Expected long-term rate of return on assets................................... 8.75 7.30
</TABLE>
The following table sets forth the hourly class ring employees' plan's
funded status and the amount recognized in the Business's balance sheets at
August 27, 1994, August 26, 1995, and August 31, 1996, for the pension plan:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------- ------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations--
Accumulated benefit obligations, including vested benefits of
$855,000, $1,139,000 and $-- at August 27, 1994, August 26, 1995,
and August 31, 1996, respectively.................................. $ (882,000) $ (1,139,000) $ --
------------ ------------- ------------
Projected benefit obligation........................................... $ (882,000) $ (1,139,000) --
Plan assets at fair value.............................................. 1,101,000 1,139,000 --
------------ ------------- ------------
Plan assets in excess of projected benefit obligation.................. 219,000 -- --
Unrecognized net loss (gain)........................................... (219,000) -- --
Prior service cost not yet recognized in net periodic
pension cost......................................................... -- -- --
------------ ------------- ------------
Prepaid pension cost................................................... $ -- $ -- $ --
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
F-18
<PAGE>
CJC HOLDINGS, INC., CLASS RINGS BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 27, 1994, AUGUST 26, 1995, AUGUST 31, 1996
AND NOVEMEBER 30, 1996 (UNAUDITED)
11. EMPLOYEE BENEFIT PLANS: (CONTINUED)
401(K) PLAN
CJC has a defined contribution plan that is available to all employees.
Employees are eligible to make contributions to the plan after one year of
employment. CJC does not make contributions to the plan but pays substantially
all administrative fees related to the plan.
12. SALE OF CLASS RINGS BUSINESS:
On December 16, 1996, (closing date) CJC completed the sale of substantially
all of the properties, assets, rights, claims and contracts of CJC associated
with the Business to Commemorative Brands, Inc. (formerly Scholastic Brands,
Inc. which was formerly Class Rings, Inc.) (CBI). In consideration for the
Business, CBI paid CJC in cash the sum of $97.8 million plus an amount equal to
the Adjusted Working Capital (as defined in the ArtCarved Purchase Agreement) of
ArtCarved as of the closing date. Based upon the estimated Adjusted Working
Capital of ArtCarved of $17.0 million, the ArtCarved Purchase Price was
approximately $114.8 million, subject to adjustment upon final determinations of
the Adjusted Working Capital.
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of
L.G. Balfour Company, Inc.:
We have audited the accompanying balance sheets of L.G. Balfour Company,
Inc. (a Delaware corporation and the Company), a wholly owned subsidiary of Town
& Country Corporation (a Massachusetts corporation and the Parent), as of
February 27, 1994, February 26, 1995 and February 25, 1996, and the related
statements of operations, stockholder's equity and cash flows for the years
ended February 27, 1994, February 26, 1995 and February 25, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of L.G. Balfour Company, Inc.,
as of February 27, 1994, February 26, 1995 and February 25, 1996, and the
results of its operations and its cash flows for the years ended February 27,
1994, February 26, 1995 and February 25, 1996, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company relies on funding from its
Parent to support operations and there is no assurance that the Parent will be
able to continue to provide financial support to the Company. Therefore, there
is substantial doubt about the Company's ability to continue as a going concern.
The Parent's plans with regard to these matters, which primarily relate to the
sale of the Company, are discussed in Notes 1 and 10. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/S/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 30, 1996 (except for the
matter discussed in Note 10,
for which the date is December 30, 1996)
F-20
<PAGE>
L.G. BALFOUR COMPANY, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, NOVEMBER 24,
1994 1995 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1)..................... $ 25 $ 25 $ 80 $ 59
Accounts receivable, less allowance for doubtful
accounts of $1,961, $5,866, $711 and $871 at February
27, 1994, February 26, 1995, February 25, 1996 and
November 24, 1996, respectively...................... 17,374 14,427 15,362 20,605
Accounts receivable--affiliates........................ 104 6 62 --
Inventories (Note 1)................................... 9,382 11,685 10,791 9,472
Prepaid expenses and other current assets (Note 7)..... 3,641 3,149 2,483 2,447
------------ ------------ ------------ ------------
Total current assets............................... 30,526 29,292 28,778 32,583
PROPERTY, PLANT AND EQUIPMENT, net (Note 1).............. 13,478 12,285 10,399 9,324
INTANGIBLE ASSETS (Note 1)............................... 2,986 2,842 2,698 2,590
OTHER ASSETS............................................. 999 817 688 553
------------ ------------ ------------ ------------
$ 47,989 $ 45,236 $ 42,563 $ 45,050
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft......................................... $ 1,866 $ 1,986 $ 1,829 $ 708
Current portion of long-term debt
(Note 2)............................................. 78 217 245 257
Accounts payable--trade................................ 3,022 1,756 1,551 2,079
Accounts payable--affiliates........................... 447 40 43 123
Accrued expenses (Note 6).............................. 9,896 11,079 11,212 9,307
------------ ------------ ------------ ------------
Total current liabilities.......................... 15,309 15,078 14,880 12,474
DUE TO PARENT, NET (Note 9).............................. 6,014 14,516 12,767 19,148
LONG-TERM DEBT, less current portion (Note 2)............ 44 403 154 --
DEFERRED COMPENSATION, less current portion (Note 8)..... 1,656 1,215 874 826
------------ ------------ ------------ ------------
Total liabilities.................................. 23,023 31,212 28,675 32,448
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDER'S EQUITY:
Capital stock.......................................... 4 4 4 4
Additional paid-in capital............................. 75,970 75,970 75,970 75,970
Accumulated deficit.................................... (51,008) (61,950) (62,086) (63,372)
------------ ------------ ------------ ------------
Total stockholders' equity......................... 24,966 14,024 13,888 12,602
------------ ------------ ------------ ------------
$ 47,989 $ 45,236 $ 42,563 $ 45,050
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
L.G. BALFOUR COMPANY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED ENDED
---------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, NOVEMBER 26, NOVEMBER 24,
1994 1995 1995 1996 1996
------------ ------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES................................. $ 85,304 $ 77,491 $ 71,300 $ 53,413 $ 55,521
COST OF SALES............................. 35,860 35,406 35,598 27,160 27,021
------------ ------------ ------------ ------------ ------------
Gross profit........................ 49,444 42,085 35,702 26,253 28,500
------------ ------------ ------------ ------------ ------------
EXPENSES:
Selling................................. 36,220 42,891 27,788 20,695 22,899
General and administrative (Note 4)..... 7,130 8,852 5,708 5,136 5,011
------------ ------------ ------------ ------------ ------------
Total expenses...................... 43,350 51,743 33,496 25,831 27,910
------------ ------------ ------------ ------------ ------------
OTHER (INCOME) EXPENSE:
Payroll tax refund (Note 5)............. -- (574) -- -- --
Gain on sale of facility (Note 1)....... -- -- (418) (418) --
Interest expense (Note 8)............... 673 700 583 450 432
Interest on due to Parent, net (Note
9).................................... 683 1,093 1,986 1,401 1,384
------------ ------------ ------------ ------------ ------------
Net other expense................... 1,356 1,219 2,151 1,433 1,816
------------ ------------ ------------ ------------ ------------
Income (loss) before provision for
income taxes...................... 4,738 (10,877) 55 (1,011) (1,226)
PROVISION FOR INCOME TAXES
(Notes 1 and 3)......................... 50 65 191 144 60
------------ ------------ ------------ ------------ ------------
Net income (loss)................... $ 4,688 $ (10,942) $ (136) $ (1,155) $ (1,286)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
L.G. BALFOUR COMPANY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCK-
PAID-IN ACCUMULATED HOLDER'S
CAPITAL STOCK CAPITAL DEFICIT EQUITY
----------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, FEBRUARY 28, 1993................................. $ 4 $ 75,970 $ (55,696) $ 20,278
Net income............................................... -- 4,688 4,688
--
----------- ------------ ------------
BALANCE, FEBRUARY 27, 1994................................. $ 4 75,970 (51,008) 24,966
Net loss................................................. -- (10,942) (10,942)
--
----------- ------------ ------------
BALANCE, FEBRUARY 26, 1995................................. $ 4 75,970 (61,950) 14,024
Net loss................................................. -- (136) (136)
--
----------- ------------ ------------
BALANCE, FEBRUARY 25, 1996................................. $ 4 75,970 (62,086) 13,888
Net loss................................................. -- (1,286) (1,286)
--
----------- ------------ ------------
BALANCE, NOVEMBER 24, 1996 (Unaudited)..................... $ 4 $ 75,970 $ (63,372) $ 12,602
--
--
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
L.G. BALFOUR COMPANY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED NINE MONTHS ENDED
------------------------------------------ ----------------------------
<S> <C> <C> <C> <C> <C>
FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, NOVEMBER 26, NOVEMBER 24,
1994 1995 1996 1995 1996
------------- ------------ ------------- ------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ 4,688 $ (10,942) $ (136) $ (1,155) $ (1,286)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities--
Depreciation and amortization................. 1,899 1,978 2,026 1,548 1,460
(Gain) loss on sale of property, plant and
equipment................................... 25 89 (417) (417) --
Change in assets and liabilities--
(Increase) decrease in accounts receivable.. (5,759) 3,045 (991) (4,736) (5,181)
(Increase) decrease in inventories.......... (1,351) (2,303) 894 (1,085) 1,319
(Increase) decrease in prepaid expenses and
other current assets...................... 1,278 492 666 787 36
(Increase) decrease in other assets......... 2,559 182 129 52 135
Increase (decrease) in bank overdraft and
accounts payable, net..................... 1,931 (1,553) (359) 714 (513)
Increase (decrease) in accrued expenses..... (6,444) 2,376 133 (1,386) (2,312)
Increase (decrease) in deferred
compensation.............................. (1,239) (441) (341) (150) (48)
------ ------------ ------ ------------- -------------
Net cash provided by (used in) operating
activities.............................. (2,413) (7,077) 1,604 (5,828) (6,390)
------ ------------ ------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets:............. 13 65 951 951 440
Capital expenditures............................ (1,820) (1,274) (530) (320) (252)
------ ------------ ------ ------------- -------------
Net cash provided by (used in) investing
activities.............................. (1,807) (1,209) 421 631 188
------ ------------ ------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) borrowings from
Parent, net................................... 4,213 8,502 (1,749) 5,364 6,381
Borrowings (payments) on capital leases......... 32 (216) (221) (163) (200)
------ ------------ ------ ------------- -------------
Net cash provided by (used in) financing
activities.............................. 4,245 8,286 (1,970) 5,201 6,181
------ ------------ ------ ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 25 -- 55 4 (21)
CASH AND CASH EQUIVALENTS, beginning of year...... -- 25 25 25 80
------ ------------ ------ ------------- -------------
CASH AND CASH EQUIVALENTS, end of year............ $ 25 $ 25 $ 80 $ 29 $ 59
------ ------------ ------ ------------- -------------
------ ------------ ------ ------------- -------------
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the year for--
Interest...................................... $ 20 $ 72 $ 52 $ 42 $ 23
------ ------------ ------ ------------- -------------
------ ------------ ------ ------------- -------------
Taxes......................................... $ 78 $ 65 $ 191 $ 191 $ 42
------ ------------ ------ ------------- -------------
------ ------------ ------ ------------- -------------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES (Note 1)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
L.G. BALFOUR COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The accompanying financial statements are for L.G. Balfour Company, Inc.
(the Company), a wholly owned subsidiary of Town & Country Corporation (the
Parent). This subsidiary is engaged in the production and distribution of high
school and college class rings on a made-to-order basis. The Company markets
directly to students on campus and at campus book stores and offers a variety of
graphics products, including graduation announcements, diplomas and memory
books, and novelty items, such as T-shirts, key chains and pendants. During
fiscal 1994 and 1995, the Company operated a licensed sports products direct
mail distribution business. During the fourth quarter of fiscal 1995, the
Company began selling the licensed sports products through retail as opposed to
direct mail distribution channels.
The Company relies on funding from the Parent to support operations.This
funding is primarily obtained by the Parent through borrowings under its debt
obligations. Compliance with the financial covenants under its debt obligations
are measured quarterly. There can be no assurance that the Parent will remain in
compliance with the financial covenants included in its working capital
facility, Senior Secured and Senior Subordinated Notes and can continue to
provide funding to support the Company's operations through fiscal year 1997.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
In addition, substantially all of the Company's assets have been pledged as
collateral against the Parent's debt obligations.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less; the carrying amount approximates fair market
value because of the short-term maturities of these investments.
REVENUE RECOGNITION
Revenues from product sales are recognized as the time the product is
shipped.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF. This statement deals with accounting for the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
assets to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of.
This statement requires that long-lived assets (e.g., property and equipment
and intangibles) be reviewed for impairment whenever events or changes in
circumstances, such as change in market value, indicate that the assets'
carrying amounts may not be recoverable. In performing the review for
recoverability, if future undiscounted cash flows (excluding interest charges)
from the use and ultimate disposition of the assets are less than their carrying
values, an impairment loss is recognized. Impairment losses are to be measured
based on the fair value of the asset.
On February 26, 1996, the Company adopted SFAS No. 121, which did not have a
material impact on the Company's financial position or results of operations.
F-25
<PAGE>
L.G. BALFOUR COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, bank overdraft, accounts payable, long-term
debt (including current maturities) and due to Parent, net. The carrying amounts
of the Company's cash and cash equivalents, accounts receivable, bank overdraft
and accounts payable approximate fair value due to their short-term nature. See
Notes 2 and 9 for fair value information pertaining to the Company's long-term
debt and due to Parent, net. In fiscal 1995, in connection with its licensed
sports products direct mail distribution business, the Company determined that
its actual collection rate of sales was significantly less than previously
estimated. Overall, the Company provided approximately 22% (the average
provision rate) for allowances for uncollectible amounts relating to sales of
products through this distribution channel. In fiscal 1995, the Company provided
additional reserves to take into account its change in estimate regarding the
realizability of these receivables, which resulted in a charge of approximately
$2.6 million over the average provision rate.
INVENTORIES
Inventories, which include materials, labor and manufacturing overhead, are
stated at the lower of cost or market using the first-in, first-out (FIFO)
method.
Inventories consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, NOVEMBER 24,
1994 1995 1996 1996
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Raw materials......................................... $ 3,158,000 $ 4,020,000 $ 3,851,000 $3,766,000
Work-in-process....................................... 4,197,000 3,897,000 3,622,000 2,978,000
Finished goods........................................ 2,027,000 3,768,000 3,318,000 2,728,000
------------ ------------- ------------- ------------
$ 9,382,000 $ 11,685,000 $ 10,791,000 $9,472,000
------------ ------------- ------------- ------------
------------ ------------- ------------- ------------
</TABLE>
The effects of gold price fluctuations are mitigated by the use of a
consignment program with bullion dealers. As the gold selling price for orders
is confirmed, the Company's Parent purchases the gold requirements at the then
current market prices; any additional requirements for gold are held as
consignee. This technique enables the Company to match the price it pays for
gold with the price it charges its customers. The Company pays a fee, which is
subject to periodic change, for the value of the gold it holds on consignment
during the period prior to sale. For the years ended February 27, 1994, February
26, 1995 and February 25, 1996, these fees totaled approximately $200,000 each
year and for the nine month periods ended November 26, 1995 and November 24,
1996, these fees totaled $162,000 and $214,000, respectively.
The Company does not include the value of consigned gold in inventory or the
corresponding liability in borrowings for financial statement purposes. As of
February 27, 1994, February 26, 1995, February 25, 1996 and November 24, 1996,
the Company held approximately 15,027 ounces valued at $5.7 million, 12,298
ounces valued at $4.6 million, 12,212 ounces valued at $4.9 million and 13,431
ounces valued at $5.1 million, respectively, of gold on consignment under its
Parent's domestic gold agreements. The lenders under the Parent's domestic gold
consignment agreements have a first priority security interest in the gold
content of inventory.
F-26
<PAGE>
L.G. BALFOUR COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
The Company expenses the costs of advertising as incurred, except for
certain direct-response advertising costs, which are capitalized and amortized
over their expected period of future benefits.
For the years ended February 27, 1994, February 26, 1995 and February 25,
1996 and for the nine-month periods ended November 26, 1995 and November 24,
1996, advertising expense was approximately $9,022,000, $10,565,000, $2,465,000,
$1,797,000 and $2,321,000, respectively. At February 27, 1994, February 26,
1995, February 25, 1996 and November 24, 1996, approximately $2,644,000, $0, $0
and $0, respectively, of direct response advertising costs were capitalized and
included in prepaid expenses and other current assets.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Maintenance and repair
items and charged to expense when incurred; renewals and betterments are
capitalized. When property, plant and equipment are retired or sold, their costs
and related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is included in income. Included in other income in the
accompanying statement of operations for the nine-month period ended November
26, 1995 and year ended February 25, 1996 is a $418,000 gain associated with the
sale of one of the Company's manufacturing facilities.
The Company provides for depreciation, principally using the straight-line
method, at rates adequate to depreciate the applicable assets over their
estimated useful lives, which range from 3 to 30 years.
PROPERTY, PLANT AND EQUIPMENT CONSISTED OF THE FOLLOWING:
<TABLE>
<CAPTION>
USEFUL LIFE FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, NOVEMBER 24,
RANGES 1994 1995 1996 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Real estate................................. 10-20 Years $ 7,720,000 $ 7,629,000 $ 6,875,000 $ 5,271,000
Furniture and fixtures...................... 3-7 Years 268,000 817,000 820,000 878,000
Tools and dies.............................. 3-15 Years 7,700,000 7,700,000 7,700,000 7,700,000
Equipment................................... 3-8 Years 6,675,000 6,957,000 7,119,000 7,361,000
Leasehold improvements...................... 4-20 Years -- 629,000 931,000 931,000
------------- ------------- ------------- -------------
Property, plant and equipment, gross.... 22,363,000 23,732,000 23,445,000 22,141,000
Less--Accumulated depreciation (Note 4)..... 8,885,000 11,447,000 13,046,000 12,817,000
------------- ------------- ------------- -------------
Property, plant and equipment, net...... $ 13,478,000 $ 12,285,000 $ 10,399,000 $ 9,324,000
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-27
<PAGE>
L.G. BALFOUR COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES (CONTINUED)
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred tax assets are
recognized net of any valuation allowance. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. The Company and its Parent have a tax-allocation
agreement. The Company's results of operations are included in the consolidated
federal return of the Parent. The agreement calls for the provisions (benefits)
and payments (refunds) to be made as if the Company were to file its own
separate company tax returns.
LONG-TERM INTANGIBLE ASSETS
The excess $5,612,000 of purchase price over the values assigned to the net
assets acquired is being amortized using the straight-line method over
approximately 40 years. The Company continually evaluates whether events and
circumstances have occurred that indicate that the remaining estimated useful
life of goodwill may warrant revision or that the remaining balance of goodwill
may not be recoverable. When factors indicate that goodwill should be evaluated
for possible impairment, the Company uses an estimate of the related business
units' undiscounted operating income over the remaining life of the goodwill, as
well as the pending sale of the Company (see Note 10), in measuring whether the
goodwill is recoverable. Accumulated amortization was approximately $2,626,000,
$2,770,000, $2,914,000 and $3,022,000 at February 27, 1994, February 26, 1995,
February 25, 1996 and November 24, 1996, respectively.
SALES REPRESENTATIVE ADVANCES AND RESERVE FOR SALES REPRESENTATIVE ADVANCES
The Company advances funds to new sales representatives in order to open up
new sales territories or makes payments to predecessor sales representatives on
behalf of successor sales representatives (Note 5). Such amounts are repaid by
the sales representatives through earned commissions on product sales. The
Company provides reserves to cover those amounts which it estimates to be
uncollectible (Note 7).
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
During fiscal 1994 and 1995 and the nine-month period ended November 24,
1996, the Company had fixed asset additions of approximately $90,000, $700,000
and $58,000, respectively, funded by increases in capital lease obligations.
INTERIM FINANCIAL STATEMENTS
The financial statements for the nine months ended November 26, 1995 and
November 24, 1996 are unaudited. In management's opinion, these unaudited
financial statements have been prepared on the
F-28
<PAGE>
L.G. BALFOUR COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL STATEMENTS (CONTINUED)
same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of the financial data for such periods. The unaudited results for the
nine months ended November 24, 1996 are not necessarily indicative of the
results expected for the entire fiscal year.
(2) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, NOVEMBER 24,
1994 1995 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Lease obligation for office furniture and equipment, payable in
monthly installments with interest of 9.67%.................. $ -- $ 620,000 $ 399,000 $ 218,000
Other obligations.............................................. 122,000 -- -- 39,000
------------ ------------ ------------ ------------
122,000 620,000 399,000 257,000
Less--Current portion.......................................... 78,000 217,000 245,000 257,000
------------ ------------ ------------ ------------
$ 44,000 $ 403,000 $ 154,000 $ --
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The Company's management believes, based on the short-term nature of the
Company's debt and because interest rates approximate the Company's incremental
borrowing rate, that the carrying value approximates fair value.
(3) INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
--------------------------
FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, NOVEMBER 26, NOVEMBER 24,
1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Current--
Federal................................. $ -- $ -- $ -- $ -- $ --
State................................... 50,000 65,000 191,000 144,000 60,000
------------ ------------ ------------ ------------ ------------
Total provision..................... $ 50,000 $ 65,000 $ 191,000 $ 144,000 $ 60,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
F-29
<PAGE>
L.G. BALFOUR COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(3) INCOME TAXES (CONTINUED)
The Company's effective tax rate differs from the federal statutory rate of
35% for the years ended February 27, 1994, February 26, 1995 and February 25,
1996 and for the nine months ended November 26, 1995 and November 24, 1996 due
to the following (in thousands):
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
--------------------------------
<S> <C> <C> <C> <C> <C>
FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, NOVEMBER 26, NOVEMBER 24,
1994 1995 1996 1995 1996
------------- ------------ --------------- --------------- ---------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed tax provision (benefit) at statutory
rate............................................ $ 1,658 $ (3,807) $ 20 $ (354) $ (429)
Increases resulting from State taxes.............. 50 65 191 144 60
Items not deductible for income tax purposes...... 68 64 64 48 48
(Utilization) deferral of net operating losses.... (1,726) 3,743 (84) 306 381
------ ------------ ----- ----- -----
$ 50 $ 65 $ 191 $ 144 $ 60
------ ------------ ----- ----- -----
------ ------------ ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, NOVEMBER 24,
1994 1995 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Deferred tax assets--
Accounts receivable reserves................................. $ 1,174 $ 2,190 $ 883 $ 856
Accrual for loss on assets held for sale or disposal......... 1,873 742 561 --
Inventories.................................................. 526 525 452 373
Other........................................................ 594 1,345 1,570 1,347
Net operating loss carryforwards............................. 6,790 12,042 14,554 14,502
------------ ------------ ------------ ------------
Total gross deferred tax assets.......................... 10,957 16,844 18,020 17,078
Less--Valuation allowance...................................... 8,344 14,356 16,069 15,529
------------ ------------ ------------ ------------
Net deferred tax assets.................................. $ 2,613 $ 2,488 $ 1,951 $ 1,549
------------ ------------ ------------ ------------
Deferred tax liabilities--
Property, plant and equipment, principally due to differences
in depreciation............................................ $ 2,613 $ 2,488 $ 1,951 $ 1,549
------------ ------------ ------------ ------------
Total deferred tax liabilities........................... 2,613 2,488 1,951 1,549
Net deferred tax asset (liability)....................... $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The valuation allowance relates to uncertainty surrounding the realizability
of the deferred tax assets, principally the net operating loss carryforwards.
For tax reporting purposes, the Company has U.S. net operating loss
carryforwards of approximately $36.3 million as of November 24, 1996, subject to
Internal Revenue Service (IRS) review and approval and certain IRS limitations
on net operating loss utilization. Utilization of the net operating loss
carryforwards is contingent on the Company's ability to generate income in the
future. The net operating loss carryforwards will expire from 2006 to 2012 if
not utilized.
F-30
<PAGE>
L.G. BALFOUR COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(4) LOSS ON ASSETS HELD FOR SALE OR DISPOSAL
In fiscal 1993, the Company's management decided to make changes with
respect to certain of its operations. As a result of this decision, the Company
recognized a pretax charge of $14.5 million in the fourth quarter of fiscal 1993
to reserve for the losses associated with the disposal of certain inventory and
fixed assets, including property, plant and equipment of approximately $12.9
million and intangible assets of approximately $1.6 million no longer considered
necessary to its future business plans. At February 26, 1995, the disposals had
been substantially completed and the remaining reserve of approximately $1.8
million was intended to cover the net book value and demolition costs associated
with the disposition of a manufacturing facility. At February 25, 1996, the
remaining reserve was approximately $1.4 million. In fiscal 1996, due to a
change in estimates for demolishing the facility, the Company reduced the
reserve by approximately $400,000, which is included as a reduction of general
and administrative expenses in the accompanying statement of operations. At
February 26, 1995 and February 25, 1996, approximately $1.2 million of the
reserve is included in accumulated depreciation as an offset against property,
plant and equipment (Note 1), and the remaining reserve is included in accrued
expenses in the accompanying balance sheets. During the nine-month period ended
November 24, 1996, the Company completed the demolition and sale of the
manufacturing facility and reduced the reserve by approximately $150,000, which
is included as a reduction of general and administrative expenses in the
accompanying statement of operations. Additionally, the remaining reserve of
approximately $1.2 million was utilized to write-off the associated property,
plant and equipment as opposed to being included in accumulated depreciation as
an offset, against property, plant and equipment as described above.
(5) COMMITMENTS AND CONTINGENCIES
Certain Company facilities and equipment are leased under agreements
expiring at various dates through 2009. The Company's commitments under the
noncancelable portion of all operating leases for the next five years and in
total thereafter at February 25, 1996 are approximately as follows:
<TABLE>
<CAPTION>
TOTAL
YEAR COMMITMENT
- - ---------------------------------------------------------------------- ------------
<S> <C>
1997.................................................................. $1,086,000
1998.................................................................. 1,069,000
1999.................................................................. 1,037,000
2000.................................................................. 1,057,000
2001.................................................................. 1,073,000
Thereafter............................................................ 7,579,000
</TABLE>
There were no significant additions, deletions or modifications to the
Company's commitments under the noncancelable portion of all operating leases
from February 25, 1996 through November 24, 1996.
Lease and rental expense included in the accompanying statements of
operations amounted to approximately $184,000, $483,000 and $920,000 for the
years ended February 27, 1994, February 26, 1995 and February 25, 1996,
respectively, and approximately $673,000 and $866,000 for the nine month periods
ending November 26, 1995 and November 24, 1996, respectively.
The Company is a party to certain contracts with some of its sales
representatives whereby the representatives have purchased the right to sell the
Company's products in a territory from their predecessor. The contracts
generally provide that the value of these rights is primarily determined by the
F-31
<PAGE>
L.G. BALFOUR COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) COMMITMENTS AND CONTINGENCIES (CONTINUED)
amount of business achieved by a successor sales representative and is therefore
not determinable in advance of performance by the successor sales
representative.
Substantially all of the Company's assets have been pledged as collateral
against the Parent's debt obligations.
During fiscal 1995, the Company received an IRS tax refund of approximately
$574,000 (including interest), which is reflected in other income in the
accompanying statement of operations. This amount represents a favorable
settlement related to payroll taxes paid by the Company for individuals
determined to be independent contractors.
The Company is not party to any pending legal proceedings other than
ordinary routine litigation incidental to the business. In management's opinion,
adverse decisions on those legal proceedings, in the aggregate, would not have a
materially adverse impact on the Company's results of operations or financial
position.
(6) ACCRUED EXPENSES
The principal components of accrued expenses are approximately as follows:
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, NOVEMBER 24,
1994 1995 1996 1996
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Compensation and related costs............................... $ 1,854,000 $ 1,926,000 $ 2,442,000 $ 1,857,000
Sales and use tax............................................ 969,000 794,000 503,000 687,000
Commissions and royalties.................................... 1,479,000 2,900,000 2,296,000 2,710,000
Customer deposits............................................ 4,243,000 4,199,000 4,717,000 2,756,000
Current portion of deferred compensation (Note 8)............ 414,000 380,000 355,000 344,000
Other........................................................ 937,000 880,000 899,000 953,000
------------ ------------- ------------- ------------
Total accrued expenses................................. $ 9,896,000 $ 11,079,000 $ 11,212,000 $ 9,307,000
------------ ------------- ------------- ------------
------------ ------------- ------------- ------------
</TABLE>
(7) PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of approximately the
following:
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, NOVEMBER 24,
1994 1995 1996 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Sales representative advances (Note 1)...................... $ 4,056,000 $ 5,169,000 $ 4,571,000 $ 2,386,000
Reserve on sales representative advances (Note 1)........... (3,295,000) (2,305,000) (2,497,000) (733,000)
Prepaid advertising (Note 1)................................ 2,644,000 -- -- --
Other....................................................... 236,000 285,000 409,000 794,000
------------- ------------- ------------- -------------
$ 3,641,000 $ 3,149,000 $ 2,483,000 $ 2,447,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
F-32
<PAGE>
L.G. BALFOUR COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) EMPLOYEE BENEFIT PLANS
POSTEMPLOYMENT MEDICAL BENEFITS
In December 1990, the Financial Accounting Standards Board issued SFAS No.
106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS,
which requires that the accrual method of accounting for certain postretirement
benefits be adopted. Adoption is required for fiscal years beginning after
December 1992. The Company provides certain health care and life insurance
benefits for employees who retired prior to December 31, 1990. The Company
adopted this statement in fiscal 1994 and is recognizing the actuarial present
value of the accumulated postretirement benefit obligation (APBO) of
approximately $6.2 million using the delayed recognition method over a period of
20 years. Prior to adopting SFAS No. 106, the cost of providing these benefits
was expensed as incurred and amounted to approximately $508,000 for the year
ended February 28, 1993.
The following table sets forth the plan status (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 26, FEBRUARY 25,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation--
Retired employees..................................................... $ (6,477) $ (6,088) $ (5,710)
Active employees...................................................... -- -- --
------------ ------------ ------------
Total............................................................. (6,477) (6,088) (5,710)
Plan assets at fair value............................................... -- -- --
------------ ------------ ------------
Unfunded accumulated benefit obligation in excess of plan
assets.......................................................... (6,477) (6,088) (5,710)
Unrecognized net gain................................................... -- (73) (336)
Unrecognized transition obligation...................................... 6,162 5,810 5,487
------------ ------------ ------------
Accrued postretirement medical benefit cost....................... $ (315) $ (351) $ (559)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
As of November 24, 1996, there was $738,000 accrued for postretirement
medical benefit costs.
F-33
<PAGE>
L.G. BALFOUR COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) EMPLOYEE BENEFIT PLANS (CONTINUED)
The net periodic postretirement benefit costs for the years ending February
27, 1994, February 26, 1995 and February 25, 1996 and for the nine-month periods
ended November 26, 1995 and November 24, 1996 included the following components
(in thousands):
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED
---------------
<S> <C> <C> <C> <C>
FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, NOVEMBER 26,
1994 1995 1996 1995
--------------- --------------- --------------- ---------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Service costs--benefits attributed to service
during the period............................... $ -- $ -- $ -- $ --
Interest cost..................................... 494 474 444 356
Actuarial assumptions............................. -- -- -- --
Amortization of unrecognized transition
obligation...................................... 324 323 323 242
----- ----- ----- -----
Net periodic postretirement benefit cost.... $ 818 $ 797 $ 767 $ 598
----- ----- ----- -----
----- ----- ----- -----
<CAPTION>
<S> <C>
NOVEMBER 24,
1996
---------------
<S> <C>
Service costs--benefits attributed to service
during the period............................... $ --
Interest cost..................................... 326
Actuarial assumptions............................. --
Amortization of unrecognized transition
obligation...................................... 242
-----
Net periodic postretirement benefit cost.... $ 568
-----
-----
</TABLE>
For measurement purposes, a 9% annual rate of increase in the per capita
cost of covered health care benefits is assumed for fiscal 1996; the rate was
assumed to decrease gradually to 6% for fiscal 2000 and remain at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. To illustrate, increasing the assumed health care cost
trend rate one percentage point each year would increase the APBO as of February
25, 1996 by $380,000 or 7%, and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for fiscal 1996 by
$30,000 or 4%.
The weighted average discount rate used in determining APBO was 8.0% in
fiscal 1994, 1995 and 1996.
Interest cost associated with the accumulated postretirement benefit
obligation is included as a component of interest expense in the statements of
operations.
DEFERRED COMPENSATION
The Company has deferred compensation agreements with certain sales
representatives and executives, which provide for payments upon retirement or
death based on the value of life insurance policies or mutual fund shares at the
retirement date. The cost of the Company's liability under these compensation
agreements for the years ended February 27, 1994, February 26, 1995 and February
25, 1996 was approximately $156,000, $156,000 and $50,000, respectively, and for
the nine-month periods ended November 26, 1995 and November 24, 1996 was
approximately $50,000 and $79,000, respectively.
EMPLOYEE STOCK PURCHASE PLAN
On January 25, 1988, the Board of Directors of the Parent adopted the 1988
Employee Stock Purchase Plan (the Stock Purchase Plan) for 500,000 shares of the
Parent Class A Common Stock. Under the Stock Purchase Plan, each eligible
participating employee is deemed to have been granted an option to
F-34
<PAGE>
L.G. BALFOUR COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) EMPLOYEE BENEFIT PLANS (CONTINUED)
purchase shares of the Parent's Class A Common Stock on a semiannual basis at a
price equal to 90% of the market value on the last day of the period.
(9) RELATED PARTY TRANSACTIONS
The Parent administers certain programs (health insurance, workmen's
compensation, gold consignment, etc.) and charges all directly identifiable
costs to the Company. The Parent does not charge or allocate any indirect costs;
however, management believes these amounts are not significant in fiscal 1994,
1995 and 1996 and for the nine-month periods ending November 26, 1995 and
November 24, 1996.
The net amount due to Parent of $6,014,000, $14,516,000, $12,767,000 and
$19,148,000 at February 27, 1994, February 26, 1995, February 25, 1996 and
November 24, 1996, respectively, represent advances to fund operating needs and
include the charges discussed previously. The Parent charged or credited the
Company interest on a monthly basis at a rate of 11% in fiscal 1994 and 1995 and
11.5% in fiscal 1996 and for the nine-month period ending November 24, 1996.
Included in the accompanying statements of operations are net interest charges
of $683,000, $1,093,000 and $1,986,000 in fiscal 1994, 1995 and 1996,
respectively, and $1,401,000 and $1,384,000 for the nine-month periods ended
November 26, 1995 and November 24, 1996, respectively.
As the net amount due to Parent has no specified maturity date and the
Parent has no present intention to demand repayment, management believes that
estimating its fair market value is not practicable.
(10) PENDING SALE
The Parent company, having reviewed the Company's performance, concluded
that it would be in the best interest of the Parent's investors and creditors to
consider opportunities to sell the Company.
On May 20, 1996 (the "Original Agreement"), the Parent entered into an
agreement to sell the assets and liabilities of the Company (the "Balfour
Acquisition") and Gold Lance, Inc. (the "Gold Lance Acquisition"), another class
ring manufacturing subsidiary of the Parent, constituting substantially all of
the operations of the Company and Gold Lance, Inc. to Commemorative Brands, Inc.
("CBI" and formerly Class Rings, Inc. and Scholastic Brands, Inc.), a new
company formed by Castle Harlan Partners II, L.P. ("CHP II"). The Original
Agreement was amended on November 21, 1996 (the "Modified Agreement"), to
exclude the Gold Lance Acquisition, among other things. Separately, CBI entered
into an agreement with CJC Holdings, Inc. ("CJC") to acquire its class ring and
recognition and affinity businesses.
On September 6, 1996, CBI, CHP II and the Parent entered into an Agreement
Containing Consent Order (the "Consent Agreement") with the Federal Trade
Commission (the "FTC"). Pursuant to the Consent Agreement, CBI has agreed, among
other things, not to acquire any assets of or interests in Gold Lance, Inc.,
which CBI had originally contracted to buy together with the Company. Also,
pursuant to the Consent Agreement, the Parent and Gold Lance, Inc. agreed, among
other things, not to sell any assets to CBI, other than pursuant to the Balfour
Acquisition, or to acquire any interest in CBI. On October 8, 1996, the FTC
placed the Consent Agreement and the proposed order on the public record for a
period of 60 days for the receipt and consideration of comments or views from
any interested person.
F-35
<PAGE>
L.G. BALFOUR COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(10) PENDING SALE (CONTINUED)
On December 16, 1996, the Parent completed the sale of certain assets and
liabilities of the Company (the "Closing"). At Closing, the Parent received cash
equal to the purchase price of $44 million, plus $3.4 million in working capital
adjustments from January 28, 1996 to the date of Closing, plus $4.9 million
representing the value of gold on-hand as of the date of Closing less $14
million placed in escrow pending final FTC approval. Following the expiration of
the public comment period described above, final approval from the FTC was
received on December 20, 1996. The $14 million in escrowed funds were
subsequently released and paid to the Parent on December 30, 1996. The working
capital and gold values are contingent upon pending reconciliations to be
completed within 45 days from the date of closing for working capital and 90
days for the value of gold on-hand.
F-36
<PAGE>
No person has been authorized to give any information or to make any
representations not in this Prospectus, and, if given or made, such other
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 of the Notes to any person in any
jurisdiction in which it would be unlawful to make such an offer or solicitation
to such person. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances, create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
____________________
TABLE OF CONTENTS
Page
----
Additional Information .....................................................
Prospectus Summary .........................................................
Risk Factors ...............................................................
Use of Proceeds ............................................................
The Exchange Offer..........................................................
Capitalization .............................................................
Unaudited Pro Forma Combined Financial
Statements and Other Data .............................................
Selected Historical Financial and Other Data................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................................................
Business ...................................................................
Management .................................................................
Principal Stockholders .....................................................
Certain Relationships and Related
Transactions ..........................................................
The Acquisitions ...........................................................
Description of Capital Stock ...............................................
Description of the Bank Credit Facility ....................................
Description of Notes .......................................................
Certain Federal Income
Tax Considerations ....................................................
Plan of Distribution .......................................................
Legal Matters ..............................................................
Experts ....................................................................
Index to Financial Statements ..............................................
COMMEMORATIVE BRANDS,
INC.
Offer to exchange $90,000,000
of new
11% Senior Subordinated Notes
due 2007
for $90,000,000 of any and all outstanding
11% Senior Subordinated Notes
due 2007
Marine Midland Bank
Exchange Agent
40 Broadway
New York, New York 10005
Attention: Corporate Trust Administration
Telephone: (212) ______________
Telecopier: (212) 658-6425
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 102(b)(7) of the Delaware General Company Law (the "DGCL") permits
a provision in the certificate of incorporation of each Company organized
thereunder, such as the Company, eliminating or limiting the personal liability,
with certain exceptions, of a director to the Company or its stockholders for
monetary damages for certain breaches of fiduciary duty as a director. Article
FIFTH of the Company's Restated Certificate of Incorporation, as amended,
eliminates the personal liability of directors to the fullest extent permitted
by law. Specifically, the directors of the Company will not be personally liable
for monetary damages for breach of the director's fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit.
Section 145 of the DGCL grants a Delaware Company, such as the Company,
the power to indemnify a director, officer, employee or agent against reasonable
expenses (including attorneys' fees) incurred by him in connection with any
proceeding brought by or on behalf of the Company and against judgments, fines,
settlements and reasonable expenses (including attorneys' fees) incurred by him
in connection with any other proceeding, if (a) he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, and (b) in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful. Except as ordered by a
court, however, no indemnification is to be made in connection with any
proceeding brought by or in the right of the Company where the person involved
is adjudged to be liable to the Company.
Section 1 of Article VI of the Company's Restated By-Laws provides that,
unless otherwise determined by the Board of Directors, the Company shall, to the
fullest extent permitted by the DGCL (including, without limitation, Section 145
thereof) or other provisions of the laws of Delaware relating to indemnification
of directors, officers, employees and agents, as the same may be amended and
supplemented from time to time, indemnify any and all such persons whom it shall
have power to indemnify under the DGCL or such other provisions of law.
Section 2 of Article VI of the Company's Restated By-Laws provides that,
without limiting the generality of Section 1 of Article VI, to the fullest
extent permitted, and subject to the conditions imposed, by law, and pursuant to
Section 145 of the DGCL, unless otherwise determined by the Board of Directors,
the Company shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Company) by reason of the fact that such
person is or was a director, officer, employee or agent of the Company, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another Corporation, partnership, joint venture, trust or other
enterprise against reasonable expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful; and
that the Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Company to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another Company, partnership, joint
venture, trust or other enterprise against reasonable expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if such person acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, except as otherwise provided by law.
II-1
<PAGE>
Section 3 of Article VI of the Company's Restated By-Laws provides that,
to the fullest extent permitted by law, indemnification may be granted, and
expenses may be advanced, to the persons described in Section 145 of the DGCL or
other provisions of the laws of Delaware relating to indemnification and
advancement of expenses, as from time to time may be in effect, by (i) a
resolution of stockholders, (ii) a resolution of the Board of Directors, or
(iii) an agreement providing for such indemnification and advancement of
expenses.
Section 4 of Article VI of the Company's Restated By-Laws provides that,
it is the intent of Article VI to require the Company, unless otherwise
determined by the Board of Directors, to indemnify the persons referred to
therein for judgments, fines, penalties, amounts paid in settlement and
reasonable expenses (including attorneys' fees), and to advance expenses to such
persons, in each and every circumstance in which such indemnification and such
advancement of expenses could lawfully be permitted by express provision of
By-Laws, and the indemnification and expense advancement provided by this
Article VI shall not be limited by the absence of an express recital of such
circumstances. The indemnification and advancement of expenses provided by, or
granted pursuant to, the Company's Restated By-Laws shall not be deemed
exclusive of any other rights to which a person seeking indemnification or
advancement of expenses may be entitled, whether as a matter of law, under any
provision of the Restated Certificate of Incorporation of the Company, the
Restated By-Laws, by agreement, by vote of stockholders or disinterested
directors of the Company or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
Section 5 of Article VI of the Company's Restated By-Laws provides that
indemnification pursuant to the Restated By-Laws shall inure to the benefit of
the heirs, executors, administrators and personal representatives of those
entitled to indemnification.
The indemnification and advancement of expenses provided by or granted
pursuant to Article VI of the Company's By-Laws are not exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Company that indemnification of the persons specified in
Article VI shall be made to the fullest extent permitted by law.
The Company has purchased and maintains insurance on behalf of any person
who is or was a director, officer, employee or agent of the Company, or is or
was a director or officer of the Company serving at the request of the Company
as a director, officer, employee or agent of another Company, partnership, joint
venture, trust, employee benefit plan or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Company would have the power or the
obligation to indemnify him against such liability under the provisions of
Article VI of the Company's By-Laws.
The Company has entered into indemnification agreements with each of its
directors and officers which require the Company to indemnify the directors and
officers to the fullest extent permitted by law, and to advance to directors and
officers all related expenses, subject to reimbursement if it is subsequently
determined that indemnification is not permitted. The Company must also
indemnify and advance all expenses incurred by directors and officers seeking to
enforce their rights under the indemnification agreements, and cover directors
and officers under the Company's directors' and officers' liability insurance.
See "Management--Compensation of Directors" contained in this Prospectus
comprising part of this Registration Statement.
II-2
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
2.1 Asset Purchase Agreement, dated as of May 20, 1996 ("ArtCarved
Purchase Agreement"), among the Company and CJC Holdings, Inc.
("CJC"), and CJC North America, Inc. ("CJCNA").
2.2 First Amendment to the ArtCarved Purchase Agreement, dated as
of November 21, 1996, among the Company, CJC and CJCNA.
2.3 Letter Agreement amending the ArtCarved Purchase Agreement,
dated December 16, 1996, among the Company, CJC and CJCNA.
2.4 Amended and Restated Asset Purchase Agreement, dated as of
November 21, 1996 ("Balfour Purchase Agreement"), among the
Company, Town & Country Corporation ("T&C"), L.G. Balfour
Company, Inc. ("Balfour"), and Gold Lance, Inc.
2.5 Letter Agreement amending the Balfour Purchase Agreement,
dated December 16, 1996, by and among the Company, T&C,
Balfour and Gold Lance.
3.1 Certificate of Incorporation of the Company, as amended.
3.2 Certificate of Designations, Preferences and Rights of Series
A Preferred Stock of the Company, effective December 13, 1996,
together with a Certificate of Correction thereof.
3.3 Certificate of Designations, Preferences and Rights of Series
B Preferred Stock of the Company, effective December 13, 1996.
3.4 Restated By-Laws of the Company, as amended.
4.1 Indenture, dated as of December 16, 1996, between the Company
and Marine Midland Bank, as trustee (including the form of
Note).
4.2 Form of Note (included as part of Indenture).
4.3 Registration Rights Agreement, dated as of December 16, 1996,
among the Company and Lehman Brothers Inc. and BT Securities
Corporation (the "Initial Purchasers").
5.1 Opinion of Schulte Roth & Zabel LLP as to the legality of the
securities being registered.*
10.1 Revolving Credit, Term Loan and Gold Consignment Agreement,
dated as of December 16, 1996, among the Company, the lending
institutions listed therein and The First National Bank of
Boston and Rhode Island Hospital Trust National Bank, as
Agents for the Banks
10.2 Purchase Agreement, dated December 10, 1996, among the Company
and the Initial Purchasers.
10.3 Employment Agreement, dated as of December 16, 1996, by and
between the Company and Jeffrey H. Brennan.
- - ----------
* To be filed by Amendment.
II-3
<PAGE>
10.4 Employment Agreement, dated as of December 16, 1996, by and
between the Company and Richard H. Fritsche.
10.5 Employment arrangements between the Company and Balfour with
respect to George Agle
12 Computation of Ratios.
21 Subsidiaries of the Company.**
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Schulte Roth & Zabel LLP (included in the opinion
of Schulte Roth & Zabel LLP under Exhibit 5.1).*
24 Powers of Attorney (included in the signature pages of the
Registration Statement).
25 Statement on Form T-1 of Eligibility of Trustee (bound
separately).
27 Financial Data Schedule**
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agency Agreement to be entered into between
the Company and Marine Midland Bank.*
Item 22. Undertakings
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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 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 Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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.
The undersigned registrant hereby undertakes 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
- - ----------
* To be filed by Amendment.
** Not applicable
II-4
<PAGE>
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
hereby has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of New York, State of New
York, on January 30, 1997.
COMMEMORATIVE BRANDS, INC.
By: /s/ Jeffrey H. Brennan
---------------------------------
Name: Jeffrey H. Brennan
Title: President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Jeffrey H. Brennan and Richard H.
Fritsche his or her true and lawful attorney-in-fact and agent with the full
power and substitution, for him in any and all capacities, to sign any and all
amendments (including post-effective amendments) or supplements to this
Registration Statement and to file the same, with all the exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing necessary and
appropriate to be done with respect to this Registration Statement or any
amendments or supplements hereto, including without limitation to make any and
all state securities law or blue sky filings, hereby ratifying and confirming
all that each said attorney-in-fact and agent, or his substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ George E. Agle Chairman of the Board January 30, 1997
- - ------------------------- and Director
George E. Agle
/s/ Jeffrey H. Brennan President, Chief Executive January 30, 1997
- - ------------------------- Officer and Director
Jeffrey H. Brennan
/s/ Richard H. Fritsche Chief Financial Officer January 30, 1997
- - -------------------------
Richard H. Fritsche
/s/ John K. Castle Director January 30, 1997
- - -------------------------
John K. Castle
/s/ William J. Lovejoy Director January 30, 1997
- - -------------------------
William J. Lovejoy
II-6
<PAGE>
/s/ David B. Pittaway Director January 30, 1997
- - -------------------------
David B. Pittaway
/s/ Zane Tankel Director January 30, 1997
- - -------------------------
Zane Tankel
II-7
<PAGE>
Exhibit Index
2.1 Asset Purchase Agreement, dated as of May 20, 1996 ("ArtCarved
Purchase Agreement"), among the Company and CJC Holdings, Inc.
("CJC"), and CJC North America, Inc. ("CJCNA").
2.2 First Amendment to the ArtCarved Purchase Agreement, dated as
of November 21, 1996, among the Company, CJC and CJCNA.
2.3 Letter Agreement amending the ArtCarved Purchase Agreement,
dated December 16, 1996, among the Company, CJC and CJCNA.
2.4 Amended and Restated Asset Purchase Agreement, dated as of
November 21, 1996 ("Balfour Purchase Agreement"), among the
Company, Town & Country Corporation ("T&C"), L.G. Balfour
Company, Inc. ("Balfour"), and Gold Lance, Inc.
2.5 Letter Agreement amending the Balfour Purchase Agreement,
dated December 16, 1996, by and among the Company, T&C,
Balfour and Gold Lance.
3.1 Certificate of Incorporation of the Company, as amended.
3.2 Certificate of Designations, Preferences and Rights of Series
A Preferred Stock of the Company, effective December 13, 1996,
together with a Certificate of Correction thereof.
3.3 Certificate of Designations, Preferences and Rights of Series
B Preferred Stock of the Company, effective December 13, 1996.
3.4 Restated By-Laws of the Company, as amended.
4.1 Indenture, dated as of December 16, 1996, between the Company
and Marine Midland Bank, as trustee (including the form of
Note).
4.2 Form of Note (included as part of Indenture).
4.3 Registration Rights Agreement, dated as of December 16, 1996,
among the Company and Lehman Brothers Inc. and BT Securities
Corporation (the "Initial Purchasers").
5.1 Opinion of Schulte Roth & Zabel LLP as to the legality of the
securities being registered.*
10.1 Revolving Credit, Term Loan and Gold Consignment Agreement,
dated as of December 16, 1996, among the Company, the lending
institutions listed therein and The First National Bank of
Boston and Rhode Island Hospital Trust National Bank, as
Agents for the Banks
10.2 Purchase Agreement, dated December 10, 1996, among the Company
and the Initial Purchasers.
10.3 Employment Agreement, dated as of December 16, 1996, by and
between the Company and Jeffrey H. Brennan.
- - ----------
* To be filed by Amendment.
<PAGE>
Exhibit Index
10.4 Employment Agreement, dated as of December 16, 1996, by and
between the Company and Richard H. Fritsche.
10.5 Employment arrangements between the Company and Balfour with
respect to George Agle
12 Computation of Ratios.
21 Subsidiaries of the Company.**
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Schulte Roth & Zabel LLP (included in the opinion
of Schulte Roth & Zabel LLP under Exhibit 5.1).*
24 Powers of Attorney (included in the signature pages of the
Registration Statement).
25 Statement on Form T-1 of Eligibility of Trustee (bound
separately).
27 Financial Data Schedule**
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agency Agreement to be entered into between
the Company and Marine Midland Bank.*
* To be filed by Amendment
** Not applicable
<PAGE>
ASSET PURCHASE AGREEMENT
by and between
CLASS RINGS, INC.,
as Buyer
and
CJC Holdings, Inc.
and
CJC North America, Inc.,
as Seller
May 20, 1996
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TABLE OF CONTENTS
ARTICLE I
TRANSFER OF ASSETS AND LIABILITIES
1.1 Purchase of Seller's Assets............................... 1
1.2 Assumed Liabilities....................................... 6
1.3 Excluded Liabilities. .................................... 7
1.4 Purchase Price............................................ 7
1.5 Determination of Adjusted Working Capital. ............... 8
1.6 Payment of Adjusted Purchase Price. ...................... 9
1.7 Allocation of Purchase Price. ............................ 10
1.8 Prorations. .............................................. 10
1.9 Escrow. .................................................. 11
ARTICLE II
CLOSING
2.1 The Closing............................................... 12
2.2 Deliveries by Seller...................................... 12
2.3 Deliveries by Buyer....................................... 14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Corporate Organization.................................... 15
3.2 Authorization............................................. 15
3.3 No Violations; No Consents or Approvals Required.......... 16
3.4 Financial Statements...................................... 16
3.5 Absence of Undisclosed Liabilities........................ 17
3.6 Absence of Certain Changes................................ 17
3.7 Title to Properties and Related Matters................... 18
3.8 Intellectual Property..................................... 19
3.9 Litigation................................................ 20
3.10 Compliance with Applicable Law............................ 20
3.11 Brokers and Finders....................................... 20
3.12 Powers of Attorney........................................ 20
3.13 Labor and Employment...................................... 20
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3.14 Employee Benefits......................................... 21
3.15 Asset Maintenance......................................... 21
3.16 Contracts................................................. 22
3.17 Environmental............................................. 22
3.18 Taxes..................................................... 23
3.19 Accounts Payable.......................................... 24
3.20 Customers and Suppliers................................... 24
3.21 Assets Constituting the Business.......................... 24
3.22 Cost Savings Assumptions.................................. 25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Corporate Organization.................................... 25
4.2 Authorization............................................. 25
4.3 No Violations; No Consents or Approvals Required.......... 25
4.4 Brokers and Finders....................................... 26
4.5 Financing................................................. 26
4.6 Litigation Affecting Buyer................................ 26
4.7 Fraudulent Conveyance/Fraudulent Transfer Matters......... 27
4.8 T&C Transaction........................................... 27
ARTICLE V
COVENANTS
5.1 Conduct of the Business Pending the Closing............... 27
5.2 Access to Information..................................... 29
5.3 Reasonable Best Efforts................................... 30
5.4 Public Announcements...................................... 31
5.5 Hart-Scott-Rodino Filing.................................. 32
5.6 Mexican Subsidiary........................................ 32
5.7 Post Closing Confidentiality.............................. 32
5.8 Environmental Assessment.................................. 32
5.9 Update of Schedules....................................... 33
5.10 Taxes..................................................... 35
5.11 Audited Financials........................................ 35
5.12 Noncompetition............................................ 35
5.13 T&C Agreement............................................. 36
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ARTICLE VI
PERSONNEL, EMPLOYMENT ARRANGEMENTS
AND EMPLOYEE BENEFITS
6.1 Personnel................................................. 37
6.2 401(k) Plan............................................... 37
6.3 Other Seller Welfare Benefit Plans........................ 38
6.4 Vacation.................................................. 38
6.5 Payroll Issues............................................ 39
6.6 Workers Adjustment and Retraining Notification Act........ 39
6.7 Cooperation of the Parties................................ 39
6.8 Employee Rights........................................... 39
6.9 Employment Agreements..................................... 39
6.10 Limitations. ............................................. 39
ARTICLE VII
CONDITIONS TO CLOSING
7.1 General Conditions........................................ 40
7.2 Conditions to Obligations of Seller....................... 40
7.3 Conditions to Obligations of Buyer........................ 40
ARTICLE VIII
TERMINATION
8.1 Termination............................................... 42
8.2 Notice of Termination..................................... 43
8.3 Effect of Termination..................................... 43
ARTICLE IX
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
9.1 Survival.................................................. 43
9.2 Indemnification by Seller................................. 43
9.3 Indemnification by Buyer.................................. 43
9.4 Limitation of Liability................................... 44
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9.5 Notice and Right to Defend................................ 44
9.6 Remedies Exclusive........................................ 45
ARTICLE X
MISCELLANEOUS
10.1 Expenses, Taxes........................................... 45
10.2 Further Assurances........................................ 46
10.3 Notices................................................... 46
10.4 Headings.................................................. 47
10.5 Applicable Law............................................ 47
10.6 Assignability............................................. 47
10.7 Counterparts.............................................. 47
10.8 Entire Agreement.......................................... 48
10.9 Severability.............................................. 48
10.10 Bulk Sales Laws........................................... 48
10.11 Amendment................................................. 48
10.12 Waiver.................................................... 48
EXHIBITS
Exhibit "A" - Allocation of Purchase Price
Exhibit "B" - Transition Services Agreement
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SCHEDULES
Schedule 1.1(a)(iii) Contracts
Schedule 1.1(a)(iv) Patents, Trademarks, Tradenames,
Service Marks, Etc.
Schedule 1.1(a)(vi) Real Property
Schedule 1.1(a)(vii) Leases
Schedule 1.1(a)(xiii) Capital Stock of Subsidiaries
Schedule 1.4 Base Working Capital Statement
Schedule 1.4(a) Inventory Valuation
Schedule 3.1(b) Subsidiary Capital Stock Liens
Schedule 3.3 Violations, Consents or Approvals
Schedule 3.4(b) Interim Financials - Non-GAAP Presentations
Schedule 3.4(c) Liabilities and Obligations
Schedule 3.5 Liabilities not Otherwise Disclosed
Schedule 3.6 Absence of Certain Changes
Schedule 3.7 Contested Liens
Schedule 3.8 Intellectual Property
Schedule 3.9 Litigation
Schedule 3.10 Compliance
Schedule 3.12 Powers of Attorney
Schedule 3.13 Labor and Employment
Schedule 3.14 Employment Benefits
Schedule 3.15 Asset Maintenance
Schedule 3.17 Environmental Compliance
Schedule 5.3 Cost of Additional Employees
Schedule 6.4 Vacation Policy
Schedule 6.9 Executives
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INDEX OF DEFINITIONS
Definition Page
----
ABC Contract.......................................................... 3
Accountants........................................................... 9
Adjusted Working Capital.............................................. 8
Agreement............................................................. 1
Assets................................................................ 1
Assumed Liabilities................................................... 6
Assumption Agreement.................................................. 14
Balance Sheet......................................................... 17
Base Working Capital Statement........................................ 8
Basket................................................................ 33
Bridal Business....................................................... 4
Business.............................................................. 1
Buyer................................................................. 1
Buyer Agreements...................................................... 25
Buyer Medical Plans................................................... 38
Buyer Welfare Plan.................................................... 38
Buyer's 401(k) Plan................................................... 37
CJCNA................................................................. 1
Closing............................................................... 12
Closing Date.......................................................... 12
Code.................................................................. 21
Consultation Period................................................... 32
Contracts............................................................. 2
Current Assets........................................................ 8
Current Liabilities................................................... 8
Damages............................................................... 43
Economic Impact....................................................... 33
Employees............................................................. 11
Environmental Claim................................................... 22
Environmental Laws.................................................... 22
Environmental Liabilities............................................. 22
ERISA................................................................. 38
ESA................................................................... 32
Escrow Agreement...................................................... 11
Escrow Amount......................................................... 11
Estimated Working Capital............................................. 8
Excluded Assets....................................................... 3
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Excluded Liabilities.................................................. 7
Final Allocation...................................................... 10
Financial Statements.................................................. 17
Hazardous Materials................................................... 22
HSR Act............................................................... 16
Intellectual Property................................................. 2
Interim Changes....................................................... 10
Lease Agreement....................................................... 13
Lease(s).............................................................. 2
License Agreement..................................................... 12
Liens................................................................. 19
Permits............................................................... 3
Permitted Liens....................................................... 19
Pre-Closing Tax Period................................................ 24
Proposal.............................................................. 36
Purchase Price........................................................ 7
Real Property......................................................... 2
Release............................................................... 23
Relevant Group........................................................ 24
Restricted Area....................................................... 36
Restricted Business................................................... 36
Seller................................................................ 1
Seller Agreements..................................................... 15
Seller Plan........................................................... 21
Seller Welfare Plans.................................................. 38
Statement of Net Working Capital...................................... 8
Stock................................................................. 3
Subsidiaries.......................................................... 15
T&C................................................................... 26
T&C Agreement......................................................... 26
Tax................................................................... 24
Tax Returns........................................................... 24
Transferred Employees................................................. 37
Transition Services Agreement......................................... 13
Vacation Policy....................................................... 38
WARN Act.............................................................. 39
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement, dated as of May 20, 1996 (the "Agreement"),
is by and between CJC Holdings, Inc., a Texas corporation ("Seller"), CJC North
America, Inc., a Delaware corporation and wholly-owned subsidiary of Seller
("CJCNA") and Class Rings, Inc., a Delaware corporation ("Buyer").
Seller is one of the leading manufacturers of commemorative jewelry in the
United States. It manufactures and markets high school and college class rings,
gold and diamond wedding rings and other jewelry products. This Agreement sets
forth the terms and conditions upon which (i) Seller and CJCNA will sell to
Buyer, and Buyer will purchase from Seller and CJCNA, substantially all of the
properties and assets of Seller and CJCNA associated with Seller's Class Ring
Division and substantially all of the rights, claims and contracts constituting
the class ring business of Seller or CJCNA (the "Business"), and (ii) Buyer will
assume certain liabilities of Seller and CJCNA associated with the Business, all
upon the terms and subject to the conditions set forth in this Agreement.
In consideration of the foregoing and the mutual representations,
warranties, covenants and agreements contained herein, intending to be legally
bound hereby, the parties hereto agree as follows:
ARTICLE I
TRANSFER OF ASSETS AND LIABILITIES
1.1 Purchase of Seller's Assets.
(a) Except as provided in Section 1.1(c) below and subject to the
terms and conditions of this Agreement, Seller shall sell, transfer, convey,
assign and deliver to Buyer, or cause, as necessary, CJCNA to sell, transfer,
convey, assign and deliver to Buyer, free and clear of all liens, claims and
encumbrances of any kind other than Permitted Liens (as defined below) and Buyer
shall purchase, acquire, assume and accept from Seller or CJCNA, all of the
following properties, assets, rights, claims and contracts associated with or
used or held by Seller or CJCNA for use in the operation of the Business (the
"Assets"):
(i) all machinery, motor vehicles, equipment, molds, dies and all
other tangible personal property used or held for use in the Business including,
without limitation, all such property constituting the Property, Plant and
Equipment line item
<PAGE>
on the Balance Sheet (as defined below) plus additions or minus deletions
thereto since the date of the Balance Sheet made in the ordinary course of
business;
(ii) all inventories of gold, silver and other raw materials,
supplies, work in process, packaging supplies, samples, finished goods,
consigned or memo goods and other inventories used or held for use in the
Business including all inventory related to the Business reflected on the
Balance Sheet plus additions or minus deletions thereto since the date of the
Balance Sheet made in the ordinary course of the Business;
(iii) all rights in and under contracts (including any non-
competition agreements), leases of personal property, licenses, or other
arrangements, purchase and sale orders and other agreements related to the
ownership or operation of the Business (the "Contracts"), including, but not
limited to, those Contracts listed on Schedule 1.1(a)(iii), subject to any
required consents;
(iv) all trademarks, tradenames, service marks, copyrights,
patents and all registrations and applications for registrations of any of the
foregoing that are related to or used or held for use in the Business, all of
which are specifically identified in Schedule 1.1(a)(iv) hereto and which
include the ArtCarved(R) and Keepsake(R) names and trademarks, and all
inventions, trade secrets, know-how, formula and designs related to the
Business, including the goodwill associated with the foregoing, and all rights
and remedies against any infringement thereof (all of the foregoing referred to
as the "Intellectual Property");
(v) all accounts and notes receivable arising from the operation
of the Business;
(vi) all real property and interests therein owned by Seller, all
of which are identified in Schedule 1.1(a)(vi) hereto, including all buildings,
structures and improvements located thereon, fixtures located therein or
appurtenant thereto and all of Seller's rights arising out of ownership or use
thereof (the "Real Property");
(vii) all of Seller's right and interest in the lease(s) of real
property in connection with the Business as listed on Schedule 1.1(a)(vii)
hereto or as entered into after the date hereof (with Buyer's consent) (the
"Lease(s)");
(viii) all computer equipment and computer programs (to the
extent transferable) and documentation used in the Business;
(ix) all franchises, licenses, permits or other rights granted by
governmental authorities and all certificates of convenience or necessity,
easements,
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consents, grants, rights to emission credits and other rights of every character
whatsoever that are used for the lawful ownership or operation of the Business
(collectively, the "Permits"), to the extent transferable;
(x) all existing plans or designs for jewelry products at any
time used in or produced or designed for use in or currently in process at or
currently planned in connection with the Business;
(xi) all books of account, records, files and invoices used in or
associated with the Business, including but not limited to all production data,
equipment maintenance data, employee files, accounting records, inventory
records, sales and sales promotional data, advertising materials, customer
lists, cost and pricing information, supplier lists, business plans, reference
catalogs, environmental and engineering reports, plans and specifications, and
any other records and data used in connection with the Business;
(xii) all rights under express or implied warranties from
suppliers of the Business (to the extent transferable in accordance with
applicable law) except to the extent related to Excluded Liabilities (as defined
below);
(xiii) all of the capital stock (the "Stock") owned by Seller in
each of the Subsidiaries listed on Schedule 1.1(a)(xiii) hereto other than
CJCNA;
(xiv) cash received by or for account of Seller whether as cash,
check or lock box deposit or otherwise after the Closing Date attributable to
the purchased Assets; and
(xv) all other assets (other than the Excluded Assets, as defined
below) used or usable in the conduct of the Business, including, without
limitation, the goodwill related to the Business.
(b) Subject to the terms and conditions of this Agreement, CJCNA shall
sell, transfer, convey, assign and deliver to Buyer, and Buyer shall purchase,
acquire, assume and accept from CJCNA, subject to any required consent, all
rights in and under that certain contract dated April 5, 1994, between CJCNA and
the American Bowling Congress, Inc. as amended by letter dated October 19, 1995
(the "ABC Contract"). For all purposes of this Agreement, the defined terms
"Contracts" and "Assets" shall include the ABC Contract.
(c) Notwithstanding anything to the contrary in Section 1.1(a), the
Assets shall exclude the following (the "Excluded Assets"):
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(i) cash and cash equivalents (except cash received by or for
account of Seller whether as cash, check or lock box deposit or otherwise after
the Closing Date attributable to the purchased Assets), bank accounts, lock
boxes and other similar accounts and marketable securities;
(ii) any insurance policies relating to the Assets or the
Business including premium adjustments, retrospective rating adjustments and
prepaid insurance premiums;
(iii) all past, present or future claims, choses in action and
rights or actions by Seller or CJCNA against third parties relating to the
Assets or the operations of the Business prior to the Closing Date except to the
extent related to, or arising out of the same circumstances or events as, an
Assumed Liability and relating to Buyer's ability to perform the Assumed
Liabilities or assert a claim of Buyer with respect to Buyer's operation or
ownership of the Business after Closing;
(iv) the Permits and the Contracts to the extent not lawfully
transferable;
(v) all claims for refunds of taxes and other government charges
or assessments arising from or pertaining to periods, activities, operations or
events occurring on or prior to the Closing Date relating to Seller or CJCNA;
(vi) the $1,500,000 on deposit with Bracewell & Patterson,
L.L.P.;
(vii) all of the issued and outstanding capital stock of CJCNA;
(viii) all employment contracts and all other agreements with
directors and/or executive officers of Seller or of any Subsidiary; and
(ix) all assets, properties, rights, claims, contracts and
agreements of Seller relating exclusively to Seller's Bridal Division and
Seller's business of designing, manufacturing and marketing various bridal
jewelry rings ("Bridal Business"), excluding the Keepsake(R) trademark and any
real property listed on Schedule 1.1(a)(vi), but including:
(1) all of the issued and outstanding capital stock of CJC
Heritage, Inc., a Delaware corporation;
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(2) the machinery, fixtures, equipment, and all other
tangible personal property used exclusively in or identified exclusively
with the Bridal Business and all spare or replacement parts for any of the
foregoing equipment;
(3) all inventories of gold, silver, colored stones,
diamonds and other raw materials, supplies, work in process, packaging
supplies, samples, finished goods, consigned or memo goods and other
inventories sold or held exclusively for use in the Bridal Business;
(4) all rights and benefits of the Seller in and under the
contracts (including any non-competition agreements and equipment
maintenance agreements), leases of personal property, licenses, purchase
and sale orders and other agreements related exclusively to the ownership
and operation of the Bridal Business;
(5) those trademarks, tradenames, service marks, copyrights,
copyright applications, patents, patent applications, service mark
applications, trademark applications, inventions, manufacturing techniques,
trade secrets, logos, slogans, proprietary processes and formulae and all
other proprietary, technical and other information and intellectual
proprietary rights, whether patentable or unpatentable, that relate to, or
have been used exclusively in connection with the Bridal Business and are
not expressly included in the Assets;
(6) all accounts and notes receivable arising exclusively
from the operation of the Bridal Business;
(7) all books of account, records, files and invoices which
relate to or are or were used exclusively in the Bridal Business, including
but not limited to all production data, equipment maintenance data,
accounting records, inventory records, sales and sales promotional data,
advertising materials, customer lists, cost and pricing information,
correspondence, supplier lists, business plans, reference catalogs,
computer records, files and programs and any other records and data used
exclusively in the Bridal Business;
(8) all rights under express or implied warranties from
suppliers of the Bridal Business;
(9) all computer hardware and software and documentation
used exclusively in the Bridal Business, including the IBM AS/400
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Model E45 computer (Serial Number 1030452) used in the Bridal Business and
located at 7211 Circle S Road, Austin, Texas;
(10) all existing plans or designs for bridal jewelry rings,
and all styles, drawings, specifications, samples, tools, dies, molds,
models and hubs for such rings which are or have been used exclusively in
connection with the Bridal Business;
(11) the goodwill related to the Bridal Business;
(12) all stationery, purchase orders, forms, invoices,
labels, shipping material, catalogs, brochures, art work, photographs and
advertising materials of Seller which primarily relate to or are used
exclusively in the Bridal Business; and
(13) the gold "put option" issued by Chemical Bank and held
by Texas Commerce Bank, N.A., as a price hedge, the value of which is
carried on the books of the Bridal Division as a miscellaneous deposit.
(d) The title to, possession of and risk of loss, destruction or
damage with respect to the Assets shall pass to Buyer as of the Closing;
provided, however, that this Section 1.1 shall not diminish, limit or otherwise
impair in any manner Buyer's or Seller's rights under the other provisions of
this Agreement or the instruments, agreements, certificates and documents to be
executed and delivered in connection herewith that apportion liability between
the parties with respect to events, occurrences, omissions or other matters
arising or occurring during specific periods.
1.2 Assumed Liabilities.
As partial consideration for consummation of the transactions contemplated
hereby, at the Closing, Buyer shall assume and agree thereafter to perform when
due and discharge, the following debts, obligations and liabilities of Seller
relating to the Business or the Assets and any obligations and liabilities of
CJCNA under the ABC Contract, in each case whether known, unknown, fixed,
contingent, or otherwise (the "Assumed Liabilities"):
(a) the obligations of Seller to honor cash discounts, dating terms
and prepaid orders to the extent reflected in the accounts receivable of the
Business outstanding as of the Closing Date;
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(b) those liabilities, obligations, costs and expenses arising out of
or relating to the operation or ownership of the Assets or the Business by Buyer
or its assignees after the Closing Date or which relate to or arise out of the
performance by Buyer or its assignees of the Contracts, Leases and Permits
(other than Excluded Assets) after the Closing Date to the extent that such
Contracts, Leases and Permits are assigned to Buyer hereunder in compliance with
any required consents of other parties or consents or approvals of governmental
authorities, or to the extent that Buyer is otherwise obtaining equivalent
benefits thereunder, those liabilities, obligations, costs or expenses
specifically related to the benefits received by Buyer but only to the extent
not otherwise incurred or required to be paid by Buyer;
(c) the accounts payable and all other liabilities of Seller included
in the determination of Adjusted Working Capital pursuant to Section 1.5;
(d) the obligations of Seller incurred in the ordinary course of
business as a bailee to hold, store or retain finished goods located at any
facility of the Business for customers who have previously purchased such goods;
(e) the liabilities and obligations of Seller, if any, relating to
Seller's employees, to be assumed by Buyer as provided in Article VI; and
(f) all obligations and responsibilities of Seller for all production
warranties, repairs and customer returns related to the ownership or operation
of the Assets or the Business prior to and after the Closing Date.
1.3 Excluded Liabilities. Seller shall retain all debts, liabilities,
obligations and commitments arising out of or related to (i) the ownership or
operation of the Assets or the Business by Seller on or prior to the Closing
Date (other than the Assumed Liabilities), (ii) all agreements, including all
employment agreements, with directors and/or officers of Seller or of any
Subsidiary, (iii) any insurance policies relating to the Assets or the Business,
and (iv) all other assets and businesses of Seller, whether prior to or after
Closing, including, without limitation, the assets and operations of Seller's
Bridal Division (the foregoing items (i) through (iv) being collectively
referred to as the "Excluded Liabilities").
1.4 Purchase Price. Subject to adjustment in accordance with Section 1.5
and Section 5.9, the purchase price (the "Purchase Price") payable in
consideration for the Assets (in addition to the assumption of the Assumed
Liabilities) shall be an amount equal to the sum of (a) One Hundred Two Million,
Eight Hundred Thousand Dollars ($102,800,000.00) plus (b) the Adjusted Working
Capital. Buyer will pay to Seller at Closing, by wire transfer in immediately
available funds to an account designated by Seller, an amount equal to the sum
of (x) Seller's good faith estimate of the Adjusted Working Capital, which
estimate shall
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be delivered to Buyer not less than one (1) business day prior to the Closing
Date (the "Estimated Working Capital"), plus (y) One Hundred Two Million, Eight
Hundred Thousand Dollars ($102,800,000.00). "Adjusted Working Capital" shall be
defined as Current Assets of the Business less Current Liabilities of the
Business. "Current Assets" shall include only (i) accounts receivable, (ii)
inventory (valued as set forth in Schedule 1.4(a)), (iii) prepaid expenses (but
excluding prepaid insurance) and (iv) monies on deposit with others except those
deposits that constitute Excluded Assets; in the case of each of items (i)
through (iv) above, such items shall be included in "Current Assets" only to the
extent included in those general ledger accounts on the statement of working
capital as of August 26, 1995, set forth on Schedule 1.4 attached hereto (the
"Base Working Capital Statement"). "Current Liabilities" shall include only (i)
accounts payable and (ii) accrued expenses (other than accrued payroll and
payroll taxes) relating only to the Assets or the Business; in the case of each
of items (i) and (ii) above, such items shall be included in "Current
Liabilities" only to the extent included in those general ledger accounts set
forth on the Base Working Capital Statement. In connection with the foregoing, a
physical count shall be taken of Seller's gold and precious stone inventory on
the Closing Date at which Buyer shall have a representative present. Such
physical inventory shall fix the quantity (by weight, quality and carats, as
applicable) of such items in inventory for purposes of determining a value
thereof and which value shall be precisely calculated for inclusion in the
Statement of Net Working Capital in Section 1.5 below.
1.5 Determination of Adjusted Working Capital.
(a) As promptly as practical after the Closing Date, and in any event
no later than forty-five (45) days thereafter, Seller shall prepare and deliver
to Buyer an unaudited statement of working capital with respect to the Business
as of the Closing Date (the "Statement of Net Working Capital"), showing the
Adjusted Working Capital which shall have been prepared by Seller from its books
and records in accordance with generally accepted accounting principles applied
in a manner consistent with the principles used in the preparation of the Base
Working Capital Statement, except for the valuation of inventory, which will be
in accordance with Schedule 1.4(a). In connection with the foregoing, a physical
inventory of the inventory of the Business will be taken on the Closing Date.
Buyer shall be allowed to have a representative present for the taking of
inventory and to observe the procedures for determining the Statement of Net
Working Capital.
(b) After delivery to Buyer of the Statement of Net Working Capital,
Buyer and its representatives shall be afforded the opportunity to review and
inspect all of the financial records, work papers, schedules and other
supporting papers relating to the preparation of the Statement of Net Working
Capital and to consult with Seller and its representatives, if necessary,
regarding the methods used in the preparation of the Statement of Net Working
Capital.
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(c) The Adjusted Working Capital as shown on the Statement of Net
Working Capital prepared by Seller shall be final, conclusive and binding for
purposes of this Agreement, unless Buyer shall give written notice of
disagreement therewith within twenty (20) business days following its receipt of
the Statement of Net Working Capital, specifying in reasonable detail the nature
and extent of such disagreement. Buyer shall not be permitted to give a notice
of disagreement with respect to the Statement of Net Working Capital prepared by
Seller unless the amount in dispute exceeds Fifty Thousand Dollars ($50,000).
(d) If within twenty (20) business days following receipt by Seller of
a notice of the type referred to in subsection (c) above, Seller and Buyer are
unable to resolve any disagreement with respect to the Statement of Net Working
Capital so that the amount still disputed exceeds Fifty Thousand Dollars
($50,000), the disagreement shall be submitted for resolution to the independent
public accounting firm of Price Waterhouse ("Accountants") which shall act as an
arbitrator to determine and resolve only those issues still in dispute. The
Accountants' resolution shall be made within thirty (30) days of the submission
of the dispute, shall be prepared in accordance with this Agreement and in a
manner which is consistent with the principles used in the preparation of the
Balance Sheet, shall be set forth in a written statement delivered to Seller and
Buyer, and shall be final, conclusive and binding on Seller and Buyer.
(e) The fees and expenses of the Accountants in connection with the
resolution referred to in subsection (d) above shall be shared between Seller
and Buyer as follows: each party shall pay such portion of the fees and expenses
equal to the proportion determined by (1) a numerator equal to the positive
difference between such party's submitted amount and the Accountants' determined
amount and (2) a denominator equal to the sum of such positive difference for
both parties. Otherwise, Buyer and Seller shall each pay its own costs incurred
in connection with this Section 1.5, including the fees and expenses of their
respective accountants, if any.
1.6 Payment of Adjusted Purchase Price. Promptly following the final
resolution of the Adjusted Working Capital as provided in Section 1.5, but in no
event later than ten (10) days after such resolution, either:
(a) Buyer shall wire transfer in immediately available funds to Seller
the amount by which the Adjusted Working Capital exceeds the Estimated Working
Capital; or
(b) Seller shall wire transfer to Buyer in immediately available funds
the amount by which the Estimated Working Capital exceeds the Adjusted Working
Capital.
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Any payment required to be made pursuant to this Section 1.6 shall be made
together with interest thereon from the date immediately after the Closing Date
to the date of payment at the rate of interest per annum equal to the prime rate
in effect on the Closing Date as reported in The Wall Street Journal. All wire
transfers hereunder shall be to such accounts as the recipient thereof may
designate in writing for that purpose.
1.7 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets based on their fair market value in accordance with Section
1060 of the Code and the Treasury Regulations thereunder. Buyer shall prepare
such an allocation of the Purchase Price and deliver such allocation to Seller
not later than ten (10) days before the Closing Date (the "Pre-closing
Allocation"), a copy of which shall be attached hereto as Exhibit "A." The
Pre-closing Allocation shall be binding and conclusive (with such changes as may
be necessary to reflect changes in current assets between the date of the
financial statements on which the Pre-closing Allocation was based and the
Closing Date (any such changes, the "Interim Changes")) provided that there is a
reasonable basis for such allocation under Section 1060 of the Code and the
Treasury Regulations thereunder. Buyer shall deliver to Seller within 45 days
after the Closing Date a final allocation of the Purchase Price, which shall
reflect the Pre-closing Allocation revised to include the Interim Changes (the
"Final Allocation"). Seller and Buyer agree to complete IRS Form 8594
consistently with the Final Allocation and to furnish each other with a copy of
such form prepared in draft form not later than 45 days prior to the filing due
date of such form. Neither Seller nor Buyer shall file any Tax Return or take a
position with any taxing authority that is inconsistent with the Final
Allocation.
1.8 Prorations.
(a) Utilities; Taxes. On the Closing Date, or as promptly as
practicable following the Closing Date, but in no event later than sixty (60)
days thereafter, to the extent not included in the calculation of Adjusted
Working Capital, the water, gas, electricity and other utilities, local business
or other license fees or taxes, common area expenses charged under the Leases,
and other similar periodic charges shall be prorated between Buyer and Seller
effective as of 8:00 a.m. on the Closing Date. To the extent practicable, and to
the extent not included in the calculation of Adjusted Working Capital, utility
meter readings for any Leases shall be determined as of the Closing Date.
(b) Property Taxes. Notwithstanding anything herein to the contrary
and except to the extent included in the calculation of Adjusted Working
Capital, any taxes (other than payroll taxes) not measured or measurable, in
whole or in part, by net or gross income or receipts (including, but not limited
to, real or personal property or ad valorem taxes) imposed on the Assets that
relate to a tax period beginning before the Closing Date and ending after the
Closing Date shall be apportioned as of the Closing Date such that Seller
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shall be liable for (and shall reimburse Buyer to the extent that Buyer shall
have paid) that portion of such taxes relating to, or arising in respect to,
periods on or prior to the Closing Date and Buyer shall be liable for (and shall
reimburse Seller to the extent Seller shall have paid) that portion of such
taxes relating to, or arising in respect to, periods after the Closing Date.
Should any amounts to be prorated not have been finally determined on the
Closing Date, a mutually satisfactory estimate of such amounts made on the basis
of Seller's records shall be used as a basis for settlement at Closing, and the
amount finally determined will be prorated as of the Closing Date and
appropriate settlement made as soon as practicable after such final
determination.
(c) Rents. Seller shall prepay rental payments due under the Leases
through the end of the calendar month in which the Closing Date occurs, but to
the extent not included in the calculation of Adjusted Working Capital, Buyer
shall reimburse Seller for such rent attributable to the period from and
including the Closing Date through the end of such month as part of the
post-Closing proration procedure described in subsection (a) above.
(d) Payroll and Payroll Taxes. Seller shall be liable for (and shall
reimburse Buyer to the extent that Buyer shall have paid) that portion of such
payroll expenses and payroll taxes related to Seller's employees employed
primarily in Seller's Class Ring Division, administrative or executive offices
("Employees") for the period prior to the Closing Date and Buyer shall be liable
for (and shall reimburse Seller to the extent Seller shall have paid) that
portion of such payroll expenses and payroll taxes relating to, or arising in
respect to, the period on or after the Closing Date, but only to the extent not
included in the calculation of Adjusted Working Capital. Should any amounts to
be prorated not have been finally determined on the Closing Date, a mutually
satisfactory estimate of such amounts made on the basis of Seller's records
shall be used as a basis for settlement at Closing, and the amount finally
determined will be prorated as of the Closing Date and appropriate settlement
made as soon as practicable after such final determination.
(e) Survey Costs and Title Insurance. The following expenses related
to the transfer of the Real Property pursuant to this Agreement shall be paid
one-half by Buyer and one-half by Seller: (1) survey costs, (2) title insurance
premiums, (3) recording fees, (4) title company escrow fees, (5) miscellaneous
title company charges, and (6) tax statements/certificates.
1.9 Escrow. On the Closing Date, Buyer and Seller shall enter into an
Escrow Agreement in form and substance reasonably satisfactory to Seller and
Buyer ("Escrow Agreement") pursuant to which Seller shall deposit Three Million
Dollars ($3,000,000 ) ("Escrow Amount") with a mutually satisfactory escrow
agent to be chosen by the parties solely for purposes of Seller's
indemnification obligations under Section 9.2(c).
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ARTICLE II
CLOSING
2.1 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at 9:00 a.m., at the offices of
Schulte Roth & Zabel, 900 Third Avenue, New York, New York, on a date mutually
agreed to by the parties within twenty days after all conditions to the Closing
have been satisfied pursuant to Article VII hereof on a day mutually agreed by
the parties hereto, or at such other time, at such other place or on such other
date as the parties hereto may agree ("Closing Date").
2.2 Deliveries by Seller. At the Closing, Seller will deliver or cause to
be delivered to Buyer the following:
(a) a duly executed license agreement ("License Agreement") in form
and substance satisfactory to Buyer and Seller whereby Buyer grants Seller a
worldwide royalty-free license to use the ArtCarved(R) trademark and trade name
in connection with the orderly liquidation of Seller's Bridal Division, which
license shall not be assignable and shall be for a limited life sufficient to
allow for the orderly liquidation of Sellers' Bridal Division;
(b) a duly executed bill of sale, in form and substance satisfactory
to Buyer and Seller;
(c) instruments of assignment and transfer with respect to the
Contracts, Leases and Intellectual Property and, to the extent transferable, the
Permits in form and substance reasonably satisfactory to Buyer;
(d) warranty deeds with respect to the Real Property subject to the
Permitted Liens;
(e) all such other endorsements, assignments and other instruments of
transfer as, in the reasonable opinion of Buyer's counsel, are necessary to vest
in Buyer title to the Assets to be transferred to it pursuant to this Agreement;
(f) duly endorsed title certificates to all motor vehicles included in
the Assets;
(g) an opinion of Bracewell & Patterson, L.L.P., counsel to Seller,
usual and customary for commercial transactions of the type contemplated by this
Agreement and in form and substance reasonably satisfactory to Buyer;
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(h) a certificate, dated as of the Closing Date, of an authorized
officer of Seller certifying as to the matters specified in Section 7.3(a);
(i) a duly executed Transition Services Agreement substantially in the
form attached as Exhibit "B" hereto ("Transition Services Agreement") whereby
Buyer agrees for a monthly fee to perform certain administrative and management
services for Seller's Bridal Division;
(j) such lien releases and UCC-3 termination statements necessary to
evidence the release of all liens on the Assets other than Permitted Liens;
(k) copies of all third party and governmental consents received by
Seller in connection with the transfer of the Assets;
(l) a duly executed certificate of non-foreign status consistent with
Section 1.1445-2(b)(2)(iii)(B) of the United States Treasury Regulations;
(m) to the extent that Buyer's offers of employment pursuant to
Section 6.9 below are accepted, termination agreements relating to Seller's
employment agreements with Seller's executives identified in Schedule 6.9
hereto;
(n) a duly executed Escrow Agreement;
(o) an owners title insurance policy with respect to each parcel of
the Real Property, together with a mortgagee title insurance policy with respect
to the Real Property both reasonably satisfactory to Buyer;
(p) landlord consent and estoppel certificates, in form and substance
satisfactory to Buyer, with respect to each of the Leases;
(q) copies of the Leases, certified by Seller to be true, correct and
complete;
(r) a duly executed lease agreement, in form and substance reasonably
satisfactory to Seller and Buyer ("Lease Agreement"), pursuant to which Buyer
will lease to Seller the building in which the Bridal Business is located, with
a monthly rental equal to $100 per month plus utilities and insurance costs
relating to the building and a limited term corresponding to the liquidation of
the Bridal Business, but in no event later than December 31, 1996.
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2.3 Deliveries by Buyer. At the Closing, Buyer will deliver or cause to be
delivered to Seller the following:
(a) immediately available funds in the amount of $102,800,000.00 plus
the Estimated Working Capital plus any amounts payable by Buyer in accordance
with Sections 1.8(a) and 1.8(b) less any amounts payable by Seller in accordance
with Section 1.8(a) and 1.8(b), less any adjustment pursuant to Section 5.9 and
less the Escrow Amount to be deposited with the escrow agent pursuant to the
Escrow Agreement;
(b) a duly executed Assumption Agreement in form and substance
satisfactory to Buyer and Seller (the "Assumption Agreement") and such other
good and sufficient instruments of assumption as shall be reasonably necessary
to vest in Buyer as of the Closing the Assumed Liabilities;
(c) an opinion of Schulte Roth & Zabel, counsel to Buyer, usual and
customary for transactions of the type contemplated by this Agreement and in
form and substance reasonably satisfactory to Seller;
(d) a certificate, dated as of the Closing Date, of an authorized
officer of Buyer certifying as to the matters specified in Section 7.2(a);
(e) a duly executed License Agreement;
(f) a duly executed Transitional Services Agreement;
(g) a duly executed Escrow Agreement and the deposit of the Escrow
Amount with the Escrow Agent, as defined in the Escrow Agreement; and
(h) a duly executed Lease Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and CJCNA, jointly and severally, hereby represent and warrant to
Buyer as follows:
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3.1 Corporate Organization.
(a) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas and is duly qualified or
licensed as a foreign corporation authorized to do business in each jurisdiction
in which the character of the properties and assets now owned or held by it or
the nature of the business now conducted by it requires it to be so licensed or
qualified and where the failure to be so licensed or qualified would have a
material adverse effect on the Business. Seller has full corporate power and
authority to carry on the Business as now being conducted.
(b) Schedule 1.1(a)(xiii) sets forth a complete and accurate list of
all subsidiaries of Seller which hold assets or are engaged in the Business (the
"Subsidiaries" or separately a "Subsidiary"). Each of the Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the respective state or country in which it was incorporated as indicated on
Schedule 1.1(a)(xiii) and is duly qualified or licensed as a foreign corporation
authorized to do business in each jurisdiction in which the character of the
properties and assets now owned or held by it or the nature of the business now
conducted by it requires it to be so licensed or qualified and where the failure
to be so licensed or qualified would have a material adverse effect on the
Business. Each Subsidiary has full corporate power and authority to carry on the
Business as now being conducted. The authorized capital stock of each of the
Subsidiaries is as stated in Schedule 1.1(a)(xiii), all of which shares have
been duly authorized and validly issued and are fully paid and nonassessable.
The capital stock of each Subsidiary is owned beneficially and of record by
Seller, free and clear of all security interests, liens, charges, encumbrances
and rights of others except as set forth in Schedule 3.1(b) hereto. There are no
outstanding subscriptions, options, convertible securities, warrants, calls or
rights of any kind (issued or granted by, or binding upon, the Seller or the
Subsidiary) to purchase or otherwise acquire any assets or security of, or
equity interest in, any Subsidiary the majority of the capital stock of which is
owned by Seller. Except as set forth in Schedule 3.1(b) hereto, Seller has full
legal right, power and authority to sell, assign and transfer the Stock to Buyer
and will, upon delivery of the Stock to Buyer pursuant to the terms hereof,
transfer to the Buyer good and valid title to the Stock free and clear of all
liens, security interests, claims, charges, encumbrances, rights, options to
purchase, voting trusts or other voting agreements and calls and commitments of
every kind affecting the Stock.
3.2 Authorization. Seller and CJCNA have full corporate power and authority
to execute, deliver and perform this Agreement and, to the extent they are
parties thereto, the documents to be delivered by them at the Closing pursuant
to Section 2.2 (collectively, the "Seller Agreements") and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Seller Agreements by Seller and CJCNA and the consummation by
Seller and CJCNA of the transactions contemplated
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hereby and thereby have been duly authorized by all necessary corporate action
and no other corporate action or proceeding on the part of Seller and CJCNA is
necessary to authorize the execution and delivery by Seller and CJCNA of this
Agreement or the Seller Agreements or the consummation by Seller and CJCNA of
the transactions contemplated hereby or thereby or the performance of Seller's
obligations and CJCNA's obligations hereunder and thereunder. This Agreement has
been, and the Seller Agreements on the Closing Date will be, duly executed and
delivered by Seller and CJCNA and this Agreement is, and on the Closing Date
this Agreement and each of the Seller Agreements will be, legal, valid and
binding obligations of Seller and CJCNA, enforceable against them, as
applicable, in accordance with their terms, subject to applicable laws affecting
creditors' rights generally and, as to enforcement, to general principles of
equity, regardless of whether applied in a proceeding at law or in equity.
3.3 No Violations; No Consents or Approvals Required. Except as set forth
in Schedule 3.3, neither the execution and delivery of this Agreement or the
Seller Agreements nor the consummation of the transactions contemplated hereby
or thereby will (a) conflict with or violate any provision of the Articles of
Incorporation or By-Laws of Seller or CJCNA or any other Subsidiary, (b)
conflict with or violate any law, rule, regulation, ordinance, order, writ,
injunction, judgment or decree applicable to the Business or by which any of the
Assets are bound or affected or (c) conflict with or result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination or
cancellation of, or accelerate the performance required by or maturity of, or
result in the creation of any security interest, lien, charge or encumbrance on
any of the Assets pursuant to any of the terms, conditions or provisions of, any
note, bond, mortgage, indenture, permit, license, franchise, lease, contract, or
other instrument or obligation to which Seller or CJCNA or any other Subsidiary
is a party except, in the case of (b) and (c) above, for such conflicts,
violations, breaches, defaults, terminations, cancellations and accelerations
which in the aggregate will not have a material adverse effect on the Business.
Except for applicable requirements, if any, of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), or as set forth in
Schedule 3.3, no notice, declaration, report or other filing or registration
with, and no waiver, consent, approval or authorization of, any governmental or
regulatory authority or instrumentality or any other person is required to be
submitted, made or obtained by Seller or CJCNA in connection with the execution,
delivery or performance of this Agreement or the Seller Agreements and the
consummation of the transactions contemplated hereby or thereby.
3.4 Financial Statements.
(a) Seller has previously delivered to Buyer audited balance sheet
data of Seller as of the end of each of the fiscal periods ended August 31,
1990, August 31, 1991,
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August 31, 1992, August 31, 1993, August 27, 1994 and August 26, 1995, and
audited related income statement data for the respective fiscal periods then
ended.
(b) Seller has delivered to Buyer (i) the unaudited balance sheet data
and unaudited related income statement data of the Business for the fiscal
periods ended August 31, 1991, August 31, 1992, August 31, 1993, August 27, 1994
and August 26, 1995, and (ii) certain unaudited interim monthly reports on the
Business and financial statements of the Seller through February 24, 1996
(together with the financial statements described in Section 3.4(a) hereof
referred to as the "Financial Statements;" and the unaudited balance sheet of
the Business for the fiscal period ended August 26, 1995, is hereinafter
referred to as the "Balance Sheet"). The Financial Statements fairly present the
financial position of the Seller or the Business, as the case may be, as of the
respective dates set forth therein and the results of operations of the Seller
or the Business, as the case may be, for the respective periods or as of the
respective dates set forth therein, in each case in conformity with general ly
accepted accounting principles applied on a consistent basis throughout the
periods involved, except as otherwise noted therein, and subject (in the case of
interim financial statements referred to above) to normal year end audit
adjustments none of which will be material and except as otherwise noted in
Schedule 3.4(b). Upon delivery, the audited and reviewed financial statements
referenced in Section 5.11 shall not differ in any material respect from the
unaudited and unreviewed financial statements referenced in clauses (b)(i) and
(b)(ii) above.
(c) Except as set forth in Schedule 3.4(c) and except for liabilities
or obligations incurred in the ordinary course of business and consistent with
past practice, since the date of the Balance Sheet to the date of this
Agreement, the Business has not incurred any liabilities or obligations (whether
accrued, absolute, contingent or otherwise) which have not been discharged prior
to the date of this Agreement and which (i) are in excess of $100,000
individually or (ii) when taken together with all other such liabilities and
obligations are in excess of $300,000 in the aggregate.
3.5 Absence of Undisclosed Liabilities. There are no material liabilities
or obligations of the Business (whether absolute or contingent) except for
liabilities and obligations (i) reflected or adequately reserved for on the
Balance Sheet, (ii) that have arisen since the date of the Balance Sheet in the
ordinary course of business for the purchase and sale of supplies, inventory and
advertising consistent with past practice or (iii) as expressly set forth in
Schedule 3.5 hereto.
3.6 Absence of Certain Changes. Since the date of the Balance Sheet, the
Business has been conducted only in the ordinary course, consistent with past
practice. Except as set forth in Schedule 3.6, since the date of the Balance
Sheet there has not been (a) any material adverse change in the condition
(financial or otherwise), properties, assets,
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business, prospects, or results of operations of the Business, (b) any material
damage, destruction or other casualty loss to, or actual or threatened
forfeiture or taking of, any Assets or any property used in the Business
(whether or not covered by insurance), (c) any waiver or modification by Seller
or any of its Subsidiaries of any right or rights of substantial value, or any
payment (direct or indirect) in satisfaction of any liability, which could,
individually or in the aggregate, have a material adverse effect on the
Business, (d) any change in the accounting principles, methods, practices or
procedures followed by Seller or any of its Subsidiaries in connection with the
Business or any change in the depreciation or amortization policies or rates
theretofore adopted by Seller or any of its Subsidiaries in connection with the
Business, (e) any sale, transfer, conveyance of any Asset, or grant to any party
of any license, sublicense, franchise or option or other right of any nature to
sell or distribute the Assets, other than sales of inventory and immaterial or
obsolete Assets in the ordinary course of business consistent with past
practices, (f) any increase in the rate of compensation or in the benefits
payable or to become payable by Seller or any of its Subsidiaries to any
employee or officer of the Business inconsistent with Seller's past practices,
(g) any declaration, setting aside or payment of any dividends, or other
distributions in respect of the outstanding shares of capital stock of Seller or
any of its Subsidiaries or any intracompany loans, advances or guarantees, (h)
any strikes, work stoppages, slowdowns, lockouts, arbitrations or any grievances
or other labor disputes pending or, to Seller's best knowledge, threatened
against or involving Seller or any of its Subsidiaries, having a material
adverse effect on the Business, (i) any unfair labor practice charges,
grievances or complaints pending or, to Seller's best knowledge, threatened by
or on behalf of any employee or group of employees of the Business, (j) any
organizing activity involving Seller or any of its Subsidiaries or, to Seller's
best knowledge, threatened by any labor organization or group of employees of
the Business, (k) any pending or, to Seller's best knowledge, threatened dispute
with any customer or supplier or any occurrence or situation or other event
which, either alone or taken together with all such other events, is reasonably
likely to result in any material reduction in amount of products purchased or
sold or adverse change in terms or conditions of doing business with any
substantial customer or supplier of the Business, or (l) any change to any
business policy which change could be material to the Business, including,
without limitation, advertising, marketing, pricing, purchasing, personnel,
return or product acquisition policies.
3.7 Title to Properties and Related Matters. (a) Except for liens and
encumbrances which shall be removed at Closing, each of Seller and its
Subsidiaries have, and upon consummation of the transactions contemplated by
this Agreement, Buyer will acquire, good and indefeasible title to the Real
Property and the other Assets owned by each of Seller and its Subsidiaries and
Buyer will become the legal and beneficial owner of the Real Property and the
other Assets, free and clear of all mortgages, pledges, liens, security
interests, conditional sales agreements, tenancies (except for the tenancy of
Seller or any of its Subsidiaries, as applicable, under any of the Leases and
the Lease Agreement), rights of
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occupancy of third parties, encumbrances or charges of any kind ("Liens"),
except for (x) Liens created by Buyer, and (y) "Permitted Liens", which shall
mean (i) Liens for taxes not yet due and payable or which are being contested in
good faith through appropriate proceedings, which liens being contested, if any,
are described in Schedule 3.7 hereto, (ii) title exceptions set forth in the
title policies purchased in connection with the transactions contemplated hereby
affecting the Real Property that do not materially adversely affect the
marketability or insurability of title to the property affected or materially
detract from the value of or materially interfere with the present use of the
property affected, and (iii) Liens, if any, related to the Assumed Liabilities
including Liens of lessors under equipment leases to be assumed by Buyer. The
Real Property and the Leases constitute all owned or leased real property,
respectively, used or held for use in connection with the Business. Except as
expressly set forth in this Agreement and the other Seller Agreements, Seller
and CJCNA expressly disclaim any other representation and warranty of any kind
or nature, express or implied, as to the condition, value or quality of the
Assets and SPECIFICALLY DISCLAIM ANY REPRESENTATION OR WARRANTY OF
MERCHANTABILITY, USAGE OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO ANY
OF THE ASSETS. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE OTHER
SELLER AGREEMENTS, THE ASSETS SHALL BE TRANSFERRED TO BUYER "AS IS" AND "WHERE
IS."
(b) (i) there are no outstanding options, contracts or rights of first
refusal to purchase Seller's or any of its Subsidiaries' interest in any parcel
of or interest in Real Property or any portion thereof or interest therein; (ii)
to the knowledge of Seller, there are no condemnation proceedings or eminent
domain proceedings of any kind pending or threatened against any parcel of or
interest in the Real Property or any portion thereof; (iii) to the extent
required by law, each of Seller and its Subsidiaries have all permits, including
a certificate of occupancy, necessary for the use and/or operation of each
parcel of or interest in the Real Property, (iv) to the knowledge of the Seller,
there is no proposed change in road patterns or grades which may adversely
affect access to roads providing a means of ingress or egress to or from the
Real Property and (v) to Seller's knowledge, there are no special assessments
pending with respect to the Real Property.
(c) Schedule 1.1(a)(vii) contains an accurate and complete list of all
Leases to which Seller or any of its Subsidiaries is a party (as lessee or
lessor) and which relate to the Business. Each Lease is in full force and effect
and there is no existing default under any such Lease on the part of Seller or
any of its Subsidiaries.
3.8 Intellectual Property. Except as set forth in Schedule 3.8, (a) each of
Seller and its Subsidiaries are the sole and exclusive owner of all rights to
the Intellectual Property, the same are fully assignable and Seller and its
Subsidiaries have the right to use the same without the payment of any license,
fee, royalty or similar charge, (b) there is no material
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claim of any other person, firm or corporation or any proceeding pending or, to
Seller's best knowledge, threatened which relates to any of the Intellectual
Property, (c) the Intellectual Property identified in Schedule 3.8 constitutes
all intellectual property used in or necessary for the operation of the Business
and the Intellectual Property does not infringe on the rights of any other
person, (d) neither Seller nor any of its Subsidiaries have granted any license
or sublicense with respect to any Intellectual Property, and (e) to the best
knowledge of Seller, no person or entity is infringing on Seller's or any of its
Subsidiaries' rights to any Intellectual Property.
3.9 Litigation. Except as set forth in Schedule 3.9, there are no claims,
actions, suits, proceedings or investigations by or before any court or
governmental or other regulatory or administrative agency, instrumentality or
authority pending or, to Seller's best knowledge, threatened by or against or
affecting the Business. None of the items set forth on Schedule 3.9, if
adversely determined against Seller or any of its Subsidiaries, are reasonably
expected to have a material adverse effect on the Business after the Closing
Date. There is no claim, action, proceeding or investigation pending or, to the
best knowledge of Seller, threatened, nor is there outstanding any writ, order,
decree or injunction that (a) calls into question Seller's or CJCNA's authority
or right to enter into this Agreement or the Seller Agreements and consummate
the transactions contemplated hereby or thereby, or (b) would otherwise prevent
or delay the transactions contemplated by this Agreement or the Seller
Agreements.
3.10 Compliance with Applicable Law. Except as set forth in Schedule 3.10,
the Seller and its Subsidiaries and the Business are complying in all respects
with all applicable laws, rules, regulations, orders, ordinances, judgments or
decrees of all governmental authorities (federal, state, local or foreign),
except for such failure to comply which in the aggregate could not reasonably be
likely to have a material adverse effect on the Business.
3.11 Brokers and Finders. Other than fees payable by Seller to Goldman,
Sachs & Co. and to Gordian Group, L.P., which fees are to be paid by Seller,
neither Seller nor any of its officers, directors or employees or Subsidiaries,
has incurred any liability for any brokerage fees, commissions, finders' fees or
similar fees or expenses in connection with the sale of the Business or any
transaction contemplated by this Agreement.
3.12 Powers of Attorney. Except as set forth in Schedule 3.12, there is not
currently existing any power of attorney of any type given by Seller or any of
its Subsidiaries and pertaining to the Assets or the Business.
3.13 Labor and Employment. Except as set forth in Schedule 3.13, (a)
neither Seller nor any of its Subsidiaries are party to or subject to any
collective bargaining or other
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agreement with a labor union or similar organization, contingent or otherwise
and (b) there is no written employment or consulting agreement that will remain
in effect after the Closing, which pertains to the Business. Except as described
in Schedule 3.13, there are no controversies, labor disturbances, investigations
or proceedings pending or, to Seller's best knowledge, threatened, between
Seller or any of its Subsidiaries and any of their respective Employees. Seller
and its Subsidiaries have complied in all material respects with all laws and
regulations relating to the employment of labor, including without limitation,
the Occupational Safety and Health Act, all laws and regulations relating to
wages, hours, and collection and payment of social security and withholding
taxes, or both, and similar taxes in respect of the Business. Except as set
forth in Schedule 3.13, there is no unfair labor practice charge or complaint
against Seller or the Business pending against or with the National Labor
Relations Board or any other governmental agency arising out of the activities
or operations of the Business. Neither Seller nor any of its Subsidiaries are
liable for any arrearages of wages or any taxes or penalties for failure to
comply with any of the foregoing. To Seller's best knowledge, there are no
organizational efforts presently being made or threatened by or on behalf of any
labor union, with respect to the Employees. The Business has not experienced a
work stoppage or other material labor disturbance within the past three years.
Neither Seller nor any of its Subsidiaries have incurred any liability under the
Worker Adjustment and Retraining Notification Act or similar state law.
3.14 Employee Benefits. Except for those plans, arrangements or agreements
listed on Schedule 3.14 (each a "Seller Plan"), Seller does not nor does any
other organization which is a member of a controlled group of organizations
within the meaning of Sections 414(b), (c), (m) or (o) of the Internal Revenue
Code of 1986, as amended (the "Code"), of which Seller or any of its
Subsidiaries is a member, have any obligation, contingent or otherwise, covering
any employees of the Business under any employment or consulting agreement or
under any executive or employee's compensation plan, agreement or arrangement
including, without limitation, any pension, retirement, profit sharing, stock
option, stock purchase, bonus, savings plan, or any ERISA (as defined below)
plans of Seller or any of its Subsidiaries. There are no liabilities, breaches,
violations, or defaults under any Seller Plan which is an "employee benefit
plan" under Section 3(3) of ERISA which would subject Buyer to any taxes,
penalties or other liabilities. With respect to Employees, except as set forth
in Schedule 3.14, there are no written and filed claims or grievances
outstanding against Seller under any Seller Welfare Plan other than in the
normal course of business.
3.15 Asset Maintenance. Except as set forth in Schedule 3.15, the Assets
have been properly maintained and are (a) in satisfactory operating condition
(except for ordinary wear and tear which would not have a material adverse
effect on the Assets taken as a whole) and (b) are capable of being used in the
Business without present need for repair or replacement except in the ordinary
course of business.
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3.16 Contracts. The Contracts include all the contracts, personal property
leases, agreements, undertakings and commitments related to or constituting any
of the Assets or operations of the Business. Neither Seller nor any of its
Subsidiaries are in default under, nor does any event, circumstance or situation
exist which, with or without the passage of time will cause a default under any
material lease, contract or agreement, undertaking, commitment, judgment, order
or decree of any court or any government agency or instru mentality relating to
or constituting any of the Assets or the Business under which any person, firm,
corporation or other entity is or may be entitled to assert any rights against
any of the Assets or the Business or to terminate any such Contract.
3.17 Environmental.
(a) For purposes of this Section 3.17, the following definitions shall
apply:
"Environmental Claim" refers to any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgement, letter or other communication from any
governmental agency, department, bureau, office or other authority, or any third
party involving violations of Environmental Laws or Releases of Hazardous
Materials.
"Environmental Laws" includes the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq., as amended;
the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq., as amended;
the Clean Air Act, 42 U.S.C. 7401 et seq., as amended; the Clean Water Act, 33
U.S.C. 1251 et seq., as amended; and any other federal, state, local or
municipal laws, statutes, regulations, rules or ordinances imposing liability or
establishing standards of conduct for protection of the environment.
"Environmental Liabilities" means any monetary obligations, losses,
liabilities (including strict liability), damages, punitive damages,
consequential damages, treble damages, costs and expenses (including all
reasonable out-of-pocket fees, disbursements and expenses of counsel,
out-of-pocket expert and consulting fees and out-of-pocket costs for
environmental site assessments, remedial investigation and feasibility studies,
and removal or remedial actions), fines, penalties, sanctions and interest
incurred as a result of any Environmental Claim.
"Hazardous Materials" shall include (a) any element, compound, or
chemical that is defined, listed or otherwise classified as a contaminant,
pollutant, toxic pollutant, toxic or hazardous substance, extremely hazardous
substance or chemical, hazardous waste, special waste, or solid waste under
Environmental Laws; (b) petroleum or
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petroleum-derived products; (c) polychlorinated biphenyls; (d) any substance
exhibiting a hazardous waste characteristic including but not limited to
corrosivity, ignitability, toxicity or reactivity as well as any radioactive or
explosive materials; and (e) any asbestos- containing materials.
"Release" means any spilling, leaking, pumping, emitting, emptying,
discharging, injecting, escaping, leaching, migrating, dumping, or disposing of
Hazardous Materials (including the abandonment or discarding of barrels,
containers or other closed receptacles containing Hazardous Materials) into the
environment.
(b) Except as set forth in Schedule 3.17, (i) the operations of the
Business are in compliance with Environmental Laws except where non-compliance
is not reasonably likely to result in Environmental Liabilities that have a
material adverse effect on the Business or Assets; (ii) there has been no
reportable Release (1) at any of the properties owned or operated by the
Business or, to the best knowledge of Seller, a predecessor in interest, or (2)
at any disposal or treatment facility which received Hazardous Materials
generated by the Business or any predecessor in interest which is reasonably
likely to result in Environmental Liabilities that have a material adverse
effect on the Business; (iii) no Environmental Claims have been asserted against
the Business or, to the best knowledge of the Seller, any predecessor in
interest, nor, to the best knowledge of the Seller, are there any threatened or
pending Environmental Claims against the Business or any predecessor in interest
which are reasonably likely to result in Environmental Liabilities that would
have a material adverse effect on the Business, and (iv) to the best knowledge
of Seller (without any special investigation or inquiries made with respect
thereto), no Environmental Claims have been asserted against any disposal or
treatment facility which received Hazardous Materials generated by the Business
or any predecessor in interest.
3.18 Taxes. (a) Neither Seller, any Subsidiary nor any member of a Relevant
Group has failed to file any Tax Return required to be filed, which failure
could result in the imposition of any Lien on or against the Assets, the
Business or Buyer or in any liability to Buyer, as transferee or otherwise. All
Taxes imposed on Seller, any Subsidiary or any member of a Relevant Group the
non-payment of which could result in a Lien on or against the Assets, the
Business or Buyer or in any liability to Buyer, as transferee or otherwise, have
been or will prior to the Closing Date be paid. All deposits required to be made
by Seller, any Subsidiary or any member of a Relevant Group in respect of any
Tax, including, without limitation, withholding taxes, have been or will be made
in a timely fashion. There are no Tax deficiencies or claims asserted against
Seller, any Subsidiary or any member of a Relevant Group and there is no basis
for any such deficiency or claim which could result in the imposition of any
Lien on the Assets, the Business or Buyer or in any liability to Buyer, as
transferee or otherwise. Neither Seller nor any Subsidiary is a party to any Tax
allocation
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or sharing agreement or understanding that would require any payment by Buyer,
any Subsidiary or any affiliate thereof after the Closing Date.
(b) For purposes of this Agreement:
"Pre-Closing Tax Period" shall mean all taxable periods ending on
or before the Closing Date and the portion ending on the Closing Date of any
taxable period that includes (but does not end on) the Closing Date.
"Relevant Group" means any combined, consolidated, affiliated,
unitary or similar group of which Seller or any subsidiary of Seller is or was a
member.
"Tax" or "Taxes" means all U.S. (federal, state and local) and
foreign net or gross income, gross receipts, net proceeds, estimated, sales,
use, ad valorem, value added, franchise, withholding, payroll, employment,
excise, property, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Tax Returns" means any returns, reports or statements (including
any information returns and estimated tax returns) required to be filed for
purposes of a particular Tax.
3.19 Accounts Payable. All accounts payable reflected in the Balance Sheet
and to be reflected in the Statement of Net Working Capital have been or will
have been incurred on or prior to the Closing Date in the ordinary course of
business and all payment terms are consistent with past practices.
3.20 Customers and Suppliers. Seller's relations with the 25 largest
customers and suppliers of the Business are satisfactory and, to the best
knowledge of Seller's executive officers, there is no reason why any such
customer or supplier would cease to do business with Buyer after, or as a result
of, the consummation of the transactions contemplated by this Agreement. The
customer lists last provided to Buyer are true, complete and correct in all
material respects.
3.21 Assets Constituting the Business. The Assets to be transferred to
Buyer pursuant to the Agreement comprise all of the assets, properties, rights
and businesses employed by Seller in, or which are necessary for, the conduct of
the Business and the sale of the Assets to Buyer pursuant to this Agreement will
effectively convey the Business in accordance with the terms of this Agreement
to Buyer, including all tangible and intangible assets and the goodwill relating
thereto.
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3.22 Cost Savings Assumptions. Seller has delivered to Buyer good faith
estimates of the cost savings of the combination of the Seller's and T&C's
respective businesses after the Closing Date prepared jointly by Seller and T&C.
All such projections and the assumptions on which such projections are based, to
the extent prepared by Seller and relating to the Business, have been prepared
by Seller in good faith, based upon information derived from the books and
records of the Business and prepared consistently with the financial statements
of the Business, as consistently prepared. Seller believes such projections and
assumptions, to the extent prepared by Seller and relating to the Business, are
reasonable. However, such projections and assumptions do not constitute a
guarantee, representation or warranty about future performance or results of
operations of the Business.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
4.1 Corporate Organization. Buyer is a Delaware corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
4.2 Authorization. Buyer has full corporate power and authority to execute
and deliver this Agreement and the documents to be executed and delivered by it
at the Closing pursuant to Section 2.3 (collectively, the "Buyer Agreements")
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Buyer Agreements by Buyer and
the consummation by Buyer of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action and no other
corporate action or proceeding on the part of Buyer is necessary to authorize
the execution and delivery by Buyer of this Agreement or the Buyer Agreements or
the consummation by Buyer of the transactions contemplated hereby or there by.
This Agreement has been, and the Buyer Agreements on the Closing Date will be,
duly executed and delivered by Buyer and this Agreement is, and on the Closing
Date each of the Buyer Agreements will be, legal, valid and binding obligations
of Buyer, enforceable against Buyer in accordance with their terms, subject to
applicable laws affecting creditors' rights generally and, as to enforcement, to
general principles of equity, regardless of whether applied in a proceeding at
law or in equity.
4.3 No Violations; No Consents or Approvals Required. Neither the execution
and delivery of this Agreement or the Buyer Agreements nor the consummation of
the trans actions contemplated hereby or thereby will (a) conflict with or
violate any provision of the Certificate of Incorporation or By-Laws of Buyer,
(b) conflict with or violate any law, rule,
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regulation, ordinance, order, writ, injunction, judgment or decree applicable to
Buyer or by which any of its properties or assets are bound or affected or (c)
conflict with or result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination or cancellation of, or accelerate the
performance required by or maturity of, or result in the creation of, any
security interest, lien, charge or encumbrance on any of its assets or
properties pursuant to any of the terms, conditions or provisions of, any note,
bond, mortgage, indenture, permit, license, franchise agreement, lease,
contract, or other instrument or obligation to which Buyer is a party or by
which Buyer or any of its properties or assets is bound or affected, except, in
the case of (b) and (c) above, for such conflicts, violations, breaches,
defaults, terminations, cancellations and accelerations which in the aggregate
will not have a material adverse effect on the ability of Buyer to consummate
the transactions contemplated by this Agreement and the Buyer Agreements. Except
for applicable requirements, if any, of the HSR Act, no notice, declaration,
report or other filing or registration with, and no waiver, consent, approval or
authorization of, any governmental or regulatory authority or instrumentality or
any other person is required to be submitted, made or obtained by Buyer in
connection with the execution, delivery or performance of this Agreement or the
Buyer Agreements and the consummation of the transactions contemplated hereby or
thereby.
4.4 Brokers and Finders. Neither Buyer nor its officers, directors or
employees has incurred any liability for any brokerage fees, commissions,
finders' fees or similar fees or expenses for which Seller may be liable in
connection with the purchase of the Business or any transaction contemplated by
this Agreement.
4.5 Financing. Buyer has received (a) a commitment letter from a commercial
bank with respect to the provision of bank financing for Buyer, (b) a "highly
confident" letter from an investment banking firm with respect to the provision
of subordinated debt to Buyer, and (c) a letter from Castle Harlan Partners II,
L.P. relating to a capital contribution to be made to Buyer, with respect to the
provision of funds to Buyer to fund the transactions contemplated by this
Agreement and the purchase of certain assets of Town & Country Corporation
("T&C") pursuant to an agreement dated as of May __, 1996 (the "T&C Agreement"),
among Buyer, T&C, L. G. Balfour Company, Inc. and Gold Lance, Inc. Buyer has
delivered to Seller copies of the foregoing letters.
4.6 Litigation Affecting Buyer. There is no claim, action, proceeding or
investigation pending or, to the best knowledge of Buyer, threatened, nor is
there outstanding any writ, order, decree or injunction that (a) calls into
question Buyer's authority or right to enter into this Agreement or the Buyer
Agreements and consummate the transactions contemplated hereby or thereby, or
(b) would otherwise prevent or delay the transactions contemplated by this
Agreement or the Buyer Agreements.
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4.7 Fraudulent Conveyance/Fraudulent Transfer Matters. After giving effect
to any and all financing to be entered into or incurred by Buyer in connection
with its consummation of the transactions contemplated hereby, Buyer will not be
as of the Closing Date (a) "insolvent" nor will it become "insolvent" as a
result of such transactions, (b) engaged in a business or transaction for which
any property or assets remaining with Buyer would be "unreasonably little" or
"unreasonably small in relation to its business" or the transaction, or (c) in a
position where it "intends to incur, or believes that [it] would incur, debts
that would be beyond its ability to pay as such debts mature," in each case as
such quoted terms are used in Section 548 of the United States Bankruptcy Code
of 1978, as amended, the Uniform Fraudulent Conveyances Act and the Uniform
Fraudulent Transfer Act.
4.8 T&C Transaction. Buyer has delivered to Seller an executed copy of the
T&C Agreement.
ARTICLE V
COVENANTS
5.1 Conduct of the Business Pending the Closing. Seller, for itself and on
behalf of its Subsidiaries, hereby covenants that, from the date hereof to and
including the Closing Date, unless Buyer shall otherwise consent (such consent
not to be unreasonably withheld or delayed) or as otherwise contemplated by this
Agreement:
(a) the Business shall be conducted and the Assets repaired and
maintained only in the ordinary and usual course, in a manner consistent with
past practice, including without limitation the Business' policies relating to
promotions, pricing, maintenance of relations with customers and the making of
capital expenditures;
(b) Seller and its Subsidiaries shall not (i) make any commitment to
make any capital expenditures after the Closing Date individually in excess of
$100,000 or in the aggregate in excess of $400,000; (ii) amend or waive any
rights under any of its material contracts; or (iii) enter into (1) any written
employment agreement with any Employee or (2) any new employee benefit plan,
program or arrangement or amend any existing employee benefit plan, program or
arrangement or grant any increases in compensation to the Employees in excess of
increases in compensation consistent with Seller's past practices;
(c) Seller and its Subsidiaries shall not make any change in any
material business policy of the Business;
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(d) except in the ordinary course of business consistent with past
practice, Seller or any of its Subsidiaries shall not (i) dispose of any capital
assets with a book value, individually or in the aggregate, in excess of $20,000
or encumber any of its capital assets or (ii) incur, or guarantee or otherwise
become liable for, any indebtedness for borrowed money;
(e) Seller and its Subsidiaries shall maintain in full force and
effect all insurance policies now in effect or renewals thereof covering the
Assets or the Business and the Employees;
(f) Seller shall promptly notify Buyer of the following of which it
becomes aware: (i) any breach or violation of, default or event of default
under, or actual or threatened termination or cancellation of any material
contract or other material instrument relating to the Business; (ii) any
material loss of, damage to, or disposition of any of the Assets (other than the
sale or use of inventories in the ordinary course of business); and (iii) any
material claim or litigation, threatened or instituted against Seller or any of
its Subsidiaries and affecting the Business;
(g) Seller shall consult with Buyer with respect to any collective
bargaining negotiations affecting the Business;
(h) Seller or any of its Subsidiaries shall not sell, dispose of,
lease, sublease, distribute, encumber or enter into any agreement, arrangement
or commitment, whether oral or written, for the sale, leasing, subleasing,
disposition, distribution or encumbrance of any portion of the Business (other
than the sale or use of inventories in the ordinary course of business or as set
forth in item (c)(i) above) or initiate or participate, through agents,
representatives or otherwise, in any discussions or negotiations with, or
otherwise solicit from, any corporation, business or person any proposals or
offers relating to the disposition of any such portion of the Business;
(i) Seller shall use its reasonable best efforts to preserve its
relations with its and any of its Subsidiaries' customers and suppliers; and
(j) Seller shall use its reasonable best efforts (but not requiring
any additional financial expenditures or accommodations) to (i) extend, as
necessary or practicable, the letter of intent with regard to the property in
Chihuahua, Mexico and (ii) arrange for Pulidos de Juarez, S.A. de C.V., Seller's
wholly-owned Mexican subsidiary, to enter into the lease agreement contemplated
by such letter of intent in accordance with the terms thereof. Seller shall
submit to Buyer any proposed material modification to the form of lease and
shall not agree to any such modification unless Buyer shall have consented
thereto in writing.
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5.2 Access to Information.
(a) Prior to the Closing Date and upon reasonable notice from Buyer,
Seller (i) shall give Buyer and its authorized representatives and
representatives of its financing sources reasonable access, subject to such
limitations or procedures as may be necessary to protect the attorney-client
privilege or the work product doctrine, to all offices, warehouses, plants,
stores and other facilities and to all books and records of the Business, (ii)
will permit Buyer and all such persons to make such inspections as they may
reasonably request provided such inspections cause no undue interruption of the
operations of the Business and (iii) will cause its officers to furnish Buyer
and all such persons with such financial and operating data and other
information with respect to the Assets and the Business as they may from time to
time reasonably request.
(b) Prior to the Closing Date, Buyer shall hold and shall cause its
employees, agents and other representatives to hold in strict confidence all
documents and information concerning the Business to the extent and in
accordance with the terms and con ditions of the Confidentiality Agreement dated
July 21, 1995, between Castle Harlan Partners II, L.P. and Seller and the
Confidentiality Agreement dated August 15, 1995, between T&C and Seller;
provided, however, that Seller acknowledges that Buyer may disclose certain
information regarding the Business, this Agreement and the transactions
contemplated hereby to Buyer's lenders or in connection with the public or
private offering of Buyer's securities to the extent appropriate under federal
or state securities laws, in either case solely in connection with (i) Buyer's
financing of the transactions contemplated by this Agreement and (ii) Buyer's
obtaining a line of credit from Buyer's lenders.
(c) For a period of at least six (6) years following the Closing Date,
Buyer shall retain, at Buyer's sole expense, the books, records and other data
of the Business transferred pursuant to Section 1.1(a). During such period,
Buyer shall afford to Seller, its counsel and accountants, during normal
business hours, reasonable access to such books, records and other data.
Following the expiration of such 6-year period, Buyer may dispose of any such
books, records and other data; provided, however, that before disposing of any
such materials it shall first notify Seller and permit Seller, at its sole
expense, to remove such materials.
(d) After the Closing Date, Buyer shall, at the reasonable request of
Seller, (i) provide reasonable assistance in the collection of information or
documents and (ii) make Buyer's employees available when reasonably requested by
Seller in connection with claims or actions brought by or against third parties
based upon events or circumstances concerning Excluded Liabilities. After the
Closing Date, Buyer agrees to make available to Seller for inspection and
copying at Seller's expense, at reasonable times upon request therefor, any
records and documents relating to the Business and the Assets which, at the
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time of such request, are in Buyer's possession or control. In addition, Buyer
agrees to make available to Seller financial data and other information relating
to the Business and the Assets and will make available such employees of the
Business employed by Buyer as Seller shall from time to time reasonably request
to permit Seller to prepare any tax returns and in connection with any
governmental examination of tax returns relating to the Business or the Assets
for the periods prior to the Closing Date. Buyer's reasonable expenses in
connection therewith shall be reimbursed by Seller.
(e) After the Closing Date, Seller agrees to make available to Buyer
for inspection and copying at Buyer's expense, at reasonable times upon
reasonable request therefor, any records and documents relating to the Business
and the Assets retained by Seller or its agents which, at the time of such
request, are in Seller's or its agents possession or control. In addition,
Seller agrees to make available to Buyer financial data and other information
retained by Seller relating to the Business and the Assets, and will use all
reasonable efforts to make available such former employees of the Business that
at the time shall be employed by Seller, as Buyer shall from time to time
reasonably request, in connection with claims or actions brought by or against
third parties based on events or circumstances concerning the Assets or Assumed
Liabilities and to permit Buyer to prepare any tax returns and in connection
with any governmental examination of tax returns relating to the Business or the
Assets for periods from and after the Closing Date. Seller's reasonable expenses
in connection therewith shall be reimbursed by Buyer.
(f) Prior to the Closing and subject to the provisions of Section
5.2(b), Seller agrees to use all reasonable efforts to (1) provide existing
documents, books and records concerning the Business as may be reasonably
requested by Buyer in writing and (2) make its Employees available for
reasonable periods of time in order to assist Buyer in its efforts to obtain the
financing for the purchase of the Assets; provided, however, that the provision
of such documents, books and records and the assistance provided by such
Employees in Buyer's financing efforts shall not unduly interfere with the
normal duties and responsibilities of such Employees to operate the business of
Seller; and, provided further, that Seller, its affiliates, employees and
representatives shall have no liability to Buyer, except to the extent such
information is applicable to other provisions hereof or to the Seller
Agreements, or others with respect to such information, it being understood and
agreed that the foregoing is merely an accommodation to Buyer.
5.3 Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto agrees to use its reasonable best efforts to take or cause to be
taken all actions and to do or cause to be done all things necessary, proper or
advisable to consummate the transactions contemplated by this Agreement, the
Seller Agreements and the Buyer
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Agreements and shall use its reasonable best efforts to obtain all necessary
waivers, consents and approvals and to effect all necessary registrations and
filings.
(b) In the event Buyer or Seller, as the case may be, is unable to
obtain, prior to the Closing, any consents, approvals, waivers or other
authorizations to transfer to Buyer any Asset, Buyer and Seller shall cooperate
with each other in order to obtain such consents, approvals, waivers or other
authorizations at the earliest practicable date. In each instance where such
consents, approvals, waivers or other authorizations cannot be obtained prior to
the Closing, Seller shall use reasonable efforts to enter into such alternative
arrangements and agreements with Buyer as may be reasonably appropriate in order
to permit Buyer to realize, receive and enjoy substantially similar rights and
benefits and to enable Buyer to conduct operations of the Business until the
consents, approvals, waivers or other authorizations are obtained. If, after the
exercise of diligent effort, any such consents, approvals, waivers or other
authorizations are not obtained, Seller agrees to cooperate with Buyer in any
reasonable arrangements designed to provide, to the extent reasonably
practicable, for the benefit of Buyer any and all rights of Seller in and to
such Asset. In connection with the foregoing, each party acknowledges that the
other party shall be under no obligation to make financial accommodations
(including, but not limited to, the payment of software license fees), directly
or indirectly, to third parties in order to obtain such consents, approvals,
waivers or other authorizations.
(c) Seller agrees to take actions reasonably requested by Buyer prior
to Closing to assist Buyer with the transition and operation of the Business
after Closing in accordance with Buyer's business plan; provided, however, that
no action need be taken if any incremental cost to Seller is required, except as
set forth in the following sentence. With regard to the hiring of additional
employees of Seller (in excess of Seller's customary hiring for such season) to
assist with such transition, Buyer and Seller shall agree as to the number of
employees to be hired and the timing of such hiring. All of the direct and
indirect costs to Seller attributable to the hiring of such employees shall be
paid by Buyer, or promptly reimbursed by Buyer to Seller, including, but not
limited to those costs listed on Schedule 5.3, if the transactions contemplated
hereby are consummated, otherwise, Seller and Buyer shall split such costs.
5.4 Public Announcements. Buyer and Seller shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement or the transactions contemplated hereby and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any national securities
exchange or in connection with Buyer's financing of the transactions
contemplated hereby.
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5.5 Hart-Scott-Rodino Filing. Each of the parties hereto shall use its
reasonable best efforts in good faith to take or cause to be taken all such
steps as shall be necessary or advisable (i) to promptly effectuate the filing
of a Notification and Report Form under the HSR Act in connection with the
transactions contemplated by this Agreement and (ii) to promptly take such
actions as are reasonable and necessary to respond to any requests or to
facilitate the approval of any federal, state, local or foreign governmental
authority with jurisdiction over the enforcement of any applicable antitrust
laws; provided, however, that Buyer shall not be required to agree to take or
refrain from taking any action or to enter into any agreement that in Buyer's
sole judgment could be detrimental to the Business or Buyer's business plan in
any material respect.
5.6 Mexican Subsidiary. Two shares of the capital stock of Pulidos de
Juarez, S.A. de C.V. are held of record by each of four employees of Seller. At
the Closing, Seller covenants to cause these eight shares to be transferred to
nominees selected by Buyer at no additional cost to Buyer or to Buyer's
nominees.
5.7 Post Closing Confidentiality. After the Closing, Seller agrees to
maintain the confidentiality of all confidential or proprietary information of
the Business and agrees not to disclose any confidential or proprietary
information related to the Business except to the extent that the information
becomes generally available to the public other than as a result of a disclosure
by Seller or to the extent that disclosure of any portion thereof is required by
law or determined to be necessary to comply with any legal or regulatory order,
regulation or requirement; provided, however, that Seller shall first notify
Buyer of any such disclosure and, if Buyer desires, shall cooperate with Buyer
to seek approval to prevent or limit such disclosure. In addition, neither
Seller nor any entities affiliated with it shall approach any employee of Buyer
in order to solicit such employee to work for Seller, its affiliates or its
successors.
5.8 Environmental Assessment. As a condition precedent to the Buyer's
obligation to purchase the Assets, the Buyer shall have the right to conduct a
Phase I environmental site assessment (the "ESA") of the Real Property. The ESA
shall satisfy the requirements of 42 U.S.C. 9601(35)B and shall be conducted in
accordance with the standards promulgated by The American Society for Testing
and Materials at Buyer's sole cost and expense within forty-five (45) days from
the execution of this Agreement. Buyer will provide Seller with a copy of the
ESA within three (3) business days of receipt by Buyer from the consulting firm
conducting the ESA. If the ESA reveals the presence of Hazardous Materials
reasonably likely to result in Environmental Liabilities which could have a
material adverse effect on the Business, Buyer may notify the Seller in writing
within ten (10) days of receipt of the ESA and the parties shall have seven (7)
days to discuss a resolution thereto (the "Consultation Period"). If the parties
cannot reach an acceptable resolution thereto upon the expiration of the
Consultation Period, either party may terminate this Agreement as set
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forth in Section 8.1(b). If Buyer fails to object to such presence of Hazardous
Materials specifically disclosed in the ESA within ten (10) days of receiving
the ESA, Buyer shall waive any and all rights it may have to object to such
presence only to the extent specifically disclosed in the ESA, and Seller shall
have no liability to Buyer or indemnification obligations with respect to the
presence or the effects of such specifically disclosed Hazardous Materials under
Section 9.2 hereof or otherwise.
5.9 Update of Schedules. (a) At any time at least fifteen (15) days prior
to the scheduled Closing Date agreed to by the parties but in no event later
than July 16, 1996, Seller shall have the right (and the obligation) to update
or amend in any respect its disclosure of any matter set forth or permitted to
be set forth in the Schedules hereto, including the addition of new Schedules
hereto, to the extent that such matter (i) was unknown to any officer of Seller
on the date hereof after reasonable due diligence with respect thereto or (ii)
arises subsequent to the date hereof, which fact (in the case of either (i) or
(ii) shall be certified by an executive officer of Seller. Thereafter, Buyer
shall review the updated or amended Schedules, after which, on or at any time
prior to the fifth (5th) day prior to the scheduled Closing Date, Buyer shall
either accept such Schedules or shall deliver to Seller in writing its
reasonable, good faith estimate of the cumulative adverse effects on the
Business or Assets of all matters disclosed on such Schedules when compared to
the initial Schedules delivered to Buyer on the date hereof (the "Economic
Impact"). The parties shall cooperate in good faith to provide all information
necessary to calculate and agree to the value of the Economic Impact.
(b) If the agreed value of the Economic Impact is greater than $500,000 or
if the parties cannot agree on the value of the Economic Impact but both parties
agree that such value is in excess of $500,000, Seller shall not have met the
condition to closing in Section 7.3(c) hereof and Buyer shall have the right
either (i) to terminate this Agreement pursuant to Section 8.1(d) hereof, or
(ii) to consummate the transactions contemplated by this Agreement, in which
event the cash portion of the Purchase Price payable at the Closing shall be
reduced, at Seller's election, by either (x) $500,000 or (y) $400,000; provided,
that in the case of clause (y), the $100,000 indemnification basket set forth in
the final sentence of Section 9.4 (the "Basket") shall be permanently reduced to
zero for the duration of this Agreement; provided, further, that in either case
(x) or (y), without further claims against Seller for such amount of the
Economic Impact in excess of $500,000 (if any).
(c) If the agreed value of the Economic Impact is equal to or less than
$500,000 or if the parties cannot agree on the value of the Economic Impact but
both parties agree that such value is equal to or less than $500,000, the
parties shall consummate the transactions contemplated by this Agreement, but
the cash portion of the Purchase Price payable at the Closing shall be reduced,
at Seller's election, by either (x) the amount of the Economic Impact, or (y)
the amount of the Economic Impact less $100,000; provided, that
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in the case of clause (y), the Basket shall be permanently reduced to zero if
the Economic Impact is greater than $100,000 or by the amount of the Economic
Impact if it is less than $100,000 for the duration of this Agreement; provided
further that in either case (x) or (y), without further claims against Seller
for such amount of the Economic Impact.
(d) If the parties cannot agree on the value of the Economic Impact and the
Buyer's value of the Economic Impact is greater than $500,000 and Seller's value
is less than $500,000, Buyer shall have the right to either (1) terminate this
Agreement pursuant to Section 8.1(d) with neither party having any liability to
the other due to such termination, or (ii) require Seller to close the
transactions contemplated by this Agreement, in which event the cash portion of
the Purchase Price payable at Closing shall be reduced, at Seller's election, by
either (x) $500,000 or (y) $400,000; provided that in the case of clause (y),
the Basket shall be permanently reduced to zero for the duration of the
Agreement; provided further that in either case (x) or (y), without further
claims against Seller for such amount of the Economic Impact.
(e) If the parties cannot agree as to the value of the Economic Impact and
the transactions contemplated hereby close pursuant to Section 5.9(c) or (d)
above, Seller and Buyer shall submit such dispute to two nationally recognized
accounting firms (one chosen by each of the parties), which firms' agreement as
to the value of the Economic Impact shall be final and binding on the parties.
If such two firms cannot agree as to such value, such firms shall designate a
third nationally recognized accounting firm whose decision as to such value
shall be final and binding on the parties. Seller and Buyer shall pay the fees
and expenses of the third accounting firm, which fees and expenses shall be
shared between Seller and Buyer as follows: each party shall pay such portion of
the fees and expenses equal to the proportion determined by (1) a numerator
equal to the positive difference between such party's submitted amount and the
third accounting firm's determined amount and (2) a denominator equal to the sum
of such positive difference for both parties. Otherwise, Buyer and Seller shall
each pay its own costs incurred in connection with this Section 1.5, including
the fees and expenses of their respective accountants, if any. If the value of
the Economic Impact determined as set forth above is less than Buyer's value of
the Economic Impact in the case of Section 5.9(c) or less than $500,000 in the
case of Section 5.9(d), Buyer shall pay such difference to Seller promptly after
such determination. If the determined value of the Economic Impact is greater
than Buyer's value of the Economic Impact in the case of Section 5.9(c), Seller
shall pay such difference to Buyer promptly after such determination; provided,
however, that in no event shall Seller pay an amount such that such difference
plus Buyer's value of the Economic Impact is greater than $500,000. If the
determined value of the Economic Impact is greater than $500,000 in the case of
Section 5.9(d), no payment shall be made by either party on the amount in excess
of $500,000 other than the payment of the accountant's fees as specified above.
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(f) The parties acknowledge that an update, amendment or addition to the
Schedules may contain information relating to provisions of this Agreement that
are currently not the subject of exceptions or other disclosures set forth in
the Schedules or otherwise provided to Buyer and that such updates, amendments
or additions shall not evidence or constitute a breach of any representation or
warranty of Seller. Upon Closing, the affected provisions of this Agreement
shall be deemed to be modified by the updated, amended and additional
information contained in the revised Schedules.
5.10 Taxes.Seller covenants that neither Buyer nor any Subsidiary shall
have any liability for any Tax imposed on or with respect to any Subsidiary that
is attributable to the Pre-Closing Tax Period. Buyer covenants that Seller shall
have no liability for any Tax imposed on Buyer or the Subsidiaries that is
attributable to taxable periods beginning after the Closing Date or any portion
of any taxable period that includes a period after (but does not begin on) the
Closing Date. Seller and Buyer agree that for any taxable period included in the
Pre-Closing Tax Period that begins, but does not end on, the Closing Date, Taxes
shall be allocated to the Pre-Closing Tax Period (i) in the case of Taxes based
on the passage of time (e.g., property taxes), on a per-day pro-rata basis and
(ii) in the case of any other Taxes, on an interim closing basis.
5.11 Audited Financials. As soon as reasonably practicable but in no event
later than May 24, 1996, Seller shall deliver to Buyer the audited balance sheet
data and audited related income statement data of the Business for the three
fiscal year periods ended August 31, 1993, August 27, 1994 and August 26, 1995
and the accountants' review of the balance sheet data and income statement data
for the two fiscal years ended August 31, 1991 and 1992 and for the six months
ended February 24, 1996, which upon such delivery, shall be included in the term
"Financial Statements" as defined in Section 3.4(b) above. The cost of such
audit and review shall be borne by Seller; provided, however that upon
consummation of the transactions contemplated by this Agreement, Buyer shall,
upon receipt of written evidence thereof, promptly reimburse Seller for the
incremental costs associated with such audit and review by such accountants to
the extent attributable to the additional procedures required to be performed by
such accountants to perform the audit and review over and above their prior
review of Seller's financial statements for such years. The good faith estimate
of Adjusted Working Capital to be delivered prior to Closing pursuant to Section
1.4, shall be prepared in conformity with generally accepted accounting
principles for those general ledger accounts specified on Schedule 1.4, except
for the valuation of inventory which shall be as specified on Schedule 1.4(a).
5.12 Noncompetition. (a) Neither Seller nor any entity affiliated (within
the meaning of the Securities Act) with Seller shall, for a period of five years
commencing on the Closing Date and ending on the fifth anniversary thereof,
directly or indirectly:
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(i) engage, directly or indirectly, in any managerial,
administrative, advisory, operational or sales activities in a Restricted
Business anywhere in the Restricted Area; or
(ii) organize, establish, operate, own, manage, control or have a
direct or indirect investment or ownership interest in a Restricted Business or
in any corporation, partnership (limited or general), limited liability company,
enterprise or other business entity that engages in a Restricted Business
anywhere in the Restricted Area.
(b) Nothing contained in this Section 5.12 shall prohibit or otherwise
restrict Seller or any entity affiliated with it from acquiring or owning,
directly or indirectly, for investment or other legitimate business purposes not
intended to circumvent this Agreement, securities of any entity engaged,
directly or indirectly, in a Restricted Business if either (i) such entity is a
public entity and such member (A) is not a controlling person of, or a member of
a group that controls, such entity and (B) owns, directly or indirectly, no more
than five percent (5%) of any class of equity securities of such entity or (ii)
such entity is not a public entity and no affiliate of Seller (A) is a
controlling person of, or a member of a group that controls, such entity and (B)
owns, directly and indirectly, no more than ten percent (10%) of any class of
equity securities of such entity.
(c) For purposes of this Section 5.12:
(i) "Restricted Business" means engaging in the manufacture and
sale of class rings.
(ii) "Restricted Area" means the United States.
(d) The parties hereto acknowledge that the covenants and restrictions
contained in this Section 5.12 are reasonable. The parties agree that the Buyer
shall have the right and remedy to have this Section 5.12 specifically enforced,
it being agreed that any breach or threatened breach of this Section 5.12 would
cause irreparable injury to Buyer and that money damages would not provide an
adequate remedy to Buyer.
5.13 T&C Agreement. Buyer shall promptly notify Seller in writing of any
proposed amendment, waiver or other modification of the T&C Agreement or any
proposed action to be taken by Buyer or any other party to the T&C Agreement
that could reasonably be likely to cause a delay in the Closing beyond July 31,
1996, or otherwise affect Buyer's ability to close the transactions contemplated
hereby in accordance with the terms hereof by such date, including, but not
limited to, Buyer's decision to delay the Closing Date pursuant to Section 5.10
of the T&C Agreement (any such amendment, waiver, modification or action, being
a "Proposal"). Seller shall have the right, but not the obligation to terminate
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this Agreement if (i) Seller objects to such Proposal in writing to Buyer within
10 business days of Seller's receipt of Buyer's notice of such Proposal, stating
Seller's reason(s) for such objection, and (ii) such Proposal is effected
despite Seller's objection and Buyer shall notify Seller in writing of such
Proposal being effected. Seller may exercise this termination right by providing
written notice to Buyer no later than 10 business days after Seller is notified
of the Proposal being effected, assuming Seller had previously objected to such
Proposal.
ARTICLE VI
PERSONNEL, EMPLOYMENT ARRANGEMENTS
AND EMPLOYEE BENEFITS
6.1 Personnel. Effective as of the Closing, Buyer shall offer employment to
(a) substantially all active Employees (including those on short-term
disability, temporary leave and temporary lay-off, but excluding Employees hired
on a temporary basis) engaged in plant operations at the plants of the Business
as of the Closing, provided that Employees on short-term disability, temporary
leave and temporary lay-off shall be offered employment in their same status,
and (b) substantially all non-plant staff Employees and corporate staff
Employees, in each case at compensation and benefit levels substantially
equivalent to their present levels. Such offers shall be outstanding for at
least ten days. Employees who accept offers of employment made by Buyer pursuant
to this Section 6.1 shall be referred to herein after as the "Transferred
Employees." The term "Transferred Employees" shall not include any former
employees of Seller who are hired pursuant to an offer made after the expiration
of the offer made by Buyer under this Section 6.1. Seller shall assist Buyer in
effecting the change of employment of the Transferred Employees as of the
Closing in an orderly fashion.
6.2 401(k) Plan.
(a) The Transferred Employees shall be eligible to commence
participation in a defined contribution plan established and maintained by Buyer
(the "Buyer's 401(k) Plan") which shall be effective no later than 60 days after
the Closing Date and which is intended to be qualified under Sections 401(a) and
401(k) of the Code, such eligibility to be effective immediately upon the
effective date of Buyer's 401(k) Plan.
(b) Seller shall cause Transferred Employees who are participants in
Seller's 401(k) Plan to be fully vested as of the Closing Date. As of the
Closing Date, Seller's 401(k) Plan shall be liable for payment of such account
balances in accordance with the terms of Seller's 401(k) Plan.
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(c) Buyer shall cause each Transferred Employee to be given full
credit for service with Seller (as defined in Seller's 401(k) Plan) for purposes
of eligibility and vesting in Buyer's 401(k) Plan.
6.3 Other Seller Welfare Benefit Plans.
(a) As of the Closing Date, (i) all Transferred Employees and their
dependents that participate in any other "employee welfare benefit plan" (as
defined by Section 3(1) of the Employee Retirement Income Securities Act of
1974, as amended ("ERISA")) that is maintained by Seller (collectively the
"Seller Welfare Plans") shall cease to do so and (ii) Buyer shall take such
actions as are necessary so that such Transferred Employees and dependents shall
commence participation in any "employee welfare benefit plan (as defined by
Section 3(1) of ERISA) maintained by Buyer for individuals employed by Buyer
immediately prior to the Closing Date (the "Buyer Welfare Plan").
(b) The Seller Welfare Plans shall not be liable for payment of claims
incurred by eligible Transferred Employees, except as otherwise provided by this
Section 6.3. The Seller Welfare Plans shall be liable for the payment of
benefits to eligible Transferred Employees and their eligible dependents for
expenses incurred under the Seller Welfare Plans prior to the Closing Date.
(c) The Buyer Welfare Plan or Plans which provide medical, health and
dental care benefits to Transferred Employees (the "Buyer Medical Plans") shall
waive any coverage waiting period, pre-existing condition and actively-at-work
requirements, and shall provide that any expenses incurred before the Closing
Date by a Transferred Employee (and his or her dependents) during the calendar
year of the Closing shall be taken into account for purposes of satisfying the
applicable deductible, coinsurance and maximum out-of-pocket provisions, and
applicable annual and/or lifetime maximum benefit limitation of the Buyer
Medical Plans. The Buyer's Medical Plans shall require employee contributions at
a rate that does not exceed the rate in effect for other individuals employed by
Buyer.
(d) The Buyer Welfare Plans shall be liable for the payment of claims
of eligible Transferred Employees and their eligible dependents for expenses
incurred under the Buyer Welfare Plans on or after the Closing Date,
notwithstanding the fact that any such expense may be related to another expense
which was paid or is eligible for payment under the terms of any of the Seller
Welfare Plans or was related to any treatment for any condition diagnosed or
existing prior to the Closing Date.
6.4 Vacation. With respect to Transferred Employees, Buyer shall continue
to apply the vacation policy of the Business that is in effect the day before
the Closing Date ("Vacation Policy") for at least the remainder of the calendar
year in which the Closing
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occurs, so that each Transferred Employee shall be entitled to use any vacation
time or receive any vacation pay to which he or she would otherwise be entitled
for that calendar year under the Vacation Policy. The Vacation Policy is set
forth in Schedule 6.4.
6.5 Payroll Issues. At the request of Seller made any time after Closing,
Buyer shall, in a timely manner, provide Seller with the information in Buyer's
possession that Seller deems necessary for Seller to complete any Internal
Revenue Service filing, including IRS W-2 Forms and insurance premium reports,
with respect to each individual whose employment with the Business terminated
prior to the Closing Date.
6.6 Workers Adjustment and Retraining Notification Act. Buyer shall defend,
indemnify and hold Seller harmless from and against any claims or liabilities in
connection with the Workers Adjustment and Retraining Notification Act (29
U.S.C. Sections 2101, et seq.) ("WARN Act") or any comparable state law
resulting from decisions made, or actions taken, by Buyer after the Closing
Date. Seller shall defend, indemnify and hold Buyer harmless from and against
any claims or liabilities in connection with the WARN Act or any comparable
state law resulting from decisions made, or actions taken, by Seller in
connection with Seller's Bridal Division.
6.7 Cooperation of the Parties. Subject to the proviso in the first
sentence of Section 5.5 above, Seller and Buyer agree to cooperate fully with
respect to each of the filings and calculations necessary to effect the
transactions contemplated by this Article VI and in obtaining any governmental
approvals required hereunder.
6.8 Employee Rights. Nothing herein expressed or implied shall confer upon
any employee of Seller, any Transferred Employee, any other employee or any
legal representative thereof any rights or remedies, including any right to
employment or continued employment for any specified period, of any nature or
kind whatsoever, under or by reason of this Agreement.
6.9 Employment Agreements. On the Closing Date, Buyer shall offer to enter
into employment agreements with each of the executives of Seller listed on
Schedule 6.9 with such agreements to be substantially similar to those currently
in place between Seller and such executives, or as otherwise may be agreed
between Buyer and such executives. On the Closing Date, Seller and each of such
executives accepting such offer to employment by Buyer shall terminate the
applicable employment agreements with Seller.
6.10 Limitations. Nothing contained in Sections 6.2 and 6.3 is intended to
confer any rights to any third party nor limit the ability of Buyer to amend or
terminate any employee benefit plan after the Closing Date.
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ARTICLE VII
CONDITIONS TO CLOSING
7.1 General Conditions. The obligations of each party hereto to effect the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of the following conditions:
(a) No order, statute, rule, regulation, executive order, injunction,
stay, decree or restraining order shall have been enacted, entered, promulgated
or enforced by any court of competent jurisdiction or governmental or regulatory
authority or instrumentality that prohibits the consummation of the transactions
contemplated hereby.
(b) Any waiting period applicable to the transactions contemplated
hereby pursuant to the HSR Act shall have expired or been terminated without any
conditions being imposed on Buyer to which Buyer objects and that would
otherwise allow Buyer to terminate this Agreement pursuant to Section 8.1(g).
7.2 Conditions to Obligations of Seller. The obligations of Seller to
effect the transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of the following conditions:
(a) Buyer shall have performed its obligations required under this
Agreement to be performed by it at or prior to the Closing and the
representations and warranties of Buyer contained in this Agreement shall be
true and correct on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of the Closing Date
(except to the extent that a different time is specifically stated in such
representations and warranties), and Buyer shall have delivered to Seller on the
Closing Date a certificate of an authorized officer of Buyer, dated the Closing
Date, to such effect.
(b) Seller shall have received the amounts referred to in Section
2.3(a) and the documents referred to in Section 2.3.
(c) All necessary approvals, consents or orders of all administrative
agencies or government authorities which have jurisdiction over Buyer or the
Business to the assignment of the Assets shall have been obtained upon terms and
conditions reasonably satisfactory to Seller.
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7.3 Conditions to Obligations of Buyer. The obligation of Buyer to effect
the transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of the following conditions:
(a) Seller shall have performed its obligations required under this
Agreement to be performed by it at or prior to the Closing and the
representations and warranties of Seller contained in this Agreement, to the
extent timely updated pursuant to Section 5.9, shall be true and correct on and
as of the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except to the extent
that a different time is specifically stated in such representations and
warranties), and Seller shall have delivered to Buyer on the Closing Date a
certificate of an authorized officer of Seller, dated the Closing Date, to such
effect.
(b) Buyer shall have received the documents referred to in Section
2.2.
(c) There shall not have occurred a material adverse change in the
Business since the date of this Agreement, including any changes in any updated,
amended, or additional Schedules pursuant to Section 5.9; provided, however,
that for purposes of this clause (c), a material adverse change shall not have
occurred unless there is an adverse change in the Assets or the Business, in the
aggregate, of more than $500,000.
(d) All necessary approvals, consents or orders of all administrative
agencies or government authorities which have jurisdiction over Seller or the
Business to the assignment of the Assets shall have been obtained upon terms and
conditions reasonably satisfactory to Buyer.
(e) All conditions to the availability of the financing contemplated
by the letters referenced in Section 4.5 shall have been met and such financing
shall be available; provided, however, that Buyer may rely on this condition to
Closing only if it has used its reasonably diligent efforts to obtain the
financing contemplated by such letters and subject to the terms and conditions
set forth therein; provided, however, that such reasonably diligent efforts
shall not require Buyer to increase its equity investment in the transactions
contemplated hereby to more than $35 million, to issue more than a nominal
amount of the equity of Buyer to investment bankers, banks or investors in
connection with such financing, or to agree to any other provisions which Buyer,
in its sole judgment, believes could be detrimental to its business plan or to
the investment of its stockholders in Buyer in any material respect.
(f) The closing of Buyer's transactions pursuant to the T&C Agreement,
or pursuant to substantially the same terms as set forth in such agreement,
shall occur simultaneously with the Closing hereunder.
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ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing:
(a) By mutual consent of Buyer and Seller;
(b) by either Seller or Buyer, by notice to the other, pursuant to
Section 5.8 above or if the Closing shall not have occurred on or prior to July
31, 1996;
(c) by Seller or by Buyer, by notice to the other, if on the date
scheduled for Closing any order shall have been entered restraining or
prohibiting consummation of the transactions contemplated hereby;
(d) by Buyer, without affecting any of its other rights hereunder at
any time after the Closing Date, if it is prepared to tender full performance of
its obligations hereunder on the Closing Date and any one or more of the
conditions precedent to its obligations herein shall not have been fulfilled or
waived; provided, however, that if Buyer terminates this Agreement pursuant to
Section 5.9, neither party shall have any liability for breaches of this
Agreement to the other due to such termination other than as set forth
specifically in Section 5.9.
(e) by Seller, without affecting any of its other rights hereunder at
any time after the Closing Date, if it is prepared to tender full performance of
its obligations hereunder on the Closing Date and any one or more of the
conditions precedent to its obligations herein shall not have been fulfilled or
waived;
(f) by either Seller or Buyer if Buyer (in the case of Seller) or
Seller (in the case of Buyer) fails to comply with any of its covenants or
agreements contained herein, or breaches any of its representations contained
herein, and such default or breach (i) cannot reasonably be expected to be cured
prior to the Closing, (ii) has not been waived by the relevant party and (iii)
would give Seller or Buyer, as the case may be, the right not to consummate the
transactions contemplated by this Agreement pursuant to Section 8.1;
(g) by Buyer if in order to obtain the approval or clearance of any
governmental authority under the HSR Act, Buyer would be required to agree to
take or refrain from taking any action or enter into any agreement that in
Buyer's sole judgment could be detrimental to the Business or to Buyer's
business plan in any material respect; or
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(h) by Seller pursuant to the terms of Section 5.13.
8.2 Notice of Termination. Written notice of any termination under any
clause other than Section 8.1(a), stating the grounds therefor, shall be given
by the party entitled to give such notice.
8.3 Effect of Termination. Except for Sections 5.2(b) and 10.1 and except
as set forth in Section 8.1(d) above for liability for breaches of this
Agreement, upon the termination of this Agreement pursuant to Section 8.1, this
Agreement shall forthwith become null and void.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
9.1 Survival. The representations and warranties of Seller and Buyer herein
and in the documents and instruments to be delivered by Seller as contemplated
hereby shall survive the Closing until December 31, 1996. The covenants and
agreements of the parties herein and in the other documents and instruments
contemplated hereby shall survive the Closing and shall continue in full force
and effect forever except as otherwise limited by their terms.
9.2 Indemnification by Seller. Seller hereby agrees to indemnify, save and
hold harmless Buyer, its successors and permitted assigns and all of its
officers, directors, stockholders, agents and employees from and against any and
all damages, liabilities, losses, claims, deficiencies, penalties, interest,
expenses, fines, assessments, charges or costs, including reasonable attorney's
fees and expenses and costs of investigation (collectively, the "Damages")
arising from (a) the Excluded Liabilities, (b) the breach of any covenant or
agreement of Seller contained herein and (c) any inaccuracy or breach of any
representation or warranty of Seller under this Agreement subject to the
limitations of Sections 5.8 and 9.1; provided, however that the indemnification
in clause (c) shall be limited to the Escrow Amount.
9.3 Indemnification by Buyer. Buyer hereby agrees to indemnify, save and
hold harmless Seller, its successors and permitted assigns and all of its
officers, directors, shareholders, agents and employees from and against any
Damages arising from (a) the Assumed Liabilities, (b) the breach of any covenant
or agreement of Buyer contained herein, and (c) any inaccuracy or breach of any
representation or warranty of Buyer under this Agreement.
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9.4 Limitation of Liability. For purposes of this Article IX, all Damages
shall be computed net of (a) any insurance proceeds actually received from
insurance for the event or occurrence giving rise to the Damages, and (b) any
amounts actually received, from any third parties based on claims related to the
event or occurrence giving rise to the Damages that the indemnified party has
against such third parties which reduce the Damages that would otherwise be
sustained; provided, however, that, in all cases, the timing of the receipt or
realization of insurance proceeds or recoveries from third parties, the amount
of increased costs of insurance arising from the payment or collection of such
insurance proceeds, and the costs of collection shall be taken into account in
determining the amount of reduction of Damages. If any indemnifying party pays
to the indemnified party any Damages under this Article IX and the indemnified
party subsequently recovers from some other person any sum in respect of any
matter giving rise to the relevant claim, the indemnified party shall repay to
the indemnifying party the lesser of (a) the amount paid by the indemnifying
party to the indemnified party and (b) the sum recovered from such other person.
No indemnified party hereunder shall be entitled to seek indemnification from an
indemnifying party until and unless the aggregate of all claims for
indemnification by the indemnified party exceeds $100,000 and then the
indemnifying party shall only be liable for the excess over such amount;
provided, however, that in the case of Seller, the $100,000 basket referred to
herein is subject to reduction as set forth in Section 5.9.
9.5 Notice and Right to Defend. Each party hereto agrees to give prompt
notice to the other of the assertion of any claim, or the commencement of any
suit, action or proceeding in respect of which indemnity may be sought
hereunder, provided that the failure to give such notice to the indemnifying
party shall not relieve the indemnifying party of any liability that it may have
to an indemnified party except to the extent that the indemnifying party shall
have been materially prejudiced in its ability to defend the claim, suit, action
or proceeding for which such indemnity is sought by reason of such failure. The
indemnifying party shall have the right to assume the defense of any third-party
claim, suit, action or proceeding in respect of which indemnity hereunder is
sought by giving prompt notice to the indemnified party. In the event that the
indemnifying party elects to assume the defense of such claim, suit, action or
proceeding, the indemnifying party shall promptly retain counsel reasonably
satisfactory to the indemnified party. The indemnified party shall have the
right to employ its own counsel in any such claim, suit, action or proceeding,
but the fees and expenses of such counsel shall be at the expense of the
indemnified party unless (i) the employment of such counsel shall have been
authorized by the indemnifying party, (ii) the indemnifying party shall not have
promptly retained counsel reasonably satisfactory to the indemnified party to
take charge of the defense of such claim, suit, action or proceeding, (iii) the
indemnified party shall have concluded that there may be one or more legal
defenses available to it which are unavailable to the indemnifying party or
which are in conflict with the position of the indemnifying party or (iv) the
resolution of the matter being contested may, in the reasonable judgment of the
indemnified party have a material adverse effect on
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the indemnified party's business, in any of which events, such fees and expenses
shall be borne by the indemnifying party. If an indemnifying party elects to
assume the defense of any such claim, suit, action or proceeding, (a) no
compromise or settlement thereof may be effected by the indemnifying party
without the indemnified party's written consent if such compromise or settlement
involves anything other than the payment of monetary damages, and (b) the
indemnifying party shall have no liability for any settlement or compromise by
the indemnified party with any third party relating to any such claim, suit,
action or proceeding effected without, to the extent and only to the extent such
settlement involves any monetary damages, the prior written consent of the
indemnifying party. Notwithstanding the foregoing, if an indemnified party
determines that there is a reasonable possibility that any such claim, suit,
action or proceeding may have an adverse effect on the indemnified party's
business or the business of any of its subsidiaries or affiliates, such
indemnified party may, by written notice to the indemnifying party assume the
exclusive right to defend such claim, suit, action or proceeding with counsel
reasonably acceptable to the indemnifying party; provided, however, that no
compromise or settlement may be effected by the indemnified party without the
indemnifying party's written consent to the extent and only to the extent such
compromise or settlement involves monetary damages.
If the indemnifying party fails to give written notice to the
indemnified party of its election to assume the defense of any claim, suit,
action or proceeding for which it is called upon to indemnify an indemnified
party pursuant to this Article IX within thirty (30) days after the indemnified
party gives notice to the indemnifying party of the commencement of such claim,
suit, action or proceeding, the indemnifying party shall be bound by any
determination made in any such claim, suit, action or proceeding or compromise
or settlement thereof effected by the indemnified party.
9.6 Remedies Exclusive. The remedies provided in this Article IX shall be
the sole and exclusive remedy and shall preclude assertion by an indemnified
party of any other rights or the seeking of any and all other remedies against
an indemnifying party for claims based on any breach of any representation or
warranty contained in this Agreement.
ARTICLE X
MISCELLANEOUS
10.1 Expenses, Taxes. Except as otherwise provided in Section 1.8 , each
party shall pay all fees and expenses incurred by it in connection with this
Agreement and the consummation of the transactions contemplated hereby (other
than any excise, sales, use or transfer taxes or any other such taxes which are
payable or arise as a result of execution of
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<PAGE>
this Agreement or the transfer of Assets to Buyer pursuant to this Agreement,
which shall be paid by Buyer).
10.2 Further Assurances. From time to time after the Closing and without
further consideration, Seller, upon the request of Buyer and at Buyer's expense,
shall, subject to applicable law, execute and deliver such documents and
instruments of conveyance and transfer as Buyer may reasonably request in order
to consummate more effectively the purchase and sale of the Assets as
contemplated hereby and to vest in Buyer title to the Assets transferred
hereunder.
10.3 Notices. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given when
delivered in person or transmitted by facsimile transmission or upon receipt
after dispatch by registered or certified mail, postage prepaid, or overnight
courier services, addressed, as follows:
If to Seller to:
CJC Holdings, Inc.
7211 Circle S Road
Austin, Texas 78745
Attention: Mr. Jeffrey H. Brennan
Telephone: (512) 440-2286
Telecopy: (512) 443-5213
with a required copy to:
Mr. Thomas D. Manford III
Bracewell & Patterson, L.L.P.
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Telephone: (713) 221-1303
Telecopy: (713) 221-1212
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<PAGE>
If to Buyer to:
Mr. David B. Pittaway
Castle Harlan, Inc.
150 East 58th Street
New York, New York 10155
Telephone: (212) 644-8600
Telecopy: (212) 207-8042
with a required copy to:
Ms. Janet C. Walden
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Telephone: (212) 756-2495
Telecopy: (212) 593-5955
or such other address as the person to whom notice is to be given has furnished
in writing to the other party. A notice of change in address shall not be deemed
to have been given until received by the addressee.
10.4 Headings; Interpretation. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience only and do
not constitute a part of this Agreement. Unless otherwise specified, references
in this Agreement to Sections, Articles and Schedules are to Sections and
Articles of, and Schedules to, this Agreement.
10.5 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas regardless of the laws that might
otherwise govern under applicable principles of conflict of laws thereof.
10.6 Assignability. Neither party shall assign this Agreement in whole or
in part without the prior written consent of the other party; provided, however,
that Buyer may assign its rights and obligations hereunder with the respect to
the ABC Contract to a wholly-owned subsidiary of Buyer and after the Closing
Seller may assign its rights and obligations hereunder to a trustee in charge of
the liquidation of Seller. Any assignment made or attempted in violation of this
Section 10.6 shall be void and of no effect.
10.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
10.8 Entire Agreement. This Agreement (including the documents and
instruments referred to herein) (a) constitute the entire agreement and
supersede all other prior agreements and understandings, both written and oral,
among the parties and (b) other than as provided in Sections 9.2 or 9.3, is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
10.9 Severability. In the event that any one or more of the provisions or
parts of a provision contained in this Agreement shall for any reason be held to
be invalid, illegal or unenforceable in any respect in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement or any other jurisdiction, but this
Agreement shall be reformed and construed in any such jurisdiction as if such
invalid or illegal or unenforceable provision or part of a provision had never
been contained herein and such provision or part shall be reformed so that it
would be valid, legal and enforceable to the maximum extent permitted in such
jurisdiction.
10.10 Bulk Sales Laws. The parties hereby waive compliance with the Bulk
Sales Laws of any state or territory in which the Assets are located or in which
operations relating to the Business are conducted. Seller shall defend,
indemnify and hold Buyer harmless from any liability, damage, cost or expense
relating to such non-compliance.
10.11 Amendment. This Agreement may be amended by the parties at any time
but only by an instrument in writing signed by the parties hereto.
10.12 Waiver. Either party may (a) extend the time for the performance of
any of the obligations or other acts of the other party, (b) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document delivered pursuant hereto or (c) waive compliance by
the other party with any of the agreements, or satisfaction of any of the
conditions, contained herein. Any agreement on the part of the other party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed by such party.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed on its behalf by its duly authorized officer, all as of the day and
year first above written.
CJC HOLDINGS, INC.
By: /s/ Jeffrey H. Brennan
-----------------------------
Name: Jeffrey H. Brennan
---------------------------
Title: President
---------------------------
CJC NORTH AMERICA, INC.
By: /s/ Jeffrey H. Brennan
-----------------------------
Name: Jeffrey H. Brennan
---------------------------
Title: Vice President
---------------------------
CLASS RINGS, INC.
By: /s/ David B. Pittaway
-----------------------------
Name: David B. Pittaway
---------------------------
Title: President
---------------------------
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<PAGE>
DISCLOSURE SCHEDULE
General Comments to Disclosure Schedule
The inclusion of a matter herein is not an admission by and does not reflect a
judgment on the part of Seller or its officers or directors that such matter is
necessarily material to the Business or that it does or may have a material
adverse effect on the Business, except to the extent that a disclosure is in
response to a specific test of such materiality.
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<PAGE>
AMENDMENT NO. 1 TO
ASSET PURCHASE AGREEMENT
This Amendment No. 1 to Asset Purchase Agreement ("Amendment") is by and
among CJC Holdings, Inc., a Texas corporation ("Seller"), CJC North America,
Inc., a Delaware corporation and wholly-owned subsidiary of Seller ("CJCNA"),
and Scholastic Brands, Inc. (formerly known as Class Rings, Inc.), a Delaware
corporation ("Buyer").
The parties hereto constitute all of the parties to that certain Asset
Purchase Agreement ("Agreement") dated May 20, 1996, setting forth the terms and
conditions upon which (i) Seller and CJCNA agreed to sell to Buyer, and Buyer
agreed to purchase from Seller and CJCNA, substantially all of the properties
and assets of Seller and CJCNA associated with Seller's Class Ring Division and
substantially all of the rights, claims and contracts constituting the class
ring business of Seller and CJCNA, and (ii) Buyer agreed to assume certain
liabilities of Seller and CJCNA associated with the Business, all upon the terms
and subject to the conditions set forth in the Agreement. All terms not
otherwise defined herein shall have the meanings given to them in the Agreement.
Pursuant to Section 10.11 of the Agreement, the parties hereby amend the
Agreement, as follows:
1. Assets Transferred; Excluded Assets. Item (xiii) of clause (a) of Section
1.1 of the Agreement is hereby amended in its entirety to read as follows:
"all of the capital stock (the "Stock") owned by Seller in each of the
Subsidiaries lised on Schedule 1.1(a)(xiii) hereto other than CJCNA,
CJC Licensing Corporation and CJC Investment Corporation;"
Item (vii) of clause (c) of Section 1.1 of the Agreement is hereby amended
in its entirety to read as follows:
", all of the issued and outstanding capital stock of CJCNA, all of
the issued and outstanding capital stock of CJC Investment
Corporation, a Delaware corporation and wholly-owned subsidiary of
Seller, and all of the issued and outstanding capital stock of CJC
Licensing Corporation, a Delaware corporation and wholly-owned
subsidiary of CJC Investment Corporation;"
2. Purchase Price. The Purchase Price is reduced by five million dollars and
the amount "Ninety-Seven Million Eight Hundred Thousand Dollars
($97,800,000.00)" shall be substituted for the amount "One Hundred Two
Million, Eight Hundred Thousand Dollars ($102,800,000.00)" where the later
amount occurs in clauses (a) and (y) of Section 1.4 of the
<PAGE>
Agreement, and the amount "$97,800,000.00" shall be substituted for the
amount "$102,800,000.00" in clause (a) of Section 2.3 of the Agreement.
3. T&C Agreement. The date "January 31, 1997" is substituted for the date
"July 31, 1996" in Section 5.13 of the Agreement. Pursuant to Section 5.13
of the Agreement, Seller and CJCNA consent to the Proposal attached hereto
as Exhibit "A" constituting the form of amendment to the T&C Agreement.
Seller hereby waives its right to terminate the Agreement pursuant to
Section 5.13 of the Agreement only with respect to the Proposal attached as
Exhibit A hereto.
4. ArtCarved License Agreement. Buyer acknowledges that Seller has sold its
Bridal Division pursuant to asset purchase agreements with The J.T. Waugh
Company and JTW Industries, Inc. In connection therewith, Seller entered
into a Trademark License Agreement ("License Agreement"), a Noncompetition
Agreement ("Noncompetition Agreement") and a Transition Services Agreement
("Services Agreement" and collectively with the Licenses Agreement and the
Noncompetition Agreement, the "JTW Agreements"). The parties to the
Agreement hereby agree that:
a. The JTW Agreements shall be included in the defined term "Contracts"
in Section 1.1(a)(iii) of the Agreement and shall be added to the
listing on Schedule 1.1(a)(iii) to the Agreement.
b. Items (a), (i) and (r) of Section 2.2 and Items (e), (f) and (h) of
Section 2.3 shall be deemed deleted and shall not be deliveries to be
made at Closing pursuant to Section 2.2 and 2.3 of the Agreement nor
shall the delivery thereof be a condition to Closing pursuant to
Section 7.3(b).
c. The License Agreement and the Services Agreement shall be added to the
listing on Schedules 3.5 and 3.6 of the Agreement and the Licenses
Agreement shall be added to the listing on Schedule 3.8 of the
Agreement.
d. Buyer shall be deemed to have granted its consent to Seller to enter
into the JTW Agreements to the extent required by Section 5.1 of the
Agreement.
e. The additions to the Schedules to the Agreement set forth above shall
not be deemed an update of the Schedules pursuant to Section 5.9 of
the Agreement nor shall the sale of the Bridal Division or the
execution of any documents in connection with the consummation thereof
be considered a material adverse change in the Business for purposes
of Section 7.3(c).
-2-
<PAGE>
5. Update of Schedules. The date "January 16, 1997" is hereby substituted for
the date "July 16, 1996" in Section 5.9 of the Agreement. Nothing contained
in this Amendment shall constitute an amendment of the Schedules as
contemplated in Section 5.9 of the Agreement.
6. Outside Closing Date. The date "January 31, 1997" is hereby substituted for
the date "July 31, 1996" in clause (b) of Section 8.1 of the Agreement.
7. Survival. The date "March 31, 1997" is hereby substituted for the date
"December 31, 1996" in Section 9.1 of the Agreement.
8. Update of Schedule 1.1(a)(iv). Schedule 1.1(a)(iv) is hereby amended by
adding to Schedule 1.1(a)(iv) the trademarks described in Exhibit "B"
hereto.
9. No Prior Amendments. The Agreement (including the documents and instruments
referred to therein) and this Amendment constitute the entire agreement of
the parties hereto as to the subject matter hereof and supersede all other
prior agreements and understandings, both written and oral, relating
thereto among the parties hereto. Except as expressly amended herein, the
Agreement shall remain in full force and effect.
10. Applicable Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Texas regardless of the laws that
might otherwise govern under applicable principles of conflict of laws
thereof.
11. Counterparts. This Amendment may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
be executed on its behalf by its duly authorized officer, all as of November 21,
1996, and this Amendment shall be effective as of such date.
CJC HOLDINGS, INC.
By: /s/ Jeffrey H. Brennen
---------------------------
Name: Jeffrey H. Brennen
Title: President
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<PAGE>
CJC NORTH AMERICA, INC.
By: /s/ Jeffrey H. Brennan
------------------------------
Name: Jeffrey H. Brennan
---------------------------
Title: Vice President
---------------------------
SCHOLASTIC BRANDS, INC.
By: /s/ David B. Pittaway
------------------------------
Name: David B. Pittaway
---------------------------
Title: President
---------------------------
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<PAGE>
EXHIBIT 2.3
SCHOLASTIC BRANDS, INC.
c/o CASTLE HARLAN, INC.
150 East 58th Street
New York, New York 10155
December 16, 1996
CJC Holdings, Inc.
CJC North America, Inc.
7211 Circle S Road
Austin, Texas 78745
Re: Asset Purchase Agreement
------------------------
Gentlemen:
Reference is made to the Asset Purchase Agreement, dated as of
May 20, 1996, as amended by an Amendment thereto dated November 21, 1996 (the
"Agreement"), by and among Scholastic Brands, Inc. (formerly known as Class
Rings, Inc., "Buyer"), CJC Holdings, Inc. ("Seller"), and CJC North America,
Inc. All defined terms used herein which are not defined herein shall have the
meanings ascribed to them in the Agreement.
You and we hereby agree to further amend the Agreement in
accordance with Section 10.11 thereof to provide as follows:
1. Subsection 1.7 of the Agreement is hereby
deleted and there is hereby added a new subsection 1.7 that
provides as follows:
"1.7 ALLOCATION OF PURCHASE PRICE.
The Purchase Price shall be allocated
among the Assets based on their fair
market value in accordance with Section
1060 of the Code and the Treasury
Regulations thereunder. Buyer shall
prepare such an allocation of the
Purchase Price and deliver such
allocation to Seller not later than 45
days after the Closing Date, which
allocation shall be binding and
conclusive provided that there is a
reasonable basis for such allocation
under Section 1060 of the Code and the
Treasury Regulations thereunder. Seller
and Buyer agree to complete IRS Form
8594 consistently with such Allocation
and to furnish each other with a copy of
such form prepared in draft form not
later than 45 days prior to the filing
due date of such form. Neither Seller
nor Buyer shall file any
<PAGE>
CJC Holdings,Inc.,
CJC North America, Inc.
December 16, 1996
Page 2
Tax Return or take any position with any
taxing authority that is inconsistent
with such allocation."
2. Seller hereby represents and warrants the Uniform
Commercial Code filing number 208604 filed with the Secretary of State of
Texas on October 26, 1995 by secured party Bank One, Texas N.A. against
debtor Jan Barron d/b/a Keepsake does not relate to any indebtedness of the
Seller, nor does such filing relate to or in any way result in Bank One Texas
N.A. having any security interest or claim against any of the Assets. Seller
hereby agrees to indemnify and hold harmless Buyer from and against any and
all damages, liabilities, costs on expenses arising from or in connection
with or relating to such UCC filing.
If you are in agreement with the foregoing, please sign this
letter in the space below and return a copy to the undersigned. Except as
otherwise expressly amended hereby, all provisions of the Agreement shall remain
the same. The Agreement shall remain in full force and effect.
Very truly yours,
SCHOLASTIC BRANDS, INC.
By: /s/ David B. Pittaway
--------------------------
David B. Pittaway
President
ACCEPTED AND AGREED TO
this 16th day of December, 1996:
CJC HOLDINGS, INC.
By: /s/ Jeffrey H. Brennan
-------------------------------
Name: Jeffrey H. Brennan
Title: President
CJC NORTH AMERICA, INC.
By: /s/ Jeffrey H. Brennan
-------------------------------
Name: Jeffrey H. Brennan
Title: Vice President
<PAGE>
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
by and among
Scholastic Brands, Inc.,
(formerly known as Class Rings, Inc.)
as Buyer
and
Town & Country Corporation,
L.G. Balfour Company, Inc.
as Sellers
and
(solely for purposes of Articles X and XI hereof) Gold Lance, Inc.,
November 21, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I
TRANSFER OF ASSETS AND LIABILITIES
1.1 Purchase of Sellers' Assets............................................ 2
1.2 Assumed Liabilities.................................................... 5
1.3 Excluded Liabilities................................................... 5
1.4 Purchase Price......................................................... 6
1.5 Determination of Adjusted Working Capital and Reconciliation
of Purchased Gold...................................................... 7
1.6 Payment of Adjusted Purchase Price and Reconciliation of
Gold Payment........................................................... 9
1.8 Allocation of Purchase Price........................................... 11
1.9 Prorations............................................................. 11
ARTICLE II
CLOSING
2.1 The Closing............................................................ 13
2.2 Deliveries by Sellers.................................................. 13
2.3 Deliveries by Buyer.................................................... 15
2.4 Other Deliveries....................................................... 16
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
3.1 Corporate Organization................................................. 16
3.2 Authorization.......................................................... 16
3.3 No Violations; No Consents or Approvals Required....................... 17
3.4 Financial Statements................................................... 17
3.5 Absence of Undisclosed Liabilities..................................... 18
3.6 Absence of Certain Changes............................................. 19
3.7 Title to Properties and Related Matters................................ 19
3.8 Intellectual Property.................................................. 20
3.9 Litigation............................................................. 20
3.10 Compliance with Applicable Law......................................... 20
3.11 Brokers and Finders.................................................... 21
3.12 Powers of Attorney..................................................... 21
3.13 Labor and Employment................................................... 21
3.14 Employee Benefits...................................................... 21
3.15 Asset Maintenance...................................................... 22
3.16 Contracts.............................................................. 23
3.17 Environmental.......................................................... 23
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<PAGE>
3.18 Taxes.................................................................. 24
3.19 Accounts Payable....................................................... 25
3.20 Customers and Suppliers................................................ 25
3.21 Inventory.............................................................. 25
3.22 Accounts Receivable.................................................... 26
3.23 Real Property.......................................................... 26
3.24 Assets Constituting the Business....................................... 26
3.25 Cost Savings Assumptions............................................... 27
3.27 Shareholder Vote....................................................... 27
3.28 Related Party Transactions............................................. 27
3.29 SEC Documents.......................................................... 27
3.30 Gold................................................................... 28
3.31 Consolidation of Graphics Plants....................................... 28
3.32 Full Disclosure........................................................ 28
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Corporate Organization................................................. 28
4.2 Authorization.......................................................... 29
4.3 No Violations, No Consents or Approvals Required....................... 29
4.5 Brokers and Finders.................................................... 29
4.6 Financing.............................................................. 30
4.7 Litigation Affecting Buyer............................................. 30
ARTICLE V
COVENANTS
5.1 Conduct of the Business Pending the Closing............................ 30
5.2 Access to Information.................................................. 31
5.3 Cooperation............................................................ 33
5.4 Public Announcements................................................... 33
5.5 Hart-Scott-Rodino Filing............................................... 34
5.6 Post Closing Confidentiality........................................... 34
5.7 Environmental Assessment............................................... 34
5.8 Temporary Leases and Subleases......................................... 35
5.9 CJC Agreement.......................................................... 35
5.10 Update of Schedules.................................................... 35
5.11 Audit; Delivery of Financial Statements................................ 36
5.12 Non-Competition........................................................ 36
5.13 Dallas Graphics Plant.................................................. 37
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<PAGE>
ARTICLE VI
PERSONNEL, EMPLOYMENT ARRANGEMENTS AND EMPLOYEE BENEFITS
6.1 Personnel.............................................................. 38
6.2 401 (k) Plan........................................................... 38
6.3 Other Seller Welfare Benefit Plans..................................... 39
6.4 Limitations............................................................ 40
6.5 Vacation............................................................... 40
6.6 Payroll Issues......................................................... 40
6.7 Worker Adjustment and Retraining Notification Act...................... 40
6.8 Employee Rights........................................................ 40
ARTICLE VII
CONDITIONS TO CLOSING
7.1 General Conditions..................................................... 41
7.2 Conditions to Obligations of Sellers................................... 41
7.3 Conditions to Obligations of Buyer..................................... 42
ARTICLE VIII
TERMINATION
8.1 Termination............................................................ 42
8.2 Notice of Termination.................................................. 43
8.3 Effect of Termination.................................................. 43
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES, INDEMNIFICATION
9.1 Survival............................................................... 43
9.2 Indemnification by Seller.............................................. 44
9.3 Indemnification by Buyer............................................... 44
9.4 Limitation of Liability................................................ 44
9.5 Notice and Right to Defend............................................. 45
9.6 Remedies Exclusive..................................................... 45
ARTICLE X
ADDITIONAL COVENANTS
10.1 No Disposition........................................................ 46
10.2 Employees............................................................. 46
10.3 Non-Compete........................................................... 46
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<PAGE>
ARTICLE XI
MISCELLANEOUS
11.1 Expenses, Taxes....................................................... 46
11.2 Further Assurances.................................................... 47
11.3 Notices............................................................... 47
11.4 Headings; Interpretation.............................................. 48
11.5 Applicable Law........................................................ 48
11.6 Successors and Assigns................................................ 48
11.7 Counterparts.......................................................... 48
11.8 Entire Agreement...................................................... 48
11.9 Severability.......................................................... 48
11.10 Bulk Sales Laws....................................................... 49
11.11 Amendment............................................................. 49
11.12 Waiver................................................................ 49
-iv-
<PAGE>
EXHIBITS
Exhibit "A" - Allocation of Purchase Price
Exhibit "B" - Sublease Terms
Exhibit "C" - Lease Terms
Exhibit "D" - Escrow Term Sheet
SCHEDULES
Schedule 1.1(a) Statement of Purchased Accounts
Schedule 1.1(a)(ii) Excluded Inventory
Schedule 1.1(a)(iv) Trademarks, Tradenames, Service Marks, Etc.
Schedule 1.1(a)(xii) Sales Office Leases
Schedule 1.1(c)(ii)(a) Owned Property
Schedule 1.1(c)(ii)(b) Leased Property
Schedule 1.1(c)(ii)(c) Other Owned Property
Schedule 1.1(c)(viii) Excluded Machinery and Equipment
Schedule 1.4(a) Base Working Capital Statement
Schedule 1.4(b) Operating Liabilities
Schedule 1.7 One Time Expenses
Schedule 3.1(a) Jurisdiction of Incorporation
Schedule 3.3 No Violations, No Consents or Approvals Required
Schedule 3.4(a) Audited Financial Statements
Schedule 3.4(b) Business Financial Statements
Schedule 3.4(c) Balance Sheet
Schedule 3.4(d) Methodology
Schedule 3.5 Material Liabilities or Obligations
Schedule 3.6 Absence of Certain Changes
Schedule 3.6(g) New Bonus and Incentive Plans
Schedule 3.7 Proceedings; Liens
Schedule 3.8 Intellectual Property
Schedule 3.9 Litigation
Schedule 3.10 Compliance
Schedule 3.12 Powers of Attorney
Schedule 3.13 Labor and Employment
Schedule 3.14 Employment Benefits
Schedule 3.15 Asset Maintenance
Schedule 3.16(a) Defaults Under Contracts
Schedule 3.16(b) Contracts
Schedule 3.17 Environmental Compliance
Schedule 3.23 Defects in Leasehold Title
Schedule 3.25 Projected Cost Savings
Schedule 3.28 Related Party Transactions
Schedule 5.1(b) Capital Expenditures
Schedule 5.1(c) Disposition of Capital Assets
Schedule 5.5 FTC Order
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<PAGE>
Schedule 6.1 Transferred Employees
Schedule 6.3(d) Post-Retirement Benefits
Schedule 6.3(e) Special Severance Obligations
Schedule 6.5 Business Vacation Policy
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<PAGE>
INDEX OF DEFINITIONS
Definitions Section
- - ----------- -------
Accountants...............................................................1.5(d)
Adjusted Working Capital..................................................1.4(a)
Agreement...............................................................Preamble
Assets....................................................................1.1(b)
Assumed Liabilities..........................................................1.2
Assumption Agreement......................................................2.3(c)
Audited Financial Statements..............................................3.4(a)
Balance Sheet.............................................................3.4(c)
Balfour.................................................................Preamble
Base Working Capital Statement............................................1.4(a)
Bills of Sale.............................................................2.2(a)
Business................................................................Preamble
Business Financial Statements.............................................3.4(b)
Business Vacation Policy.....................................................6.5
Buyer...................................................................Preamble
Buyer 401(k) Plan.........................................................6.2(a)
Buyer Agreements.............................................................4.2
Buyer Medical Plans.......................................................6.3(c)
Buyer Welfare Plan........................................................6.3(a)
Buyer's Business..........................................................1.7(e)
CAA......................................................................3.17(a)
CERCLA...................................................................3.17(a)
CHP II..................................................................Preamble
CJC.......................................................................7.1(c)
CJC Agreement.............................................................7.1(c)
Closing......................................................................2.1
Closing Date..........................................................1.1(c)(iv)
Code.....................................................................3.14(a)
Consigned Gold........................................................1.1(a)(ii)
Consultation Period..........................................................5.7
Contracts............................................................1.1(a)(iii)
Current Assets............................................................1.4(a)
Current Liabilities.......................................................1.4(a)
CWA......................................................................3.17(a)
Damages......................................................................9.2
Determination Period......................................................1.7(a)
EBITDA....................................................................1.7(b)
Employees....................................................................6.1
Environmental Claim......................................................3.17(a)
Environmental Laws.......................................................3.17(a)
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<PAGE>
Definitions Section
- - ----------- -------
Environmental Liabilities................................................3.17(a)
Equipment..............................................................1.1(a)(i)
ERISA....................................................................3.14(c)
ERISA Affiliate..........................................................3.14(a)
ESA..........................................................................5.7
Escrow Agent..............................................................1.4(a)
Escrow Agreement..........................................................1.4(a)
Estimated Consigned Gold Purchase Price...................................1.4(b)
Estimated Cost Savings......................................................3.25
Estimated Working Capital.................................................1.4(a)
Excluded Assets...........................................................1.1(c)
Excluded Liabilities.........................................................1.3
Exercise Date.............................................................1.7(b)
Financing Equity..........................................................1.4(a)
FTC Interim Agreement...................................................Preamble
FTC Final Order.........................................................Preamble
FTC Preliminary Order...................................................Preamble
GAAP......................................................................1.7(b)
Gold Certificate..........................................................1.5(a)
Gold Lance..............................................................Preamble
Hazardous Materials.........................................................3.17
HSR Act......................................................................3.3
Intellectual Property.................................................1.1(a)(iv)
Kentucky Lease............................................................1.1(b)
Kentucky Property.........................................................1.1(b)
Leased Property.......................................................1.1(c)(ii)
Leases....................................................................2.2(m)
Liens........................................................................3.7
Management Options........................................................1.4(a)
Non-SR Gold Amount........................................................1.4(b)
Non-SR Gold Certificate...................................................1.5(a)
Option Agreement..........................................................2.2(l)
OSHA........................................................................3.13
Owned Property........................................................1.1(c)(ii)
Permits..............................................................1.1(a)(vii)
Proposed Amendments..........................................................5.9
Purchase Price............................................................1.4(a)
Purchased Gold............................................................1.5(a)
RCRA.....................................................................3.17(a)
Real Property.........................................................1.1(c)(ii)
Release.....................................................................3.17
Relevant Group...........................................................3.18(c)
Sales Office Leases...................................................1.1(a)(ii)
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Definitions Section
- - ----------- -------
Sales Office Property.................................................1.1(a)(ii)
Schedule 3.4(d) Methodology...............................................3.4(d)
SEC.......................................................................3.4(b)
SEC Documents...............................................................3.29
Securities Act..............................................................3.29
Sellers.................................................................Preamble
Seller Agreements............................................................3.2
Seller 401(k) Plan........................................................6.2(b)
Seller Welfare Plans......................................................6.3(a)
SR Gold Amount............................................................1.4(b)
SR Gold Certificate.......................................................1.5(b)
Statement of Net Working Capital..........................................1.5(a)
Statement of Purchased Amounts........................................1.1(a)(ii)
Subleases.................................................................2.2(g)
Survival Period..............................................................9.1
T&C.....................................................................Preamble
Tax......................................................................3.18(c)
Tax Returns..............................................................3.18(c)
Transferred Employees.....................................................6.1(a)
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AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
This Amended and Restated Asset Purchase Agreement, dated as of November
21, 1996 (as so amended, this "Agreement"), is by and among Scholastic Brands,
Inc. (formerly known as "Class Rings, Inc."), a Delaware corporation ("Buyer"),
Town & Country Corporation, a Massachusetts corporation ("T&C"), L.G. Balfour
Company, Inc., a Delaware corporation and a wholly-owned subsidiary of T&C
("Balfour" and together with T&C sometimes hereinafter referred to collectively
as the "Sellers" and individually as a "Seller"), and for purposes of Articles X
and XI hereof, Gold Lance, Inc., a Massachusetts corporation and a wholly-owned
subsidiary of T&C ("Gold Lance").
WHEREAS, on May 20, 1996, the parties hereto entered into an Asset
Purchase Agreement (the "Original Agreement"), which provided for the sale to
Buyer by Sellers and Gold Lance of substantially all of the assets of Balfour
and Gold Lance, subject to certain liabilities, upon the terms and conditions
set forth herein; and
WHEREAS, T&C, Buyer and Castle Harlan Partners II L.P., Buyer's sole
stockholder ("CHP II"), have executed an Agreement Containing Consent Order with
the Federal Trade Commission (the "FTC Preliminary Order"), pursuant to which,
among other things (i) Buyer and CHP II have agreed not to acquire from T&C, and
T&C has agreed not to sell to Buyer or CHP II, any interests in or assets of T&C
or Gold Lance other than assets of or used in the business by, Balfour and (ii)
Buyer and CHP II have agreed not to sell to T&C, and T&C has agreed not to
acquire from Buyer or CHP II, any interests in or assets of Buyer; and
WHEREAS, on September 6, 1996, the parties hereto entered into an Interim
Agreement with the Federal Trade Commission (the "FTC Interim Agreement"), which
provides that Buyer, CHP II and T&C agree to be bound by the terms of the FTC
Preliminary Order as if it were final (as finally issued by the Federal Trade
Commission, the "FTC Final Order"); and
WHEREAS, in connection with the FTC Interim Agreement and the FTC
Preliminary Order, the parties hereto have agreed to amend the Original
Agreement in accordance with the terms of Section 10.11 thereof to provide that
(i) Sellers will sell to Buyer, and Buyer will purchase from Sellers,
substantially all of the assets of Sellers used in or associated with the class
ring, graduation graphics products, sports memorabilia, specialty commemorative
rings, pins and other devices, all as related to the scholastic, sports,
recognition and logo products businesses of Sellers, all as currently conducted
by Balfour, including, without limitation, substantially all of the assets of
Balfour and certain related assets of T&C (the "Business") and (ii) Buyer will
assume certain specified liabilities of Sellers associated with the Business,
all upon the terms and subject to the conditions set forth in this Agreement.
In consideration of the foregoing and the mutual representations,
warranties, covenants and agreements contained herein, intending to be legally
bound hereby, the parties hereto agree as follows:
<PAGE>
ARTICLE I
TRANSFER OF ASSETS AND LIABILITIES
1.1 Purchase of Sellers' Assets.
(a) Except as provided in Section 1.1(c) below and subject to the
terms and conditions of this Agreement, Balfour shall sell, transfer, convey,
assign and deliver to Buyer, free and clear of all Liens (other than Permitted
Liens), and Buyer shall purchase, acquire, assume and accept from Balfour, all
of the following properties, assets, rights, claims and contracts associated
with or used or held by Balfour for use in the operation of the Business (the
"Balfour Assets"):
(i) all machinery, motor vehicles, equipment, molds, dies and
all other tangible personal property used or held for use in the Business as of
the date hereof, wherever located, plus additions or minus deletions thereto
since the date hereof made in the ordinary course of business (all of the
foregoing in this Section 1.1(a)(i) shall collectively be referred to herein as
the "Equipment");
(ii) all inventories of gold, silver and other raw materials,
supplies, work in process, packaging supplies, samples, finished goods, goods on
consignment or memo goods and other inventories used or held for use in the
Business, including all inventory reflected on the statement, dated as of
January 28, 1996, of assets being purchased and liabilities being assumed
hereunder, a copy of which is set forth on Schedule 1.1(a) hereto (the
"Statement of Purchased Accounts"), plus additions or minus deletions thereto
(x) since the date of the Statement of Purchased Accounts made in the ordinary
course of business or (y) as set forth on Schedule 1.1(a)(ii) hereof; and
including, without limitation, all gold on consignment to Balfour for use in or
held for use in the Business (the "Consigned Gold");
(iii) all rights in and under contracts (including any
non-competition agreements), leases of personal property, licenses, or other
arrangements, purchase and sale orders and other agreements related to the
ownership or operation of the Assets or the Business (the "Contracts"), to the
extent transferable;
(iv) all trademarks, tradenames, service marks, copyrights,
patents and all registrations and applications for registrations of any of the
foregoing that are related to or used or held for use in the Business, all of
which are specifically identified in Schedule 1.1(a)(iv) hereto, and all
inventions, trade secrets, know-how, formula and designs related to the
Business, including the goodwill associated with the foregoing, and all rights
and remedies against any infringement thereof (all of the foregoing referred to
as the "Intellectual Property");
(v) all accounts and notes receivable arising from the
operation of the Business, including accounts for goods and services but
excluding those accounts and notes receivable arising from or constituting
intercompany loans and advances (the "Intercompany Accounts");
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(vi) all computer equipment and computer programs (to the
extent transferable) and documentation used in the Business;
(vii) all franchises, licenses, permits or other rights
granted by governmental authorities and all certificates of convenience or
necessity, easements, consents, grants, rights to emission credits and other
rights of every character whatsoever that are used for the lawful ownership or
operation of the Assets or the Business (collectively, the "Permits"), to the
extent transferable;
(viii) all plans or designs for jewelry products at any time
used in or produced or designed for use in or currently in process at or
currently planned in connection with the Business;
(ix) all books of account, records, files and invoices used in
or associated with the Business, including but not limited to all production
data, equipment maintenance data, employee files, accounting records, inventory
records, sales and sales promotional data, advertising materials, customer
lists, cost and pricing information, supplier lists, business plans, reference
catalogs and any other records and data used in connection with the Business;
(x) all rights under express or implied warranties from
suppliers of the Business (to the extent transferable in accordance with
applicable law) except warranties related to Excluded Liabilities (as defined
below);
(xi) all cash received on or after the Closing Date, whether
received as cash, check, wire transfer, deposits to any lock boxes of any Seller
or otherwise, attributable to or arising from the activities or operations of
the Business;
(xii) all of Balfour's rights and interests in the leases of
real property (the "Sales Office Property") listed on Schedule 1(a)(xii) hereto,
and all renewals and replacements thereof (collectively, the "Sales Office
Leases"); and
(xiii) all other properties, assets, rights, claims and
contracts (other than the Excluded Assets, as defined below) relating to the
Assets or used or usable in the conduct of the Business, including, without
limitation, the goodwill related to the Business.
(b) Subject to the terms and conditions of this Agreement, T&C shall
sell, transfer, convey, assign and deliver to Buyer, free and clear of all Liens
(other than Permitted Liens), and Buyer shall purchase, acquire, assume and
accept from T&C, all of the properties, assets, rights, claims and contracts
associated with or used or held by T&C for use in the operation of the Business
(the "T&C Assets", and together with the Balfour Assets, the "Assets"),
including without limitation, all of T&C's right and interest in and to the
lease of the facility located on property in Louisville, Kentucky (the "Kentucky
Property") dated August 3, 1995, between T&C, as lessee, and Riverport Commerce
Center, Inc., as lessor (the "Kentucky Lease").
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(c) Notwithstanding anything to the contrary contained herein, the
Assets shall exclude the following (the "Excluded Assets"):
(i) cash and cash equivalents, bank accounts, lock boxes and
other similar accounts and marketable securities, other than as set forth in
Section 1.1(b)(xi) above;
(ii) all real property owned by Sellers and all interests in
real property held by Sellers, including, without limitation (a) the real
property owned by Sellers listed on Schedule 1.1(c)(ii)(a) attached hereto (the
"Owned Property") and (b) the real property leased by Sellers listed on Schedule
1.1(c)(ii)(b) attached hereto (the "Leased Property" and together with the Owned
Property, the Sales Office Property and the Kentucky Property, the "Real
Property"), other than the Kentucky Lease and the Sales Office Leases, and (c)
the other real property owned by Sellers as listed on Schedule 1.1(c)(ii)(c);
(iii) any insurance policies relating to the Assets or the
Business including premium adjustments, retrospective rating adjustments and
prepaid insurance premiums;
(iv) the Permits and the Contracts, to the extent such Permits
or Contracts (other than any contracts that require only the payment of money
not in excess of $1,250 per month and that are terminable at will by either
party thereto, without premium or penalty or any payment of any kind, on not
more than 30 days' prior notice ("Immaterial Contracts")) are not transferable
or consents required to permit the transfer thereof have not been obtained by
the date of the Closing (the "Closing Date"), or Buyer is not otherwise
obtaining substantially equivalent benefits for the Business thereunder;
(v) all claims, and all deposits on account of claims, for
refunds of taxes and other government charges or assessments arising from or
pertaining to periods, activities, operations or events occurring prior to the
Closing Date relating to Sellers, other than to the extent such claims or
deposits are related to or arise out of an Assumed Liability;
(vi) the capital stock of each Seller and the corporate seals,
minute books, stock ledgers or other books and records pertaining to the
organization, issuance of stock and capitalization of the Sellers (except that
Buyer shall have reasonable access to such of the foregoing relating to the
Business);
(vii) all claims against third parties related exclusively to
Excluded Liabilities (as defined below) or Excluded Assets; and
(viii) all machinery, motor vehicles and other equipment set
forth on Schedule 1.1(c)(viii) hereto.
(d) The title to, possession of and risk of loss, destruction or
damage with respect to the Assets shall pass to Buyer as of the time of Closing;
provided, however, that this Section 1.1 shall not diminish, limit or otherwise
impair in any manner Buyer's or Sellers' rights under the other provisions of
this Agreement or the instruments, agreements, certificates and
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documents to be executed and delivered in connection herewith that apportion
liability between the parties with respect to events, occurrences, omissions or
other matters arising or occurring during specific periods.
1.2 Assumed Liabilities.
As partial consideration for the purchase of the Assets and the
Business, at the Closing Buyer shall assume and agree thereafter to perform when
due and discharge only the following debts, obligations and liabilities of
Sellers relating to the Business or the Assets, whether known, unknown, fixed,
contingent, or otherwise (the "Assumed Liabilities"):
(a) those liabilities, obligations, costs and expenses of Balfour
which relate to or arise out of the performance of the Contracts and Permits on
or after the Closing Date and those liabilities, obligations, costs and expenses
of T&C under the Kentucky Lease on or after the Closing Date, in each case, (x)
to the extent that such Contracts (in the case of Contracts other than
Immaterial Contracts), Permits, the Kentucky Lease and the Sales Office Leases
are assigned to Buyer hereunder in compliance with any required consents of
other parties or consents or approvals of governmental authorities or (y) to the
extent Buyer is otherwise obtaining substantially equivalent benefits for the
Business thereunder;
(b) the accounts payable and other liabilities of Balfour included
as categories on the Statement of Purchased Accounts and liabilities as incurred
in the ordinary course thereafter other than Intercompany Accounts to the
extent: (x) included in the determination of Adjusted Working Capital pursuant
to Section 1.5 or (y) as Buyer may, at its sole discretion, hereafter consent in
writing with Sellers;
(c) those obligations to employees expressly to be assumed by Buyer
under Article VI of this Agreement;
(d) the obligations of Balfour to honor cash discounts, dating terms
and prepaid orders to the extent included in the accounts receivable of the
Business outstanding as of the Closing Date;
(e) the obligations of Balfour incurred in the ordinary course of
the Business as a bailee to hold, store or retain finished goods located at any
facility of the Business for customers who have previously purchased such goods;
(f) warranty obligations of Balfour arising out of sales by the
Business prior to the Closing Date; and
(g) those liabilities, obligations, costs and expenses to the extent
that they arise out of or relate to the operation of the Business after the
Closing Date (including, without limitation, Environmental Liabilities) (other
than the Excluded Liabilities, as defined below).
1.3 Excluded Liabilities. Sellers shall retain all debts, liabilities,
obligations and commitments (collectively, the "Excluded Liabilities") arising
out of or related to (i) the Assets
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<PAGE>
or the Business on or prior to the Closing Date, including, without limitation,
all Environmental Liabilities, Intercompany Accounts, all obligations under
Sellers' consignment and other financing arrangements, all obligations to
employees of Balfour under the Sellers' incentive compensation or bonus plans,
and all claims, actions, suits, proceedings or investigations against or
affecting any Seller (regardless of when a claim therefore is asserted) or (ii)
the operations of the businesses of Sellers from and after the Closing Date
(including, without limitation, Environmental Liabilities), in each case, other
than the Assumed Liabilities.
1.4 Purchase Price.
(a) Subject to adjustment in accordance with this Section 1.4 and
Sections 1.5 and 1.6 below, the aggregate purchase price (the "Purchase Price")
payable to Sellers in consideration for the Assets (other than gold, which shall
be purchased pursuant to subsection 1.4(b) below) and the Business (in addition
to the assumption of the Assumed Liabilities) shall be an aggregate amount in
cash equal to the sum of (x) $23,137,586 [such amount being derived as follows:
$44,000,000 less the net amount contained in the statement of working capital as
at January 28, 1996 as set forth on Schedule 1.4(a) (the "Base Working Capital
Statement")] plus (y) the Adjusted Working Capital (as defined below) plus (z)
the aggregate amount on account of those certain operating liabilities set forth
on Schedule 1.4(b) hereof. Buyer will pay the Purchase Price at Closing as
follows:
(i) by wire transfer in immediately available funds to an account
designated by Sellers (in accordance with the allocation determined
pursuant to Section 1.8(b) hereof), an amount equal to the sum of (x)
$9,137,586 plus (y) Sellers' good faith estimate of the Adjusted Working
Capital (the "Estimated Working Capital"), which estimate shall be set
forth in writing and shall be delivered to Buyer not less than three (3)
business days prior to the Closing Date plus (z) the aggregate amount on
account of those certain liabilities set forth on Schedule 1.4(b) hereof;
and
(ii) to an escrow agent (the "Escrow Agent") by wire transfer in
immediately available funds to an account designated by the Escrow Agent,
an amount equal to $14,000,000 to be held by the Escrow Agent pending
receipt of the FTC Final Order, pursuant to the terms of an escrow
agreement incorporating the terms set forth on Exhibit D hereof (the
"Escrow Agreement") to be entered into on the Closing Date among Sellers,
Buyer and the Escrow Agent.
Sellers shall have no liability to Buyer if the FTC Final Order
differs from the FTC Preliminary Order except to the extent of a reduction in
the Purchase Price payable pursuant to this Subsection 1.4(a) (and the right to
receive an amount equal to such reduction from the Escrow Fund held by the
Escrow Agent), except to the extent that Sellers would otherwise be liable to
Buyer in connection therewith or on account thereof pursuant to any other
provision of this Agreement without regard to the limitation in the first clause
of this sentence.
"Adjusted Working Capital" means Current Assets of the Business less
Current Liabilities of the Business, each as of the Closing Date. For purposes
of the foregoing, "Current Assets" shall include only (i) accounts receivable,
(ii) inventory (other than gold) to be valued at
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the lower of market or FIFO cost, (iii) prepaid expenses (but excluding prepaid
insurance) and (iv) monies on deposit with others, in each case to the extent
comprising those general ledger accounts listed on the Base Working Capital
Statement and constituting the Assets being purchased hereunder. For purposes of
the foregoing, "Current Liabilities" shall include only (i) accounts payable and
(ii) accrued expenses, in each case to the extent comprising those general
ledger accounts listed on the Base Working Capital Statement and constituting
Assumed Liabilities hereunder.
(b) In addition, at the Closing, Buyer or its lenders shall purchase
from Balfour or the Sellers' lenders all of Balfour's gold (including the
Consigned Gold) at a cash purchase price per troy ounce equal to the price
announced at the second London gold fixing for the Closing Date (the "Gold
Price") or, at the option of the Buyer, by the delivery of an equal number of
troy ounces of gold. Sellers shall prepare and deliver to Buyer not less than
three (3) business days prior to the Closing Date a certificate containing its
estimate of the number of troy ounces of gold to be transferred to Buyer at the
Closing on the Closing Date (the "Estimated Gold Certificate"), which Estimated
Gold Certificate shall include estimates of (i) the aggregate number of troy
ounces of gold held by sales representatives of the Business (the "SR Gold
Amount") and (ii) the aggregate number of troy ounces of gold held for the
account of the Business and in Balfour's possession (the "Non-SR Gold Amount").
In connection therewith, not later than seven business days prior to the
scheduled Closing Date, Sellers shall forward confirmation letters to all sales
representatives of the Business, the form and substance of which shall be
reasonably satisfactory to Buyer, asking each such representative to confirm the
type and number of units of the inventory of gold of the Business in the
possession of such representative as of the Closing Date and requesting that
such letters be promptly forwarded to Buyer's independent accountants, which
shall promptly forward copies of such letters to Buyer and Sellers upon receipt
thereof. Buyers shall reconcile such confirmation letters with the books and
records of the Business in accordance with the procedures set forth in Section
1.5 below. For all purposes hereof, "gold" shall mean fine gold having a
fineness of not less than .9995, regardless of its form.
1.5 Determination of Adjusted Working Capital and Reconciliation of
Purchased Gold.
(a) As promptly as practical after the Closing Date, and in any
event no later than forty-five (45) days thereafter (in the case of the
Statement of Net Working Capital and the Non-SR Gold Certificate referred to
below) and ninety (90) days thereafter (in the case of the SR Gold Certificate
referred to below), Buyer shall prepare and deliver to Sellers an unaudited
statement of working capital with respect to the Business as of the Closing Date
(the "Statement of Net Working Capital"), showing the Adjusted Working Capital,
which shall have been prepared by Buyer in a manner consistent with the
principles used in the preparation of the Base Working Capital Statement (except
with respect to inventory, which shall be subject to a physical inventory, as
described herein), together with a certificate (the "Non-SR Gold Certificate")
setting forth the aggregate number of troy ounces of the Non-SR Gold Amount
actually transferred to Buyer or its lenders on the Closing Date. In connection
with the foregoing, a physical inventory of all of the Business' inventory
including, without limitation, a physical
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inventory of all gold, shall be taken as of, and completed on, the Closing Date.
Buyer and Sellers may consult with Buyer's independent accountants, who will
establish the procedures to be followed in connection with the physical
inventory. If within twenty (20) business days following the date hereof, the
parties hereto do not agree as to such procedures, such disagreement shall be
submitted for resolution to the independent public accounting firm of Price
Waterhouse (or, if Price Waterhouse is not then independent of Buyer or any
Seller, such other "Big 6" accounting firm that is independent of Buyer and
Sellers as Buyer and Sellers shall jointly select), which, upon consultation
with the parties hereto, shall promptly establish the procedures for such
physical inventory. Such accountants' procedures for the physical inventory
shall be set forth in a written statement delivered to Sellers and Buyer, and
shall be final, conclusive and binding on Sellers and Buyer.
The facilities of the Business at which gold is located shall be
closed during the taking of the physical inventory of such gold, which for these
purposes shall only include the physical counting of such gold and not the
calculations or computations thereof. Sellers shall be allowed to have a
representative present for the taking of such inventories (wherever performed),
receive a copy of the physical inventory listing and, subject to the consent of
any accountants as may be assisting Buyer in performing such inventories,
receive copies of all reports and analyses generated therefrom.
(b) As promptly as practical following their receipt of same, Buyer
shall compare the responses of the sale representatives of the Business to the
confirmation letters described in Section 1.4(b) hereof with the information
contained in the books and records of the Business in order to reconcile the SR
Gold Amount set forth on the Estimated Gold Certificate with the SR Gold Amount
derived from the confirmation letters. To the extent that, based on such
reconciliation to the books and records of the Company and such other
investigations as Buyer, in its sole discretion, shall deem necessary, Buyer
determines that a sales representative has underreported the amount of gold held
by it, Buyer shall bill such representative for such amount. If any such sales
representative fails to pay such amount within 30 days after delivery of Buyer's
bill than Buyer may offset the amount of such shortage against any monies owed
by Buyer to such representative. No later than the ninetieth (90th) day
following the Closing Date, Buyer shall deliver to Sellers a certificate (the
"SR Gold Certificates" and together with the Non-SR Gold Certificate, the "Gold
Certificates") setting forth the aggregate number of troy ounces of the SR Gold
Amount confirmed by Buyer as held by the sales representatives on the Closing
Date and providing a list of discrepancies in the SR Gold Amount broken down by
each sales representative of the Business.
(c) After delivery to Sellers of the Statement of Net Working
Capital and each Gold Certificate, Sellers and their independent accountants
shall be afforded, at the Sellers' expense, the opportunity to review and
inspect any workpapers prepared by Buyer or its independent accountants (subject
to the consent of such accountants) relating to the preparation of the Statement
of Net Working Capital and such Gold Certificates and to consult with Buyer and
its independent accountants, if necessary, regarding the methods used in the
preparation of the Statement of Net Working Capital or such Gold Certificates.
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<PAGE>
(d) The Adjusted Working Capital as shown on the Statement of Net
Working Capital and the matters set forth on each Gold Certificate, in each case
as prepared by Buyer shall be final, conclusive and binding for purposes of this
Agreement, unless Sellers shall give written notice of disagreement therewith
within twenty (20) business days following receipt of the Statement of Net
Working Capital or such Gold Certificate, specifying in reasonable detail the
nature and extent of such disagreement; provided, however, that Sellers shall
not be permitted to give notice of disagreement with respect to the Statement of
Net Working Capital prepared by Buyer unless the amount in dispute exceeds One
Hundred Thousand ($100,000) Dollars.
(e) If within twenty (20) business days following receipt by Buyer
of a notice of the type referred to in subsection (d) above, Sellers and Buyer
are unable to resolve any disagreement with respect to the Statement of Net
Working Capital, the Non-SR Gold Certificate or the SR Gold Certificate, the
disagreement shall be submitted for resolution to the independent public
accounting firm of Price Waterhouse (or, if Price Waterhouse is not then
independent of Buyer or any Seller, such other "Big 6" accounting firm which is
independent of Buyer and Sellers as Buyer and Sellers shall jointly select)
("Accountants"), which shall act as an arbitrator to determine and resolve only
those issues still in dispute. The Accountants' resolution shall be made within
thirty (30) days of the submission of the dispute, shall be prepared in
accordance with this Agreement and in a manner that is consistent with the
principles used in the preparation of the Base Working Capital Statement and the
Gold Certificates, shall be set forth in a written statement delivered to
Sellers and Buyer, and shall be final, conclusive and binding on Sellers and
Buyer.
(f) The fees and expenses of the Accountants in connection with the
resolution referred to in subsection (e) above shall be shared between Sellers,
on the one hand, and Buyer, on the other hand, as follows: the Sellers and the
Buyer shall pay such portion of the fees and expenses equal to the proportion
(but in no event greater than 1) determined by (i) a numerator equal to the
positive difference between the Sellers' or the Buyer's, as the case may be,
submitted amount and the Accountants' determined amount and (ii) a denominator
equal to the sum of such positive difference for the parties. Otherwise, Buyer
and Sellers shall each pay their own costs incurred in connection with this
Section 1.5, including the fees and expenses of their respective accountants, if
any.
1.6 Payment of Adjusted Purchase Price and Reconciliation of Gold Payment.
(a) Promptly following the twenty-first business day following the
delivery of the Statement of Net Working Capital and the Non-SR Gold
Certificate, or in the event of a disagreement, promptly following the final
resolution of the Adjusted Working Capital and calculation of the Non-SR Gold
Amount as provided in Section 1.5, but in no event later than ten (10) days
after such resolution, (i) either:
(x) Buyer shall wire transfer to Sellers in immediately
available funds the amount by which the Adjusted Working Capital exceeds
the Estimated Working Capital; or
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(y) Sellers shall wire transfer to Buyer in immediately
available funds the amount by which the Estimated Working Capital exceeds
the Adjusted Working Capital.
and (ii) either:
(x) Buyer shall wire transfer to Sellers in immediately
available funds the amount equal to the product of (1) the excess of the
Non-SR Gold Amount set forth on the Non-SR Gold Certificate over the
Non-SR Gold Amount set forth on the Estimated Gold Certificate multiplied
by (2) the Gold Price; or
(y) Sellers shall wire transfer to Buyer in immediately
available funds the amount equal to the product of (1) the excess of the
Non-SR Gold Amount set forth on the Estimated Gold Certificate over the
Non-SR Gold Amount set forth on the Non-SR Gold Certificate multiplied by
(2) the Gold Price.
(b) Promptly following the twenty-first day following the delivery
of the SR Gold Certificate, or in the event of a disagreement concerning the SR
Gold Certificate, promptly following the final resolution of the SR Gold Amount
to be properly included in the SR Gold Certificate, but in no event later than
ten (10) days after such resolution, if the product of (x) the positive
difference between the SR Gold Amount as set forth on the Estimated Gold
Certificate and the SR Gold Amount as set forth on the SR Gold Certificate times
(y) the Gold Price is equal to or exceeds $25,000, then either:
(i) Sellers shall wire transfer to Buyer in immediately
available funds an amount equal to the product of (a) the excess of the SR
Gold Amount set forth on the Estimated Gold Certificate over the SR Gold
Amount set forth on the SR Gold Certificate multiplied by (b) the Gold
Price; or
(ii) Buyer shall wire transfer to Sellers in immediately
available funds an amount equal to the product of (a) the excess of the SR
Gold Amount set forth on the SR Gold Certificate over the SR Gold Amount
set forth on the Estimated Gold Certificate multiplied by (b) the Gold
Price.
(c) Any payment required to be made pursuant to this Section 1.6
shall be made together with interest thereon from the Closing Date to the date
of payment at the rate of interest per annum equal to the prime rate in effect
on the Closing Date as reported in The Wall Street Journal. All wire transfers
hereunder shall be to such accounts as the recipient thereof may designate in
writing for that purpose.
(d) If, as a result of the foregoing, Sellers are required to pay
Buyer any amounts on account of a deficiency in the SR Gold Amount, Sellers
shall retain the right to continue to seek to collect such deficiency from such
sales representative(s).
1.7 [Intentionally Omitted.]
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1.8 Allocation of Purchase Price.
(a) The Purchase Price shall be allocated among the Assets based on
their relative fair market value in accordance with Section 351 of the Code and
Revenue Ruling 68-55. Buyer shall prepare such an allocation of the Purchase
Price and deliver such allocation to Sellers not later than 3 days before the
scheduled Closing Date (the "Pre-closing Allocation"). The Pre-closing
Allocation shall be binding and conclusive (with such changes as may be
necessary to reflect changes in current assets between the date of the financial
statements on which the Pre-closing Allocation was based and the Closing Date
(the "Interim Changes")) provided that there is a reasonable basis for such
allocation under Section 1060 of the Code and the Treasury Regulations
thereunder. Buyer shall deliver to Sellers within 45 days after the Closing Date
a final allocation of the Purchase Price, which shall reflect the Pre-closing
Allocation revised to include the Interim Changes. If Sellers object to Buyer's
proposed allocation, Buyer and Sellers shall use their reasonable best efforts
to resolve their differences within 5 days of Buyer's delivery of its proposed
allocation with Interim Changes and any resolution reached during such period
shall thereafter be binding and conclusive. In the absence of any such
resolution, Buyer and Sellers shall immediately select by mutual agreement an
independent appraiser (which selection shall be by lot among the "Big 6"
accounting firms that audit neither Buyer nor any Seller if Buyer and Sellers
are unable to agree within such time), which appraiser shall select as most
reasonable either the allocation prepared by Buyer or the allocation prepared by
Sellers (in each case as revised to reflect the Interim Changes and in each case
as Buyer or Sellers, as the case may be, had agreed to modify such allocation
during the 5-day resolution period referred to above). The allocation selected
by Buyer, if Sellers raise no objection in accordance with this Section 1.8(a),
or by such appraiser (in either case, the "Final Allocation") shall be binding
and conclusive and the fees and expenses of such appraiser (if any) shall be
paid by the party whose allocation was not selected. Neither Buyer nor any
Seller shall file any tax return, report or form inconsistent with the Final
Allocation.
(b) The payments of cash to be made by Buyer to Balfour and T&C
pursuant to this Article I on account of the Balfour Assets and the T&C Assets,
respectively, shall be allocated between Sellers in accordance with written
instructions of T&C, which instructions shall be delivered to Buyer no less than
2 business days before such payment is scheduled to be made; provided, that no
such allocation shall conflict with the Final Allocation set forth on Exhibit A
hereto.
1.9 Prorations.
(a) Utilities; Taxes. Notwithstanding anything herein to the
contrary, the water, gas, electricity and other utilities, local business or
other license fees or taxes, common area expenses (and any other amount) charged
under the Kentucky Lease and the Sales Office Leases, and other similar periodic
charges, to the extent not included in the calculation of Adjusted Working
Capital, shall be apportioned as of the Closing Date such that Sellers shall be
liable for (and shall reimburse Buyer to the extent that Buyer shall pay) that
portion of such of the foregoing relating to, or arising in respect to periods
on or prior to the Closing Date and Buyer shall be liable (and shall reimburse
Sellers to the extent Sellers shall have paid) that
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portion of the foregoing relating to, or arising in respect to, periods after
the Closing Date. To the extent practicable, and to the extent not included in
the calculation of Adjusted Working Capital, utility meter readings for the
Kentucky Lease and the Sales Office Leases shall be determined as of the Closing
Date. Should any amounts to be prorated not have been finally determined on the
Closing Date, a mutually satisfactory estimate of such amounts made on the basis
of Sellers' records shall be used as a basis for settlement at Closing, and the
amount finally determined will be prorated as of the Closing Date and
appropriate settlement made as soon as practicable after such final
determination.
(b) Property Taxes. Notwithstanding anything herein to the contrary,
any taxes (other than payroll taxes) not measured or measurable, in whole or in
part, by net or gross income or receipts (including, but not limited to, real or
personal property or ad valorem taxes) imposed on the Assets that relate to a
tax period beginning before the Closing Date and ending after the Closing Date,
to the extent not included in the calculation of Adjusted Working Capital, shall
be apportioned as of the Closing Date such that Sellers shall be liable for (and
shall reimburse Buyer to the extent that Buyer shall pay) that portion of such
taxes relating to, or arising in respect to, periods on or prior to the Closing
Date and Buyer shall be liable for (and shall reimburse Sellers to the extent
Sellers shall have paid) that portion of such taxes relating to, or arising in
respect to, periods after the Closing Date. Should any amounts to be prorated
not have been finally determined on the Closing Date, a mutually satisfactory
estimate of such amounts made on the basis of Sellers' records shall be used as
a basis for settlement at Closing, and the amount finally determined will be
prorated as of the Closing Date and appropriate settlement made as soon as
practicable after such final determination.
(c) Rents. Sellers shall prepay rental payments due under the
Kentucky Lease and the Sales Office Leases through the end of the calendar month
in which the Closing Date occurs, but, notwithstanding anything herein to the
contrary, to the extent not included in the calculation of Adjusted Working
Capital, such rental payments shall be apportioned as of the Closing Date such
that Sellers shall be liable for (and shall reimburse Buyer to the extent that
Buyer shall pay) that portion of such rental payments relating to, or arising in
respect to, periods on or prior to the Closing Date and Buyer shall be liable
for (and shall reimburse Sellers to the extent Sellers shall have paid) that
portion of such rental payments relating to, or arising in respect to, periods
after the Closing Date.
(d) Payroll and Payroll Taxes. Notwithstanding anything herein to
the contrary, that portion of such payroll expenses and payroll taxes related to
or arising in respect to Balfour employees for the period on or prior to the
Closing Date, to the extent not included in the calculation of Adjusted Working
Capital, shall be apportioned as of the Closing Date such that Sellers shall be
liable for (and shall reimburse Buyer to the extent that Buyer shall pay) that
portion of such taxes relating to, or arising in respect to, periods on or prior
to the Closing Date and Buyer shall be liable for (and shall reimburse Sellers
to the extent Sellers shall have paid) that portion of such expenses and taxes
relating to, or arising in respect to, periods on or after the Closing Date.
Should any amounts to be prorated not have been finally determined on the
Closing Date, a mutually satisfactory estimate of such amounts made on the basis
of Balfour's records shall be used as a basis for settlement at Closing, and the
amount finally determined will
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be prorated as of the Closing Date and appropriate settlement made as soon as
practicable after such final determination.
ARTICLE II
CLOSING
2.1 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at 9:00 a.m., at the offices of
Schulte Roth & Zabel, 900 Third Avenue, New York, New York, on a date mutually
agreed to by the parties within ten business days after all conditions to the
Closing have been mutually satisfied or waived pursuant to Article VII hereof,
or at such other time, at such other place or on such other date as the parties
hereto may agree ("Closing Date").
2.2 Deliveries by Sellers. At the Closing, Sellers will deliver or cause
to be delivered to Buyer the following, which shall vest in Buyer good and
marketable title to the Assets:
(a) duly executed bills of sale ("Bills of Sale"), in form and
substance reasonably acceptable to Buyer;
(b) instruments of assignment and transfer with respect to the
Contracts, the Kentucky Lease and Intellectual Property;
(c) all such other endorsements, assignments and other instruments
of transfer as, in the reasonable opinion of Buyer's counsel, are necessary to
vest in Buyer title to the Assets to be transferred to it pursuant to this
Agreement;
(d) duly endorsed title certificates to all motor vehicles included
in the Assets;
(e) an opinion of Goodwin, Procter & Hoar, counsel to Sellers, in
form and substance reasonably acceptable to Buyer's counsel;
(f) a certificate, dated as of the Closing Date, of an authorized
officer of each Seller certifying as to the matters specified in Section 7.3(a);
(g) to the extent required by Section 5.8 of this Agreement, duly
executed subleases, in form and substance reasonably acceptable to Buyer (the
"Subleases"), providing for the sublease by Sellers to Buyer of the Leased
Properties, containing the sublease terms set forth on Exhibit B attached
hereto;
(h) to the extent required by Section 5.8 of this Agreement, duly
executed leases, in form and substance reasonably acceptable to Buyer (the
"Temporary Leases"), providing for the lease by Sellers to Buyer of the Owned
Properties, containing the lease terms set forth on Exhibit C attached hereto;
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(i) all required releases on Form UCC-3 or otherwise as may be
necessary or desirable to release any Liens on any of the Assets;
(j) copies of all consents of third parties (including, without
limitation, consents of T&C's lenders) or governmental authorities as may be
required to be obtained by any Seller in connection with the transfer of Assets
and the transactions contemplated hereby;
(k) if the list delivered by Buyer pursuant to Section 2.3(f) does
not contain all of the Equipment, a written option agreement, in form and
substance reasonably acceptable to Buyer (the "Option Agreement"), granting
Buyer the right to buy any Equipment not included on such list for a price of
$1.00, exercisable by Buyer in writing at any time or from time to time until
the earliest to occur of (i) 60 days after Buyer leaves the facility where such
Equipment is located; (ii) the date on which Sellers are required to vacate the
premises where such Equipment is stored pursuant to a binding agreement between
any Seller and an unaffiliated third party for the sale or lease of such
premises; or (iii) Buyer advises Sellers that it no longer wishes to have the
right to buy such Equipment; which agreement shall provide that Sellers shall
have no liabilities and no obligation to secure, insure or maintain such
Equipment, or otherwise incur any costs, and shall not incur any costs, in
connection with such Equipment during the period during which the option is in
effect; provided, however, that if any costs are imposed on Sellers pursuant to
applicable law arising from storage or the ownership of such equipment (for
example, for personal property taxes), Sellers shall promptly notify Buyer, and
Buyer shall promptly reimburse Sellers for such costs;
(l) such landlord consents and estoppel certificates in form and
substance reasonably satisfactory to Buyer with regard to (i) the assignment of
the Kentucky Lease and the Sales Office Leases and (ii) the subleases of the
Leased Property (the leases relating to the Leased Property, together with the
Kentucky Lease and the Sales Office Leases, shall be hereinafter referred to as
the "Leases"), duly executed by each respective landlord;
(m) all licenses, permits, approvals, plans, specifications,
environmental and engineering reports, warranties and guarantees required for
the ownership and operation of the Assets and the Real Property, to the extent
transferable;
(n) a duly executed certificate of non-foreign status consistent
with Section 1.1445-2(b)(2)(iii)(B) of the United States Treasury Regulations;
(o) all certificates, agreements, releases and other documents, in
form and substance reasonably satisfactory to Buyer, as shall be reasonably
necessary or desirable to transfer good title to the Consigned Gold, free and
clear of all Liens, including without limitation, bank payoff letters (or
reasonably equivalent alternatives to such letters) and all requisite releases
on Form UCC-3;
(p) an opinion of Morgan, Lewis & Bockius, special antitrust counsel
to Sellers as to compliance with the HSR Act (as hereinafter defined) and the
FTC Preliminary Order, in form and substance reasonably acceptable to Buyer's
counsel; and
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(q) if the FTC Final Order has not been received by Buyer prior to
the Closing Date, the Escrow Agreement, in form and substance reasonably
acceptable to Buyer.
2.3 Deliveries by Buyer. At the Closing, Buyer will deliver or cause to be
delivered to Sellers the following:
(a) immediately available funds in the amount of (i) $9,137,586 (as
adjusted, if at all, in accordance with Section 1.4(a) hereof, if the FTC Final
Order is received by Buyer prior to the Closing Date) plus (ii) the Estimated
Working Capital plus (iii) the aggregate amount on account of those certain
operating liabilities set forth on Schedule 1.4(b) hereof plus (iv) to the
extent determinable on the Closing Date, any amounts payable by Buyer in
accordance with Section 1.9 less (v) to the extent determinable on the Closing
Date, any amounts payable by Sellers in accordance with Section 1.9;
(b) a duly executed Assumption Agreement, in form and substance
reasonably acceptable to Sellers ("Assumption Agreement"), and such other good
and sufficient instruments of assumption as shall be reasonably necessary, in
the opinion of Sellers' counsel, to vest in Buyer as of the Closing the Assumed
Liabilities;
(c) an opinion of Schulte Roth & Zabel LLP, counsel to Buyer, in
form and substance reasonably acceptable to Sellers' counsel;
(d) a certificate, dated as of the Closing Date, of an authorized
officer of Buyer certifying as to the matters specified in Section 7.2(a);
(e) to the extent required by Section 5.8 of this Agreement, duly
executed Subleases and Temporary Leases, each in form and substance reasonably
acceptable to Sellers;
(f) a list containing the Equipment that Buyer desires to acquire
and the Option Agreement in connection therewith, which Option Agreement shall
be in form and substance reasonably acceptable to Sellers;
(g) an opinion of Morgan, Lewis & Bockius, special antitrust counsel
to Buyer as to compliance with the HSR Act and the FTC Preliminary Order, in
form and substance reasonably acceptable to Sellers' counsel; and
(h) if the FTC Final Order has not been received by Buyer prior to
the Closing Date, the Escrow Agreement, in form and substance reasonably
acceptable to Sellers.
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2.4 Other Deliveries. At the Closing, if the FTC Order has not been
received by Buyer, Buyer will deliver or cause to be delivered to the Escrow
Agent immediately available funds in the amount of $14,000,000, to be held in
escrow pursuant to the terms of the Escrow Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby jointly and severally represent and warrant to Buyer as
follows:
3.1 Corporate Organization.
(a) Each Seller is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation as
indicated on Schedule 3.1(a) hereto and is duly qualified or licensed as a
foreign corporation authorized to do business in each jurisdiction in which the
character of the properties and assets now owned or held by it or the nature of
the business now conducted by it requires it to be so licensed or qualified and
where the failure to be so licensed or qualified would have a material adverse
effect on such Seller or the Assets or the Business. Each Seller has full
corporate power and authority to carry on its business as now being conducted.
(b) As of the Closing Date, no Seller owns any subsidiary, or has
any investment or proprietary interest in any other entity, that holds Assets or
is engaged in the Business or in the manufacturing, marketing or sale of class
rings, other than T&C's ownership of all of the outstanding capital stock of
Gold Lance and, until the consummation of the transactions contemplated hereby,
Balfour.
3.2 Authorization. Each Seller has full corporate power and authority to
execute, deliver and perform this Agreement and, to the extent it is a party
thereto, the documents to be delivered at the Closing pursuant to Section 2.2
(collectively, the "Seller Agreements") and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Seller Agreements by each Seller and the consummation by each Seller of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action and no other corporate action or proceeding on
the part of any Seller is necessary to authorize the execution and delivery by
any Seller of this Agreement or the Seller Agreements or the consummation by any
Seller of the transactions contemplated hereby or thereby or the performance of
any of such Seller's obligations hereunder or thereunder. This Agreement has
been, and the Seller Agreements on the Closing Date will be, duly executed and
delivered by each of the Sellers party thereto, and this Agreement is, and on
the Closing Date each of the Seller Agreements will be, the legal, valid and
binding obligations of each Seller party thereto enforceable against it in
accordance with their terms, subject to applicable laws affecting creditors'
rights generally and, as to enforcement, to general principles of equity,
regardless of whether applied in a proceeding at law or in equity.
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3.3 No Violations; No Consents or Approvals Required. Except as set forth
in Schedule 3.3, neither the execution and delivery of this Agreement or the
Seller Agreements nor the consummation of the transactions contemplated hereby
or thereby will (a) conflict with or violate any provision of the Articles or
Certificate of Incorporation or By-Laws of any Seller, (b) conflict with or
violate any law, rule, regulation, ordinance, order, writ, injunction, judgment
or decree applicable to the Business or by which any Seller or any of the Assets
are bound or affected or (c) conflict with or result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination or
cancellation of, or accelerate the performance required by or maturity of, or
result in the creation of any security interest, lien, charge or encumbrance on
any of the Assets pursuant to any of the terms, conditions or provisions of, any
note, bond, mortgage, indenture, permit, license, franchise, lease, contract, or
other instrument or obligation to which any of the Sellers is a party or by
which any of the Assets are bound, except, in the case of (c) above, for such
conflicts, violations, breaches, defaults, terminations, cancellations and
accelerations that in the aggregate will not have a material adverse effect on
the Assets or the Business. Except for applicable requirements, if any, of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), or as set forth in Schedule 3.3, which filings, waivers or consents have
been made or obtained on or prior to the date hereof and will be, made or
obtained on or prior to the Closing Date, no notice, declaration, report or
other filing or registration with, and no waiver, consent, approval or
authorization of, any governmental or regulatory authority or instrumentality or
any other person is required to be submitted, made or obtained by any of the
Sellers in connection with the execution, delivery or performance of this
Agreement or the Seller Agreements and the consummation of the transactions
contemplated hereby or thereby. The consummation of the transactions
contemplated hereby is permitted by and consistent with the terms of the FTC
Interim Agreement
3.4 Financial Statements.
(a) (i) The audited consolidated balance sheets of T&C and its
subsidiaries as at February 27, 1994, February 26, 1995, and February 25, 1996
and the related audited consolidated statements of income and cash flow for the
years then ended and (ii) the unaudited consolidated financial statements of T&C
for the six-month period ended August 25, 1996 (collectively, the financial
statements described in clauses (i) and (ii) shall hereafter be referred to as
the "Audited Financial Statements"), copies of which are annexed as Schedule
3.4(a) hereto and were previously delivered to Buyer, fairly present the
consolidated financial position of T&C as of the respective dates set forth
therein and the consolidated results of operations and changes in retained
earnings and cash flows of T&C for the respective periods or as of the
respective dates set forth therein, in each case in conformity with GAAP applied
on a consistent basis throughout the periods involved and subject (in the case
of the interim financial statements referred to in clause (ii) above) to normal
year-end audit adjustments.
(b) (i) The audited balance sheets of the Business as at February
27, 1994, February 26, 1995 and February 25, 1996 and the related statements of
operations and cash flows for the periods then ended, (ii) the audited balance
sheet of the Business as at August 25, 1996 and the related statements of
operations and cash flow for such period and (iii) the unaudited
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balance sheet of the Business as of August 27, 1995 and the related statements
of operations and cash flow for such period (collectively, the financial
statements described in clauses (i), (ii) and (iii) shall hereafter be referred
to as the "Business Financial Statements"), final copies of which (in the case
of the financial statements referred to in clauses (i) and (ii) above) are
annexed as Schedule 3.4(b) hereto and (in the case of all such financial
statements referred to in clauses (i), (ii) and (iii) above) were previously
delivered to Buyer, fairly present the financial position of the Business as of
the dates set forth therein and the results of operations and changes in
retained earnings and cash flows of the Business for the respective periods or
as of the respective dates set forth therein, in each case in conformity with
GAAP and Regulation S-X of the Securities and Exchange Commission ("SEC"),
applied on a consistent basis throughout the periods involved (other than as set
forth on the notes to the Business Financial Statements), and subject for the
unaudited period, to normal recurring adjustments consistent with the fact that
financial statements of the Business have not been audited apart from the
Sellers' consolidated group.
(c) The unaudited balance sheet of the Business as at January 28,
1996 set forth on Schedule 3.4(c) hereto (the "Balance Sheet") fairly presents
the financial position of the Business as at such date. The Balance Sheet has
been prepared in accordance with GAAP applied on a consistent basis throughout
such period (other than as set forth on the notes to the Balance Sheet), subject
to normal year-end audit adjustments consistent with the fact that the Balance
Sheet has not been audited apart from the Sellers' consolidated group. The
accruals and reserves set forth on the Balance Sheet have been established in
the ordinary course of business consistent with past practice and, taken as a
whole, are reasonable and would not be materially different as a result of
year-end audit adjustments for Balfour as a subsidiary of T&C in accordance with
GAAP.
(d) The Statement of Purchased Accounts fairly presents that portion
of the Business being transferred to and Assets being purchased by and
liabilities being assumed by Buyer and consists of certain line items derived
from the Balance Sheet, using methodology consistent with the methodology
previously delivered to Buyer, a true and correct copy of which together with
all supplying workpapers is set forth on Schedule 3.4(d) hereto (the "Schedule
3.4(d) Methodology").
(e) The Base Working Capital Schedule consists of line items derived
from the Statement of Purchased Accounts, using methodology consistent with the
Schedule 3.4(d) Methodology.
(f) The statement setting forth the Estimated Working Capital shall
be an estimate and shall be prepared in accordance with the Schedule 3.4(d)
Methodology.
3.5 Absence of Undisclosed Liabilities. There are no material liabilities
or obligations of the Business (whether absolute or contingent) except for
liabilities and obligations (i) reflected on the Balance Sheet or adequately
reserved for on the Balance Sheet, (ii) incurred in the ordinary course of the
business of the Business consistent with past practices or (iii) as expressly
set forth in Schedule 3.5 hereto.
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3.6 Absence of Certain Changes. Since the date of the Balance Sheet, the
Business has been conducted only in the ordinary course, consistent with past
practice. Without limiting the foregoing, since the date of the Balance Sheet,
except as set forth in Schedule 3.6, there has not been (a) any actual or to the
best knowledge of Sellers, threatened change in the condition (financial or
otherwise), properties, assets or results of operations of the Business or any
Seller which, individually or in the aggregate, could have a material adverse
effect, (b) any material damage, destruction or other casualty loss to, or
actual or, to Sellers' knowledge, threatened forfeiture or taking of, any Assets
or any property used in the Business (whether or not covered by insurance), (c)
any waiver or modification by any Seller of any right or rights of substantial
value, or any payment (direct or indirect) in satisfaction of any liability,
which individually or in the aggregate, could have a material adverse effect on
the Business, (d) any change in the accounting principles, methods, practices or
procedures followed by any Seller in connection with the Business or any change
in the depreciation or amortization policies or rates theretofore adopted by any
Seller in connection with the Business, (e) any sale, transfer, conveyance of
any Asset, or grant to any party of any license, sublicense, franchise or option
or other right of any nature to sell or distribute the Assets, other than
inventory in the ordinary course of the Business, (f) any material change to any
business policy of the Business, including, without limitation, advertising,
marketing, pricing, purchasing, personnel, return or product acquisition
policies; (g) any increase in the rate of compensation or in the benefits
payable or to become payable by Balfour to any employee or officer of the
Business inconsistent with their past practices or, except as set forth on
Schedule 3.6(g) hereto, any institution of a bonus or incentive plan for
employees for fiscal 1997 or subsequent years, (h) any declaration, setting
aside or payment of any dividends, or other distributions in respect of the
outstanding shares of capital stock of Balfour, (i) any strikes, work stoppages,
slowdowns, lockouts, arbitrations or any grievances or other labor disputes
pending or, to Sellers' best knowledge, threatened against or involving Balfour,
(j) any unfair labor practice charges, grievances or complaints pending or, to
any Seller's best knowledge, threatened by or on behalf of any employee or group
of employees of the Business, (k) any organizing activity involving any Seller
or, to any Seller's best knowledge, threatened by any labor organization or
group of employees of the Business, (l) any payment or commitment to pay
severance or termination pay to any of Sellers' officers, directors, employees,
consultants, agents or other representatives of the Business or (m) any pending
or, to any Seller's best knowledge, threatened or anticipated dispute with any
customer or supplier or any occurrence or situation or other event which is
reasonably likely to result in any material reduction in amount of products
purchased or sold or material change in terms or conditions of doing business
with any substantial customer or supplier of the Business.
3.7 Title to Properties and Related Matters. Except for liens and
encumbrances which shall be removed at Closing, each Seller is, and upon
consummation of the transactions contemplated by this Agreement, Buyer will
become, the legal and beneficial owner of, and each Seller has, and Buyer will
acquire, good and marketable title to all of the Assets, free and clear of all
mortgages, pledges, liens, security interests, conditional sales agreements,
tenancies, rights of occupancy, encumbrances or charges of any kind ("Liens"),
except for (a) Liens created by Buyer, (b) Liens of lessors under equipment
leases assumed by Buyer hereunder, (c) mechanic's, materialmen's and similar
liens with respect to amounts of Assumed Liabilities not yet due and payable or
which are being contested in good faith through appropriate proceedings and have
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been adequately reserved for on the Statement of Purchased Accounts, and (d)
Liens on the Kentucky Property and the Sales Office Properties, each of which
Liens described in clauses (c) and (d) of this Section 3.7 have been disclosed
in writing on Schedule 3.7 (collectively, "Permitted Liens").
3.8 Intellectual Property. Except as set forth in Schedule 3.8, (a)
Balfour is the sole and exclusive owner of all rights to the Intellectual
Property set forth opposite its name on Schedule 1.1(a)(iv), free and clear of
all Liens, the same are fully assignable and the Seller which is the owner
thereof has the right to use the same without the payment of any license, fee,
royalty or similar charge, (b) there is no material claim of any other person,
firm or corporation or any proceeding pending or, to any Seller's best
knowledge, threatened which relates to any of the Intellectual Property, (c) the
Intellectual Property identified in Schedule 1.1(a)(iv) constitutes all
intellectual property used in or necessary for the operation of the Business and
does not infringe on the rights of any other person, (d) no Seller has granted
any license or sublicense with respect to any Intellectual Property, and (e) to
the best knowledge of each Seller, no person is infringing on any Seller's
rights to any Intellectual Property. None of the Intellectual Property set forth
on Schedule 1.1(a)(iv) is used or owned by or licensed to Gold Lance, and
Balfour does not use any intellectual property owned by or licensed to or by
Gold Lance.
3.9 Litigation. Except as set forth on Schedule 3.9 there are no claims,
actions, suits, proceedings or investigations by or before any court or
governmental or other regulatory or administrative agency, instrumentality or
authority pending or, to any Seller's best knowledge, threatened by or against
or affecting the Business or Balfour. Except as set forth on Schedule 3.9, there
are no claims, actions, suits, proceedings or investigations by or before any
court or governmental or other regulatory or administrative agency,
instrumentality or authority pending or, to any Seller's knowledge, threatened
by or against or affecting T&C or any of its subsidiaries that, individually or
in the aggregate, could be reasonably likely to have a material adverse effect
on the Business, any Asset or any Seller's ability to consummate the
transactions contemplated hereby. None of the matters set forth in Schedule 3.9,
either individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the Business or the Assets. There are no claims,
actions, proceedings or investigations pending, or to the best knowledge of each
Seller, threatened, nor is there outstanding any writ, order, decree or
injunction that (a) calls into question any Seller's authority or right to enter
into this Agreement or the Seller Agreements, or (b) would otherwise prevent or
delay the transactions contemplated by this Agreement or the Seller Agreements.
3.10 Compliance with Applicable Law. Except as set forth in Schedule 3.10,
each Seller and the Business is complying and has complied in all material
respects with all applicable laws, rules, regulations, orders, ordinances,
judgments or decrees of all governmental authorities (federal, state, local or
foreign) or any court applicable to it or its respective Assets or the Business.
Except as set forth on Schedule 3.10 hereto, no Permit is necessary for the
conduct of the Business, except for such Permits the absence of which could not
have a material adverse effect on the Assets or the Business. Each Seller has
all of the Permits set forth on Schedule 3.10 hereto, and all of such Permits
are in full force and effect. Except as set forth on Schedule 3.10 hereto, no
violations are or have been recorded in respect of any Permit which could have a
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material adverse effect on the Assets or the Business, and no proceeding is
pending, or to the knowledge of any Seller, threatened, to revoke or limit any
Permit.
3.11 Brokers and Finders. None of the Sellers nor any of their officers,
directors or employees has incurred any liability for any brokerage fees,
commissions, finders' fees or similar fees or expenses in connection with the
sale of the Business for which Buyer may be liable.
3.12 Powers of Attorney. Except as set forth in Schedule 3.12, there is
not currently existing any power of attorney of any type given by any Seller and
pertaining to any Assets or the Business.
3.13 Labor and Employment. Except as set forth in Schedule 3.13, (a) no
Seller is party to or subject to any collective bargaining or other agreement
with a labor union or similar organization, contingent or otherwise covering or
applicable to employees in the Business and (b) there is no employment or
consulting agreement that will remain in effect after the Closing that pertains
to the Business. Except as described in Schedule 3.13, there are no
controversies, labor disturbances, investigations or proceedings pending or, to
each Seller's best knowledge, threatened, between any Seller and any of their
respective Employees. With respect to the Business, each Seller has complied in
all material respects with all laws and regulations relating to the employment
of labor, including without limitation, the Occupational Safety and Health Act
("OSHA"), all laws and regulations relating to wages, hours, and collection and
payment of social security and withholding taxes, or both, and similar taxes in
respect of the Business. Except as set forth in Schedule 3.13, there is no
unfair labor practice charge or complaint against any Seller or the Business
pending against or with the National Labor Relations Board or any other
governmental agency arising out of the activities or operations of the Business.
No Seller is liable for any arrearages of wages or any taxes or penalties for
failure to comply with any of the foregoing. To each Seller's best knowledge,
there are no organizational efforts presently being made or threatened by or on
behalf of any labor union, with respect to the Employees. The Business has not
experienced a work stoppage or other material labor disturbance within the past
three years. No Seller has incurred any liability under the Worker Adjustment
and Retraining Notification Act or similar state law.
3.14 Employee Benefits. (a) Except as set forth in Schedule 3.14, no
Seller has nor does any other organization which is a member of a controlled
group of organizations within the meaning of Sections 414(b), (c), (m) or (o) of
the Internal Revenue Code of 1986, as amended (the "Code") (an "ERISA
Affiliate"), of which any Seller is a member have any obligation, contingent or
otherwise, covering any employees of the Business under any employment or
consulting agreement or under any executive or employee's compensation plan,
agreement or arrangement including, without limitation, any pension, retirement,
profit sharing, stock option, stock purchase, bonus, savings plan, or any ERISA
(as defined below) plans of any Seller (collectively referred to herein as
"Seller Plans").
(b) With respect to Employees, except as set forth in Schedule 3.14,
there are no written and filed claims or grievances outstanding against any
Seller under any Seller Plan other than in the normal course of business.
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(c) With respect to each Seller Plan, (i) such Seller Plan has been
maintained in material compliance with the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), the Code, the terms of such Seller Plan and
other applicable Laws, (ii) a favorable determination letter has been obtained
from the IRS, and a copy thereof delivered to the Buyer, for any such Seller
Plan that is an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA and that is intended to be qualified within the meaning of Section
401(a) of the Code, and since such determination letter, no event has occurred
that would disqualify such Seller Plan; and (iii) there has been no "prohibited
transaction" within the meaning of Section 4975(c) of the Code or Section 406 of
ERISA involving the assets of any Seller Plan. Except as set forth on Schedule
3.14 hereto, neither the Seller nor any ERISA Affiliate is or was required to
contribute during any period within the preceding six years to any
"multi-employer plan" (as defined in Section 3(37) of ERISA).
(d) Sellers have previously delivered to Buyer with respect to each
Seller Plan, true and correct copies of the following, to the extent applicable
(i) each Seller Plan and any trust agreements related thereto; (ii) the most
recent annual report (Form 5500 Series); and (iii) the most recent summary plan
description, as described in Section 102(a)(1) of ERISA.
(e) Except as required by Section 4980B of the Code and as set forth
on Schedule 3.14, no Seller Plan or other arrangement provides medical or death
benefits (whether or not insured) with respect to current or former employees of
the Seller or any ERISA Affiliate beyond their retirement or other termination
of employment. Any continuation coverage provided under any welfare benefit
plans complies with Section 4980B of the Code and is at the expense of the
participant or beneficiary. Copies of the most recent reports (the "FASB
Reports") regarding post-retirement benefits under Sellers' Plans, other than
pension benefits, prepared in accordance with Financial Accounting Standards
Board Statement No. 106 have been delivered to Buyer. Since the date of the FASB
Reports, there have been no material changes in the assumptions relied upon in
any such FASB Report, including, without limitation, the terms of the Sellers'
Plans.
(f) No Seller Plan is subject to Title IV of ERISA. None of Sellers'
purposes for engaging in the transactions contemplated hereby is for the evasion
of liability under Title IV of ERISA.
(g) No Seller Plan or agreement, program, policy or other
arrangement by or to which any Seller or any ERISA Affiliate is a party, is
bound or is otherwise liable, by its terms or in effect would reasonably be
expected to require any payment or transfer of money, property or other
consideration on account of or in connection with the sale, lease, exchange or
transfer of either any shares of stock or any of the assets of any Seller or any
ERISA Affiliate (whether or not any such payment would constitute a "parachute
payment" or "excess parachute payment" within the meaning of Section 280G of the
Code).
3.15 Asset Maintenance. Except as set forth on Schedule 3.15, the Assets
have been properly maintained and are (a) in good operating condition (except
for ordinary wear and tear which would not have a material adverse effect on the
Assets) and (b) are capable of being used
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in the Business as presently conducted without present need for repair or
replacement except in the ordinary course of business.
3.16 Contracts. Except as set forth on Schedule 3.16(a), no Seller party
to any Contract is in default under, nor does any event, circumstance or
situation exist which, with or without the passage of time will cause a default
under any material lease, contract or agreement, undertaking, commitment,
judgment, order or decree of any court or any government agency or
instrumentality relating to or constituting any of the Assets or the Business
under which any person, firm, corporation or other entity is or may be entitled
to assert any rights against any of the Assets or the Business or to terminate
any Contract. All of the Contracts are in full force and effect and the
applicable Seller party thereto has paid in full all amounts due and payable
thereunder or has accrued all amounts due thereunder and has satisfied in full
or provided for all of its liabilities thereunder. Schedule 3.16(b) lists all
Contracts other than Immaterial Contracts, including, without limitation, all
non-competition arrangements restricting the business of the Business. Except as
indicated on Schedule 3.3, no consent or notice to any party to such Contract is
or will be required in connection with the transfer of such Contract to Buyer in
accordance with the terms hereof. To the extent required, the consent of the
other party or parties to any such Contracts in order to assign such Contract to
Buyer in accordance with the terms of this Agreement has been or will be
obtained on or prior to the Closing Date.
l3.17 Environmental.
(a) For purposes of this Section 3.17, the following definitions
shall apply:
"Environmental Claim" refers to any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding or judgment, letter or other written communication
from any governmental agency, department, bureau, office or other authority, or
any third party involving violations of Environmental Laws or Releases of
Hazardous Materials.
"Environmental Laws" includes the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. 9601 et seq., as
amended; the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. 6901 et
seq., as amended; the Clean Air Act ("CAA"), 42 U.S.C. 7401 et seq., as amended;
the Clean Water Act ("CWA"), 33 U.S.C. 1251 et seq., as amended; and any other
federal, state, local or municipal laws, statutes, regulations, rules or
ordinances imposing liability or establishing standards of conduct for
protection of the environment.
"Environmental Liabilities" means any monetary obligations, losses,
liabilities (including strict liability), damages, punitive damages,
consequential damages, treble damages, costs and expenses (including all
reasonable out-of-pocket fees, disbursements and expenses of counsel,
out-of-pocket expert and consulting fees and out-of-pocket costs for
environmental site assessments, remedial investigation and feasibility studies,
and removal or remedial actions), fines, penalties, sanctions and interest
incurred as a result of any Environmental Claim.
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"Hazardous Materials" shall include (a) any element, compound, or
chemical that is defined, listed or otherwise classified as a contaminant,
pollutant, toxic pollutant, toxic or hazardous substance, extremely hazardous
substance or chemical, hazardous waste, special waste, or solid waste under
Environmental Laws; (b) petroleum or petroleum-derived products; (c)
polychlorinated biphenyls; (d) any substance exhibiting a hazardous waste
characteristic including but not limited to corrosivity, ignitability, toxicity
or reactivity as well as any radioactive or explosive materials; and (e) any
asbestos containing materials.
"Release" means any spilling, leaking, pumping, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, or disposing of Hazardous
Materials (including the abandonment or discarding of barrels, containers or
other closed receptacles containing Hazardous Materials) into the environment.
(b) Except as set forth in Schedule 3.17, (i) the operations of
Balfour and the Business are in material compliance with Environmental Laws;
(ii) there has been no Release at any of the properties owned or operated by any
Seller or the Business or, to Sellers' knowledge, a predecessor in interest, or
to Sellers' knowledge, at any disposal or treatment facility which received
Hazardous Materials generated by the Business or any predecessor in interest, in
each case, which, individually or in the aggregate, is reasonably likely to
result in Environmental Liabilities that have a material adverse effect on the
Business; (iii) no Environmental Claims have been asserted against any Seller,
the Business or, to Sellers' knowledge, any predecessor in interest, nor, to
Sellers' knowledge, are there any threatened or pending Environmental Claims
against any Seller, the Business or, to Sellers' knowledge, any predecessor in
interest, in each case, which, individually or in the aggregate, are reasonably
likely to result in Environmental Liabilities that would have a material adverse
effect on the Business; and (iv) to the knowledge of Seller, no Environmental
Claims have been asserted against any facilities that may have received
Hazardous Materials generated by the Business or any predecessor in interest, in
each case, which, individually or in the aggregate, are reasonably likely to
result in Environmental Liabilities that would have a material adverse effect on
the Business.
3.18 Taxes. (a) No Seller, nor any subsidiary nor any member of a Relevant
Group has failed to file any Tax Return required to be filed, which failure
could result in the imposition of any Lien on or against the Assets, the
Business or Buyer or in any liability to Buyer, as transferee or otherwise. All
Taxes imposed on each Seller, any subsidiary or any member of a Relevant Group
the non-payment of which could result in a Lien on or against the Assets, the
Business or Buyer or in any liability to Buyer, as transferee or otherwise, have
been or will prior to the Closing Date be paid. All deposits required to be made
by any Seller, any subsidiary or any member of a Relevant Group in respect of
any material Tax, including, without limitation, withholding taxes, have been or
will be made in a timely fashion. There are no material Tax deficiencies or
claims asserted against any Seller, any subsidiary or any member of a Relevant
Group. There is no basis for any Tax deficiency or claim which could result in
the imposition of any Lien on the Assets, the Business or Buyer or in any
liability to Buyer, as transferee or otherwise. Neither Buyer nor any of its
subsidiaries shall have any liability for any Tax imposed on or with respect to
any subsidiary that is attributable to the Pre-Closing Tax Period.
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(b) No Seller is a party to any Tax allocation or sharing agreement
or understanding that could, under any circumstances, require any payment by
Buyer, any of its subsidiaries or any affiliate thereof after the Closing Date.
None of Buyer nor any of its subsidiaries shall have any liability for any Tax
imposed on or with respect to any subsidiary that is attributable to the
Pre-Closing Tax Period.
(c) For purposes of this Agreement:
"Pre-Closing Tax Period" shall mean all taxable periods ending
on or before the Closing Date and the portion ending on the Closing Date of any
taxable period that includes (but does not end on) the Closing Date.
"Relevant Group" means any combined, consolidated, affiliated,
unitary or similar group of which any Seller or any subsidiary of any Seller is
or was a member.
"Tax" or "Taxes" means all U.S. (federal, state and local) and
foreign net or gross income, gross receipts, net proceeds, estimated, sales,
use, ad valorem, value added, franchise, withholding, payroll, employment,
excise, property, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Tax Returns" means any returns, reports or statements
(including any information returns and estimated tax returns) required to be
filed for purposes of a particular Tax.
3.19 Accounts Payable. All accounts payable reflected on the Balance Sheet
and to be reflected on the Statement of Net Working Capital have been or will
have been incurred on or prior to the Closing Date in the ordinary course of
business and all payment terms are consistent with past practices.
3.20 Customers and Suppliers. Sellers have previously provided to Buyer
complete and correct lists of the customers (other than individual ring buyers
pursuant to direct sales) and suppliers of the Business. Sellers' relations with
the 50 largest customers and suppliers of the Business are good. No material
customer or supplier has canceled or terminated or threatened to cancel or
terminate, its relationship with any Seller or any of their subsidiaries, or has
decreased materially, or threatened to decrease materially, its dealing with any
Seller or any of their subsidiaries, to the best knowledge of each Seller, there
is no reason why any such customer or supplier would cease to do business with
Buyer after, or as a result of, the consummation of the transactions
contemplated by this Agreement.
3.21 Inventory. (a) All inventory used in or held for the Business is held
by Balfour. As of the date of the Balance Sheet, the date hereof and the Closing
Date, all such inventory is and will be of good and merchantable quality and
salable, subject to appropriate reserves (in the case of inventory held for
sale), or usable (in the case of other inventory) in the ordinary course of
business for the purpose for which intended.
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(b) All inventory reflected on the Balance Sheet and in the books
and records of Balfour and to be reflected in the statement setting forth the
Estimated Working Capital is or will be reflected at the lower of cost or market
and the value at which such inventory is or will be carried reflects the
customary inventory policy of Balfour (which fairly reflects the net realizable
market value of obsolete, damaged, below quality or excess inventory) for
stating inventory in accordance with GAAP consistently applied, subject to
adjustments as set forth in the notes to the Balance Sheet.
(c) As of the date of the Balance Sheet, the precious metals and
gems were, and as of the Closing Date the precious metals and gems will be, of
at least the quality as marked, stamped or otherwise indicated by the Sellers on
such items (including, without limitation, as indicated on any containers or
packages holding such items) or as otherwise indicated by the Sellers in their
books and records. As of the date of the Balance Sheet the inventory was not,
and as of the Closing Date the inventory will not be, in excess of the normal
purchasing patterns of Balfour.
3.22 Accounts Receivable. All accounts and notes receivable reflected on
the Balance Sheet and to be reflected on the statement setting forth the
Estimated Working Capital arose from the sale of products and services provided
in the ordinary course of business, are the legal and binding claims of Balfour,
as the case may be, free and clear of all Liens, have been recorded in
accordance with generally accepted accounting principles, and, subject only to
consistently recorded reserves for bad debts and returns, which reserves have
been established in accordance with generally accepted accounting principles
consistently applied (subject to year-end adjustments) and fairly reflect the
past collection experience of Balfour.
3.23 Real Property. The Sellers have good and marketable title in the
Owned Property, and, except as set forth on Schedule 3.23, have valid leasehold
interests in the Leased Property, the Kentucky Property and the Sales Office
Property. Except as set forth on Schedule 3.23, all Leases are in full force and
effect and are valid, binding, and enforceable against the respective Sellers in
accordance with their respective terms and there does not exist any default (or
event which, with notice or lapse of time or both, would constitute a default)
thereunder. There are no outstanding options, contracts, or rights of first
refusal to purchase any Seller's interest in any parcel of the Owned Property
and, to Sellers' knowledge, the Leased Property, the Kentucky Property or the
Sales Office Property, or any portion thereof or interest therein. To the extent
required by law, Sellers have all permits, including, without limitation, a
certificate of occupancy, necessary for the use and/or operation of such parcel
of or interest in the Real Property.
3.24 Assets Constituting the Business. The Assets to be transferred to
Buyer pursuant to the Agreement comprise all of the assets, properties, rights
and businesses currently employed by any of the Sellers (other than the Excluded
Assets) in, the conduct of the Business and the sale of the Assets to Buyer
pursuant to this Agreement will effectively convey the Business (other than the
Excluded Assets) to Buyer, including all tangible and intangible assets and the
goodwill relating thereto. The machinery, motor vehicles and other equipment set
forth in Schedule
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1.1(c)(viii) hereto is not currently, and in the past has not been, used in, and
is not necessary for the operations of, the Business as currently conducted.
3.25 Cost Savings Assumptions. Sellers, jointly with CJC, have prepared
and have delivered to Buyer their good faith estimates of projected cost savings
of the Business after the Closing Date, as set forth on Schedule 3.25 hereto
(the "Estimated Cost Savings"). The portion of the projections and the
assumptions on which such projections are based that were prepared by Sellers
were prepared by Sellers in good faith, based upon information derived from the
books and records of the Business. Sellers believe such estimates of cost
savings and the assumptions provided by Sellers on which such Estimated Cost
Savings were based are reasonable; provided, however, that (i) the parties
hereto recognize that such Estimated Cost Savings were based, in part on
information and material provided by CJC and (ii) such Estimated Cost Savings do
not constitute a guarantee or warranty about future performance or results of
operations.
3.26 [Intentionally Omitted.]
3.27 Shareholder Vote. No shareholder vote by T&C shareholders is
necessary in connection with the transactions contemplated herein. The sale of
the Assets and the Business to Buyer in accordance with the terms contained
herein does not constitute substantially all of the assets of T&C for purposes
of the laws of the Commonwealth of Massachusetts.
3.28 Related Party Transactions. Except as set forth on Schedule 3.28 or
on Schedule 3.4(c), no affiliate of Balfour (including T&C and its subsidiaries)
has borrowed any monies from or has outstanding any indebtedness or other
similar obligations to any Seller that exceed $25,000 principal amount in the
aggregate (other than ordinary course travel expenses, advances and allowances
to employees that are not material in amount). Set forth on Schedule 3.28 is a
true and complete description of each contract, arrangement or understanding
between Balfour and any subsidiary or affiliate of Balfour (including T&C and
its subsidiaries) (other than employment contracts). Each of the contracts,
arrangements or understandings set forth on Schedule 3.28 to which a Seller is a
party provides for terms and conditions that are no less favorable to such
Seller than could be obtained from a non-affiliated third-party in an
arm's-length transaction. The aggregate impact of intercompany costs and sales
(including gross margins thereon) is not material to the Business.
3.29 SEC Documents. T&C has made available to Buyer true and complete
copies of (i) each report on Form 10-K filed by T&C with the SEC since June 13,
1991 and (ii) all other reports, schedules, registration statements and
definitive proxy statements filed by T&C with the SEC since February 26, 1995
and prior to the date of this Agreement (collectively, the "SEC Documents"),
which are all the documents (other than preliminary material) that T&C was
required to file with the SEC since February 26, 1995. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act of 1933, as amended (the "Securities Act"), or the
Securities Exchange Act, of 1934, as amended, as the case may be, and the rules
and regulations of the SEC thereunder applicable to such SEC Documents, and none
of the SEC Documents contained as of the date of its filing any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or
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necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. All material agreements, contracts and
other documents required to be filed as exhibits to any of the SEC Documents
have been so filed.
3.30 Gold. On the Closing Date, the gold purchased by Buyer (or its
lenders) from Sellers (or their lenders) shall be of at least the amount and
quality (measured in troy ounces having a fineness of not less than .9995
without regard to whether such gold is alloyed or unalloyed, in bullion form or
contained in or processed into other materials that contain elements other than
gold, and whether in the possession of the Sellers or their sales
representatives) as set forth on the Estimated Gold Certificate. Such gold is of
good and merchantable quality and useable in the ordinary course of business for
the purpose for which intended. Sellers make no representation as to the taking
of the physical inventory of the gold.
3.31 Consolidation of Graphics Plants. Sellers have consolidated the
operations of the Dallas graphics plant located at 2621 Lonestar Drive, Dallas,
Texas (the "Dallas Graphics Plant") with Sellers' plant in Louisville, Kentucky
and moved all of such operations to the Kentucky Property. Sellers have paid all
costs, expenses, liabilities and obligations incurred or to be incurred in
connection with the closing of such plant in accordance with the terms of
Schedule 5.13 of the Original Agreement, the accrual for which shall be set
forth on the Statement of Net Working Capital, and Sellers shall indemnify Buyer
from and against and promptly reimburse it for any and all reasonable costs,
expenses, liabilities and obligations incurred by Buyer in connection with the
Dallas Graphics Plant and the subsequent closing thereof and its consolidation
with other operations of Buyer and the operations of the Business conducted
thereat (including, without limitation, all employee costs) in excess of such
accrual. Sellers have complied with the WARN Act and all comparable state laws
with respect to the Dallas Graphics Plant.
3.32 Full Disclosure. No representation or warranty of Sellers contained
in this Agreement (including the exhibits and schedules hereto) or in the Seller
Agreements contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading. To the
best knowledge of the Sellers, there is no fact relating to the Business that
could reasonably be expected to have a material adverse effect thereon that has
not been disclosed pursuant to this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
4.1 Corporate Organization. Buyer is a Delaware corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer has not conducted any business other than in connection with its
formation and the transactions contemplated by this Agreement and the CJC
Agreement and the financing therefor.
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4.2 Authorization. Buyer has full corporate power and authority to execute
and deliver this Agreement and the documents to be delivered at the Closing
pursuant to Section 2.3 (collectively, the "Buyer Agreements") and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Buyer Agreements by Buyer and the consummation by Buyer
of the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action and no other corporate action or proceeding on
the part of Buyer is necessary to authorize the execution and delivery by Buyer
of this Agreement or the Buyer Agreements or the consummation by Buyer of the
transactions contemplated hereby or thereby. This Agreement has been, and the
Buyer Agreements on the Closing Date will be, duly executed and delivered by
Buyer, and this Agreement is, and on the Closing Date each of the Buyer
Agreements will be, legal, valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their terms, subject to applicable laws
affecting creditors' rights generally and, as to enforcement, to general
principles of equity, regardless of whether applied in a proceeding at law or in
equity.
4.3 No Violations, No Consents or Approvals Required. Neither the
execution and delivery of this Agreement or the Buyer Agreements nor the
consummation of the transactions contemplated hereby or thereby will (a)
conflict with or violate any provision of the Certificate of Incorporation or
By-Laws of Buyer, (b) conflict with or violate any law, rule, regulation,
ordinance, order, writ, injunction, judgment or decree applicable to Buyer or by
which any of its properties or assets are bound or affected or (c) conflict with
or result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination or cancellation of, or accelerate the performance
required by or maturity of, or result in the creation of, any security interest,
lien, charge or encumbrance on any of its assets or properties pursuant to any
of the terms, conditions or provisions of, any note, bond, mortgage, indenture,
permit, license, franchise agreement, lease, contract, or other instrument or
obligation to which Buyer is a party or by which Buyer or any of its properties
or assets is bound or affected, except, in the case of (c) above, for such
conflicts, violations, breaches, defaults, terminations, cancellations and
accelerations which in the aggregate will not have a material adverse effect on
the ability of Buyer to consummate the transactions contemplated by this
Agreement and the Buyer Agreements. Except for applicable requirements, if any,
of the HSR Act, which filings, waivers or consents have been made or obtained on
or prior to the date hereof and will be made or obtained on or prior to the
Closing Date, no notice, declaration, report or other filing or registration
with, and no waiver, consent, approval or authorization of, any governmental or
regulatory authority or instrumentality or any other person is required to be
submitted, made or obtained by Buyer in connection with the execution, delivery
or performance of this Agreement or the Buyer agreements and the consummation of
the transactions contemplated hereby or thereby. In accordance with the terms of
the FTC Interim Agreement, Buyer is permitted to consummate the transactions
contemplated hereby.
4.4 [Intentionally Omitted.]
4.5 Brokers and Finders. Neither Buyer nor its officers, directors or
employees has incurred any liability for any brokerage fees, commissions,
finders' fees or similar fees or
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expenses in connection with the purchase of the Business or the other
transactions contemplated hereby, for which Sellers may be liable.
4.6 Financing. Buyer has received (a) a commitment letter from a
commercial bank with respect to the provision of bank financing for Buyer, and
(b) a highly confident letter from an investment banking firm with respect to
the provision of subordinated debt to Buyer to fund the transactions
contemplated by this Agreement, in each case subject to the conditions stated
therein. Buyer has delivered to Sellers copies of such letters. On the Closing
Date, Castle Harlan Partners II, L.P. will provide at least $35 million of
equity capital to Buyer.
4.7 Litigation Affecting Buyer. There is no claim, action, proceeding or
investigation pending or, to the best knowledge of Buyer, threatened, nor is
there outstanding any writ, order, decree or injunction that (a) calls into
question Buyer's authority or right to enter into this Agreement or the Buyer
Agreements and consummate the transactions contemplated hereby or thereby, or
(b) would otherwise prevent or delay the transactions contemplated by this
Agreement or the Buyer Agreements.
ARTICLE V
COVENANTS
5.1 Conduct of the Business Pending the Closing. Sellers hereby jointly
and severally covenant that, from the date hereof to and including the Closing
Date, unless Buyer shall otherwise consent (such consent not to be unreasonably
withheld or delayed) or as otherwise contemplated by this Agreement:
(a) the Business shall be conducted and the Assets repaired and
maintained only in the ordinary and usual course, in a manner consistent with
past practice;
(b) Balfour shall not (i) except as set forth in Schedule 5.1(b)
hereto make any commitment to make any capital expenditures after the Closing
Date individually in excess of $20,000 or in the aggregate in excess of
$250,000; (ii) amend or waive any rights under any of its material contracts; or
(iii) enter into (1) any written employment or severance agreement with any
Acquired Employee or (2) any new employee benefit plan, program or arrangement
or amend any existing employee benefit plan, program or arrangement or grant any
increases in compensation to the Acquired Employees in excess of increases in
compensation consistent with the past practices of the Business;
(c) except in the ordinary course of business consistent with past
practice, Balfour shall not (i) other than as set forth on Schedule 5.1(c),
dispose of any capital assets with a book value, individually or in the
aggregate, in excess of $20,000 or further encumber any of its capital assets or
(ii) incur, or guarantee or otherwise become liable for, any indebtedness for
borrowed money;
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(d) Sellers shall maintain in full force and effect all insurance
policies now in effect or renewals thereof covering the Assets or the Business
and the Employees;
(e) Sellers shall promptly notify Buyer of the following of which
any of them become aware: (i) any breach or violation of, default or event of
default under, or actual or threatened termination or cancellation of any
material contract or other material instrument relating to the Business; (ii)
any material loss of, damage to, or disposition of any of the Assets (other than
the sale or use of inventories in the ordinary course of business); and (iii)
any material claim or litigation, threatened or instituted against any Seller
and affecting the Business;
(f) Sellers shall consult with Buyer with respect to any collective
bargaining negotiations affecting the Business and the adoption of employee
benefit plans;
(g) Other than in connection with the Temporary Leases and Subleases
no Seller shall sell, dispose of, lease, sublease, distribute, encumber or enter
into any agreement, arrangement or commitment, whether oral or written, for the
sale, disposition, leasing, subleasing, distribution or encumbrance of any
portion of the Assets or the Business (other than the sale of obsolete equipment
or the sale or use of inventories in the ordinary course of business of the
Business or as set forth in item (c)(i) above) or initiate or participate,
through agents, representatives or otherwise, in any discussions or negotiations
with, or otherwise solicit from, any corporation, business or person any
proposals or offers relating to the disposition of any such portion of the
Business;
(h) No Seller shall make any material change to any business policy
of the Business, including, without limitation, promotional, advertising,
marketing, pricing, purchasing, personnel, return or product acquisition policy;
and
(i) Sellers shall use their respective best efforts to preserve for
the benefit of the Business their relations with the Business' customers and
suppliers.
5.2 Access to Information.
(a) Prior to the Closing Date and upon reasonable notice from Buyer,
Sellers (i) shall give Buyer and its authorized representatives and
representatives of its financing sources reasonable access, subject to such
limitations or procedures as may be necessary to protect the attorney-client
privilege or the work product doctrine, to all offices, warehouses, plants,
stores and other facilities relating to the Business or the Assets and to all
books and records of the Business, (ii) will permit Buyer and all such persons
to make such inspections as they may reasonably request at reasonable times and
(iii) will cause its officers to furnish Buyer and all such persons with such
financial and operating data and other information with respect to the Assets
and the Business as they may from time to time reasonably request.
(b) Buyer shall hold and shall cause its employees, agents and other
representatives to hold in strict confidence all documents and information
concerning the Business to the extent and in accordance with the terms and
conditions of the Confidentiality Agreement dated April 23, 1996, between Buyer
and T&C; provided, however, that Sellers
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acknowledge that Buyer may disclose certain information regarding the Business,
this Agreement and the transactions contemplated hereby to Buyer's lenders or in
connection with the public or private offering of Buyer's securities to the
extent required by federal and state securities laws, in either case, in
connection with Buyer's financing of the transactions contemplated by this
Agreement and the provision of a line of credit to Buyer from its lenders.
(c) For a period of at least six (6) years following the Closing
Date, Buyer shall retain, at Buyer's sole expense, the books, records and other
data of the Business transferred pursuant to Section 1.1(a). During such period,
Buyer shall afford to Sellers, their counsel and accountants, during normal
business hours, reasonable access to such books, records and other data.
Following the expiration of such six-year period, Buyer may dispose of any such
books, records and other data; provided, however, that before disposing of any
such materials it shall first notify T&C and permit T&C, at its sole expense, to
remove such materials.
(d) Buyer shall, at the request of any Seller, (i) provide
reasonable assistance in the collection of information or documents and (ii)
make Buyer's employees available when reasonably requested by Sellers in
connection with claims or actions brought by or against third parties based upon
events or circumstances concerning Excluded Liabilities. After the Closing Date,
Buyer agrees to make available to Sellers for inspection and copying at Sellers'
expense, at reasonable times upon request therefor, any records and documents
relating to the Business and the Assets which, at the time of such request, are
in Buyer's possession or control. In addition, Buyer agrees to make available to
Sellers such financial data and other information relating to the Business and
the Assets, and will make available such employees of the Business employed by
Buyer, as Seller shall from time to time reasonably request to permit Seller to
prepare any Tax Returns and in connection with any governmental examination of
Tax Returns relating to the Business or the Assets for the periods prior to the
Closing Date. Buyer's reasonable expenses in connection therewith shall be
reimbursed by Sellers.
(e) After the Closing Date, Sellers agree to make available to Buyer
for inspection and copying at Buyer's expense, at reasonable times upon request
therefor, any records and documents relating to the Business and the Assets
retained by Sellers which, at the time of such request, are in any Seller's
possession or control. In addition, Sellers agree to provide reasonable
assistance in the collection of information or documents and make available to
Buyer any financial data and other information retained by any Seller relating
to the Business and the Assets, and will make available such former employees of
the Business that at the time shall be employed by any Seller, as Buyer shall
from time to time reasonably request, in connection with claims or actions
brought by or against third parties based on events or circumstances concerning
the Assets or the Business or the Assumed Liabilities and to permit Buyer to
prepare any Tax Returns and in connection with any governmental examination of
Tax Returns relating to the Business or the Assets for periods from and after
the Closing Date. Sellers' reasonable expenses in connection therewith shall be
reimbursed by Buyer.
(f) Prior to the Closing, Sellers agree to make their respective
Employees available for reasonable periods of time in order to assist Buyer in
its efforts to obtain the financing for the purchase of the Assets; provided,
however, that the assistance provided by such
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Employees in Buyer's financing efforts shall not unduly interfere with the
normal duties and responsibilities of such Employees to operate the business of
Sellers.
5.3 Cooperation.
(a) Subject to the proviso contained in Section 5.5 hereof, upon the
terms and subject to the conditions hereof, each of the parties hereto agrees to
use its reasonable efforts to take or cause to be taken all actions and to do or
cause to be done all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, the Seller Agreements and the Buyer
Agreements and shall use its reasonable efforts to obtain all necessary waivers,
consents and approvals and to effect all necessary registrations and filings.
(b) Sellers shall use all reasonable efforts to provide to Buyer all
information concerning the Business reasonably requested by Buyer for inclusion
in Buyer's registration statement on Form S-1 in connection with the
registration by Buyer under the Securities Act of debt or other offering
memorandum for the public or private offering by Buyer of such debt as
contemplated by Section 4.6.
(c) Sellers shall cooperate with Buyer and take all actions
reasonably requested by Buyer in connection with (i) the planning for the
consolidation of certain of Sellers' plants and (ii) the financings contemplated
by Section 4.6 of the Agreement; provided, however, that (x) Sellers shall not
incur (except as specifically set forth to the contrary herein) any
out-of-pocket costs or expenses and (y) Sellers shall not be obligated to comply
with Buyer's requests if Sellers deem such actions to be otherwise inconsistent
with Sellers' business needs or Sellers reasonably determine that such actions
will have a material adverse effect on the Business or will unreasonably
interfere with the regular duties and responsibilities of Sellers' employees to
operate Sellers' business.
(d) Upon reasonable notice by Buyer, Sellers agree to cooperate with
Buyer and its lender in connection with the transfer of Consigned Gold by
providing access to such gold and the relevant books and records of the Business
and performing all tasks that may be reasonably requested by Buyer in connection
therewith.
(e) In the event (i) Buyer or any Seller, as the case may be, is
unable to obtain, prior to the Closing, any consents, approvals, waivers or
other authorizations to transfer to Buyer any Asset or with respect to the
Leases (other than the Kentucky Lease) and (ii) Buyer elects to waive Section
7.3(b) hereof with respect to such consent, approval, waiver or other
authorization and to consummate the transactions contemplated hereby, Buyer and
Sellers shall cooperate with each other in order to obtain such consents,
approvals, waivers or other authorizations at the earliest practicable date.
5.4 Public Announcements. Buyer, on the one hand, and Sellers, on the
other hand, shall consult with each other before issuing any press release or
otherwise making any public statements with respect to this Agreement or the
transactions contemplated hereby and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law or any national securities exchange.
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5.5 Hart-Scott-Rodino Filing. Each of the parties hereto has filed a
Notification and Report Form under the HSR Act in connection with the
transactions contemplated by this Agreement, and shall use its respective best
efforts to take promptly all other actions and do all other things necessary and
proper to avoid or eliminate any impediment under any antitrust law that may be
asserted by any government antitrust authority or any other party to the
consummation of the transactions contemplated by this Agreement in accordance
with the terms of this Agreement and to comply with its obligations under the
FTC Interim Agreement and to secure an FTC Final Order; provided, however, that
notwithstanding the foregoing, Buyer shall not be required to agree to take or
refrain from taking any further action or to make any agreement with any
governmental agency or authority or any other party (other than the FTC Interim
Agreement) that Buyer, in its sole and absolute discretion, believes may be
detrimental to the Business or its business plan. The filing fee applicable to
the Notification and Report Forms to be filed by Sellers and Buyer pursuant
hereto was borne by Sellers; provided, that upon consummation of the
transactions contemplated by this Agreement, Buyer shall promptly reimburse
Sellers for such amount. Except for the foregoing, Buyer and Seller's shall each
be solely responsible for their respective costs and expenses including legal
fees and other charges incurred in connection with the filing of the
Notification and Report Form, the FTC Interim Agreement and the FTC Final Order
and all proceedings in connection therewith Each of the parties hereto shall
comply with the FTC Interim Agreement and the FTC Preliminary Order, a form of
which is attached hereto as Schedule 5.5.
5.6 Post Closing Confidentiality. After the Closing, each Seller on behalf
of its self and its respective affiliates and subsidiaries agrees to maintain
the confidentiality of all confidential or proprietary information of the
Business and agrees not to, directly or indirectly, disclose any confidential or
proprietary information related to the Business or use or appropriate for its
own benefit or for the benefit of any other person or entity, any confidential
or proprietary information of the Business, including without limitation, any
information relating to the Business or customers except to the extent that
disclosure of any portion thereof is required by law or determined to be
necessary to comply with any legal or regulatory order, regulation or
requirement or to the extent the information becomes generally available to the
public other than as a result of a disclosure by any Seller; provided, however,
that Sellers shall first notify Buyer of any such disclosure and, if Buyer
desires, shall cooperate with Buyer to seek approval to prevent or limit such
disclosure. In addition, for a period of 12 months commencing on the earlier of
(i) November 30, 1997 or (ii) the date Buyer ceases to operate any facility in
Massachusetts, none of the Sellers nor any of their respective affiliates shall
hire or, directly or indirectly, solicit, induce or encourage any individual who
is then an employee of Buyer or the Business or offer such employee employment
with any Seller or any of their respective affiliates; provided, however, that
the foregoing shall not apply to (a) employees whose employment has been
terminated by Buyer and (b) after a period of at least thirty days since the
termination of employment with Buyer or the Business, employees who have
terminated their employment with Buyer.
5.7 Environmental Assessment. As a condition precedent to the Buyer's
obligation to purchase the Assets, the Buyer shall have the right to conduct a
Phase I environmental site assessment (the "ESA"), of the Kentucky Property at
Buyer's sole cost and expense by the date that is six weeks after the date
hereof. Buyer will provide Sellers with a copy of the ESA within
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three (3) business days of receipt by Buyer from the consulting firm conducting
the ESA. If the ESA reveals the presence of Hazardous Materials reasonably
likely to result in Environmental Liabilities which could have a material
adverse effect on the Business, Buyer may notify the Sellers in writing within
two (2) days of receipt of the ESA and the parties shall have two (2) days to
discuss a resolution thereto (the "Consultation Period"). If the parties cannot
reach an acceptable resolution thereto upon the expiration of the Consultation
Period, either party may terminate this Agreement by written notice to the other
within two (2) days of expiration of the Consultation Period. If Buyer fails to
object to such presence of Hazardous Materials disclosed in the ESA within two
(2) days of receiving the ESA or fails to terminate this Agreement within two
(2) days of the expiration of the Consultation Period, this Section 5.7 shall be
null and void and of no further force and effect.
5.8 Temporary Leases and Subleases. To the extent the operations (the
"Short Term Operations") conducted at the Owned Property and the Leased Property
are not combined with the operations (i) conducted at the Kentucky Property or
(ii) conducted at any other properties held by Buyer as of the Closing Date,
Buyer and Sellers shall, at Buyer's option, enter into appropriate lease and/or
sublease agreements containing the terms and conditions set forth on Exhibits
"B" and "C" hereto to continue the Short Term Operations at their present
locations. Sellers agree that such lease and/or sublease agreements shall
provide Buyer the use of the manufacturing and administrative facilities
currently used in the Business on the terms set forth on Exhibits B and C
hereto.
5.9 CJC Agreement. Buyer shall promptly notify Sellers in writing of any
proposed amendment, waiver, or other modification (each, a "Proposed Amendment")
of the CJC Agreement (as such term is defined in Section 7.1 below) after the
date hereof that could reasonably be likely to cause a delay in the Closing
beyond January 31, 1997, or otherwise affect Buyer's ability to close the
transactions contemplated hereby in accordance with the terms hereof by such
date. Sellers shall have the right, but not the obligation, to terminate this
Agreement if (i) Sellers object to such Proposed Amendment in writing to Buyer
within 10 business days of Sellers' receipt of Buyer's notice of such Proposed
Amendment, stating Sellers' reason(s) for such objection, and (ii) such Proposed
Amendment is effected despite Sellers' objection. Sellers may exercise this
termination right by providing written notice to Buyer no later than 10 business
days after Sellers are notified of the effectuation of the Proposed Amendment,
assuming Sellers had previously objected to it.
5.10 Update of Schedules. From time to time not later than the tenth
(10th) day prior to the scheduled Closing Date, Sellers shall have the right
(and the obligation) to update or amend in any respect its disclosure of any
matter set forth or permitted to be set forth in the Schedules hereto to the
extent that such matter was unknown to any officer of any Seller on the date
hereof after reasonable due diligence with respect thereto, which fact shall be
certified by an executive officer of such Seller. If the information in any such
update or amendment could materially adversely affect the Business or Assets or
the rights and obligations of Buyer (when compared with the matters set forth in
the Schedules immediately prior to such update or amendment) as determined in
good faith by Buyer, then Buyer may terminate this Agreement by notice to
Sellers not later than the fifth (5th) day prior to the scheduled Closing Date
(or later if
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any such updates occur within ten (10) days of the Closing Date) or, at Buyer's
sole option, delay the Closing Date for up to ten (10) days until such date as
Buyer concludes for the purpose of making a determination as to whether such
update or amendment could materially adversely affect the Business or Assets or
the rights and obligations of Buyer. If Buyer fails to terminate this Agreement,
the schedules as of the Closing Date shall be deemed to be the schedules as so
updated. The parties acknowledge that an update or amendment to the Schedules
may contain information relating to provisions of this Agreement that are
currently not the subject of exceptions or other disclosures set forth in the
Schedules or otherwise provided to Buyer. In such event the affected provisions
shall be deemed to be modified by the updated and amended information contained
in the revised Schedules.
5.11 Audit; Delivery of Financial Statements.
(a) Sellers have delivered the final, audited balance sheet of the
Business as at February 27, 1994, February 26, 1995 and February 25, 1996 and
the related statements of operations and cash flows for the period then ended,
and the final, audited balance sheet of the Business as at August 25, 1996 and
the related statements of income and cash flows for the six months then ended.
Upon receipt by Buyer of written evidence thereof, the incremental reasonable
cost of such audit, to the extent attributable to the additional procedures
required to be performed by such accountants in order to perform the audit of
the Business only over and above their prior review of Sellers' financial
statements for such years, shall be borne equally by Buyer, on the one hand, and
by Sellers, on the other hand; provided, however, that upon consummation of the
transactions contemplated by this Agreement, Buyer shall promptly reimburse
Sellers for the portion of such incremental costs previously paid by them.
(b) [Intentionally Omitted.]
(c) [Intentionally Omitted.]
(d) Sellers' independent accountants have reviewed the unaudited
balance sheets of the Business as at February 28, 1993 and February 29, 1992 and
the related statements of income. On or prior to the Closing Date, such
accountants shall deliver an accountant's review letter or other form of letter
to Buyer stating that, based upon their review, they are not aware of any
material modifications to such financial statements that would be necessary in
order for such financial statements to be in conformity with GAAP, or such other
conclusions or information as shall be reasonably requested by Buyer's
underwriters or placement agents in connection with the financing contemplated
in this Agreement. Buyer shall pay Sellers' independent accountants (i) their
reasonable fees in connection with the work described in this paragraph (d) plus
(ii) $13,000 associated with the work performed by such accountants with respect
to the financial statements of the Business for the fiscal quarter ended May
1996.
(e) [Intentionally Omitted.]
5.12 Non-Competition. (a) Neither any Seller nor any entity affiliated
(within the meaning of the Securities Act) with Sellers (other than Gold Lance)
shall, for a period of five
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years commencing on the Closing Date and ending on the fifth anniversary
thereof, directly or indirectly:
(i) engage, directly or indirectly, in any managerial,
administrative, advisory, operational or sales activities in a Restricted
Business anywhere in the Restricted Area; or
(ii) organize, establish, operate, own, manage, control or
have a direct or indirect investment or ownership interest in a Restricted
Business or in any corporation, partnership (limited or general), limited
liability company enterprise or other business entity that engages in a
Restricted Business anywhere in the Restricted Area.
(b) Nothing contained in this Section 5.12 shall prohibit or
otherwise restrict any Seller or any entity affiliated with it from acquiring or
owning, directly or indirectly, for investment or other legitimate business
purposes not intended to circumvent this Agreement, securities of any entity
engaged, directly or indirectly, in a Restricted Business if either (i) such
entity is a public entity and such member (A) is not a controlling Person of, or
a member of a group that controls, such entity and (B) owns, directly or
indirectly, no more than 5% of any class of equity securities of such entity or
(ii) such entity is not a public entity and no affiliate of any Seller (A) is a
controlling Person of, or a member of a group that controls, such entity and (B)
owns, directly and indirectly, no more than 10% of any class of equity
securities of such entity.
(c) For purposes of this Section 5.12:
(i) "Restricted Business" means the manufacture or sale of
scholastic, licensed sports, and logo recognition products including, without
limitation, jewelry, commemorative and graphics products in such businesses.
(ii) "Restricted Area" means the United States.
(d) The parties hereto acknowledge that the covenants and
restrictions contained in this Section 5.12 are reasonable. The parties agree
that the Buyer shall have the right and remedy to have this Section 5.12
specifically enforced, it being agreed that any breach or threatened breach of
this Section 5.12 would cause irreparable injury to Buyer and that money damages
would not provide an adequate remedy to Buyer.
5.13 Dallas Graphics Plant. Sellers shall indemnify and hold harmless
Buyer from and against any liability, cost or expense in connection with the
consolidation of the operations of the Dallas Graphics Plant, including any such
liability, cost or expense arising from the WARN Act and comparable state laws.
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ARTICLE VI
PERSONNEL, EMPLOYMENT ARRANGEMENTS
AND EMPLOYEE BENEFITS
6.1 Personnel. Effective as of the Closing, Buyer shall offer employment
to (a) all active employees of Balfour set forth on Schedule 6.1 hereto
(including those on short-term disability (who return to active employment
within 90 days of the Closing), temporary leave and temporary lay-off, but
excluding employees hired on a temporary basis) engaged by Balfour in plant
operations at the plants of the Business as of the Closing ("Employees"),
provided that Employees on short-term disability, temporary leave and temporary
lay-off shall be offered employment in their same status, and (b) all non-plant
staff Employees and corporate staff Employees, in each case at compensation and
benefit levels substantially equivalent to their present levels. Such offers
shall be outstanding for at least ten days. Employees who accept offers of
employment made by Buyer pursuant to this Section 6.1 shall be referred to
hereinafter as the "Transferred Employees." The term "Transferred Employees"
shall not include (i) any former employees of any Seller who are hired pursuant
to an offer made after the expiration of the offer made by Buyer under this
Section 6.1, (ii) employees formerly engaged in operations at the Dallas
Graphics Plant of the Business other than such employees transferred to
Louisville, Kentucky. Sellers shall assist Buyer in effecting the change of
employment of the Transferred Employees as of the Closing in an orderly fashion.
6.2 401 (k) Plan.
(a) The Transferred Employees shall be eligible to commence
participation in a defined contribution plan established and maintained by Buyer
(the "Buyer 401 (k) Plan") which shall be effective no later than 60 days after
the Closing Date and which is intended to be qualified under Sections 401(a) and
401(k) of the Code, such eligibility to be effective immediately upon the
effective date of Buyer 401 (k) Plan.
(b) Sellers shall cause Transferred Employees who are participants
in the Town & Country Corporation 401(k) and Profit Sharing Plan (the "Seller
401 (k) Plan") to be fully vested as of the Closing Date. As of the Closing
Date, Seller 401 (k) Plan shall be liable for payment of such account balances
in accordance with the terms of Seller 401 (k) Plan.
(c) Buyer shall cause each Transferred Employee to be given full
credit for service with Sellers (as defined in Seller 401(k) Plan) for purposes
of eligibility and vesting in Buyer 401(k) Plan. Buyer 401(k) Plan shall permit
rollovers of distributions made from Seller 401(k) Plan at the election of each
Transferred Employee. As soon as practicable after the Closing Date, Buyer shall
receive from Sellers such pertinent data or information as Buyer may reasonably
require to determine the Transferred Employees' service with Sellers as of the
Closing.
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6.3 Other Seller Welfare Benefit Plans.
(a) As of the Closing Date, Buyer shall take such actions so that
Transferred Employees and their dependents shall commence participation in the
"employee welfare benefit plans" to be established by Buyer (the "Buyer Welfare
Plans"), which are comparable to Sellers' "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA) associated with the Business (the "Seller
Welfare Plans"); provided, that Buyer may increase the rates of contribution by
the Transferred Employees to cover increased costs. Sellers shall remain
responsible and liable for claims under the Seller Welfare Plans of Transferred
Employees and their eligible dependents incurred prior to the Closing Date under
the Seller Welfare Plans; provided, however, that Buyer shall reimburse Sellers
for the first $200,000 in the aggregate of claims incurred prior to the Closing
Date that are made on or after the Closing Date upon written evidence thereof
from Sellers to Buyer, setting forth the amount and a description of such
claim(s) in reasonable detail. Buyer shall be responsible and liable for claims
of Transferred Employee and their eligible dependents under the Buyer Welfare
Plans incurred on and after the Closing Date.
(b) The Seller Welfare Plans shall not be liable for payment of
expenses incurred by eligible Transferred Employees or their eligible
dependents, except as otherwise provided by this Section 6.3. The Seller Welfare
Plans shall be liable for the payment of benefits to eligible Transferred
Employees and their eligible dependents for claims made prior to the Closing
Date.
(c) Each Buyer Welfare Plan or Plans which provides medical, health
and dental care benefits to Transferred Employees (the "Buyer Medical Plans")
shall credit service with Sellers toward any coverage waiting period, maintain
only the pre-existing conditions under the applicable Seller Welfare Plans and
waive actively-at-work requirements, and shall provide that any expenses
incurred before the Closing Date by a Transferred Employee (and his or her
eligible dependents) during the calendar year of the Closing shall be taken into
account for purposes of satisfying the applicable deductible, coinsurance and
maximum out-of-pocket provisions, and applicable annual and/or lifetime maximum
benefit limitation of the Buyer Medical Plans.
(d) Buyer shall assume, on and as of the Closing Date, the liability
described on Schedule 6.3(d) for post-retirement benefits payable under Seller
Welfare Plans to employees of Balfour who terminated employment with Balfour
prior to the Closing Date and are eligible for post-retirement benefits pursuant
to the terms of the applicable Seller Welfare Plans as of the Closing Date.
(e) If any Transferred Employee (other than such Transferred
Employee set forth on Schedule 6.3(e), whose severance shall be treated as set
forth on such schedule), is terminated by Buyer within eighteen months of the
Closing Date for any reason not attributable to such Transferred Employee's
conduct or job performance, Buyer shall provide such Transferred Employee with
the amount of severance pay that would have been provided to such Transferred
Employee under Balfour's severance program as if such employee had been
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terminated on the Closing Date. The full amount of Balfour's accrued severance
obligations for the Transferred Employees in Massachusetts shall be set forth on
Sellers' statement containing the Estimated Working Capital and the Statement of
Net Working Capital, and Buyer shall return unused funds to Balfour within
eighteen months after the Closing Date. Sellers represent and warrant to Buyer
that the severance accruals to be set forth on Sellers' statement of Estimated
Working Capital will be adequate.
6.4 Limitations. Nothing contained in Sections 6.2 and 6.3 is intended to
confer any rights to any third party nor limit the ability of the Buyer to amend
or terminate any employee benefit plan after the Closing Date.
6.5 Vacation. With respect to Transferred Employees, Buyer shall continue
in effect the vacation policy of Balfour with respect to the Business that is in
effect on the day before the Closing Date (the "Business Vacation Policy") for
the remainder of the calendar year in which the Closing occurs but thereafter
reserves the right to change such policy. The Business Vacation Policy is set
forth in Schedule 6.5.
6.6 Payroll Issues. At the request of Sellers made any time after Closing,
Buyer shall, in a timely manner, provide Sellers with the information in Buyer's
possession that Sellers deems necessary for Sellers to complete any Internal
Revenue Service filing, including IRS W-2 Forms and insurance premium reports,
with respect to each individual whose employment with the Business terminated
prior to the Closing Date.
6.7 Worker Adjustment and Retraining Notification Act. Upon reasonable
written request by Buyer and at Buyer's expense, Sellers shall provide
appropriate notice (including renewal notices) pursuant to the Worker Adjustment
and Retraining Notification Act (29 U.S.C. Sections 2101, et seq.) (the "WARN
Act") with respect to employees Buyer expects to terminate less than 60 days
after the Closing Date. With respect to any other plant closings by Sellers for
which notice has not been provided by Buyer in accordance with the preceding
sentence (including the Dallas Graphics Plant) prior to the Closing Date,
Sellers shall have complied with the WARN Act and all comparable state laws and
shall indemnify and hold harmless Buyer from and against any liability, cost or
expense in connection therewith. Buyer and Sellers shall each comply with the
WARN Act and any comparable state law.
6.8 Employee Rights. Nothing herein expressed or implied shall confer upon
any employee of Sellers, any Transferred Employee, any other employee or any
legal representative thereof any rights or remedies, including any right to
employment or continued employment for any specified period, of any nature or
kind whatsoever, under or by reason of this Agreement.
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ARTICLE VII
CONDITIONS TO CLOSING
7.1 General Conditions. The obligations of each party hereto to effect the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of the following conditions:
(a) No order, statute, rule, regulation, executive order,
injunction, stay, decree or restraining order shall have been enacted, entered,
promulgated or enforced by any court of competent jurisdiction or governmental
or regulatory authority or instrumentality that prohibits the consummation of
the transactions contemplated hereby.
(b) The waiting period applicable to the transactions contemplated
hereby pursuant to the HSR Act shall have expired or been terminated. The
Interim Agreement shall have been executed, and each of Buyer and Sellers shall
be in compliance therewith.
(c) Buyer shall concurrently with the consummation of the
transactions contemplated by this Agreement, consummate the transactions
contemplated by the Agreement, dated as of May 20, 1996, as amended as of the
date hereof, and as further amended (if at all) in accordance with the
provisions set forth in Section 5.9 hereof, by and among Buyer, as buyer, and
CJC Holdings, Inc. ("CJC") and CJC North America, Inc., as sellers (as so
amended, the "CJC Agreement") on substantially the same terms as set forth in
the CJC Agreement.
7.2 Conditions to Obligations of Sellers. The obligations of Sellers to
effect the transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of the following conditions:
(a) Buyer shall have performed its obligations required under this
Agreement to be performed by it at or prior to the Closing and the
representations and warranties of Buyer contained in this Agreement shall be
true and correct on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of the Closing Date
(except to the extent that a different time is specifically stated in such
representations and warranties), and Buyer shall have delivered to Sellers on
the Closing Date a certificate of an authorized officer of Buyer, dated the
Closing Date, to such effect.
(b) Sellers shall have received the Purchase Price and the documents
referred to in Section 2.3.
(c) All necessary approvals, consents or orders of all
administrative agencies or government authorities which have jurisdiction over
Buyer or the Business to the assignment of the Assets shall have been obtained
upon terms and conditions reasonably satisfactory to Sellers.
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7.3 Conditions to Obligations of Buyer. The obligation of Buyer to effect
the transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of the following conditions:
(a) Each Seller shall have performed its obligations required under
this Agreement to be performed by it at or prior to the Closing and, the
representations and warranties of Seller contained in this Agreement (as amended
pursuant to Section 5.10) shall be true and correct on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of the Closing Date (except to the extent that a different time
is specifically stated in such representations and warranties), and each Seller
shall have delivered to Buyer on the Closing Date a certificate of an authorized
officer of such Seller, dated the Closing Date, to such effect.
(b) Buyer shall have received the documents referred to in Section
2.2.
(c) No material casualty, loss or damage shall have occurred prior
to the Closing to any Assets unless Sellers shall have either repaired or
replaced such lost or damaged property, all to the reasonable satisfaction of
Buyer.
(d) All necessary approvals, consents or orders of all
administrative agencies or government authorities which have jurisdiction over
Sellers or the Business to the assignment of the Assets shall have been obtained
upon terms and conditions reasonably satisfactory to Buyer.
(e) Buyer shall have obtained the financing contemplated in Section
4.6 hereof. Such financing shall be available and shall, together with the
equity contribution referred to in Section 4.6 hereof, be sufficient for the
purchase of the Assets and to purchase the assets of CJC as contemplated by the
CJC Agreement.
(f) [Intentionally Omitted.]
(g) [Intentionally Omitted.]
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing:
(a) by mutual consent of Buyer and Sellers;
(b) by Buyer pursuant to (i) the proviso contained in Section 5.5
above or (ii) Section 5.11(c) above, or by Sellers (i) pursuant to Section 5.9
above or (ii) in the event the CJC Agreement is terminated in accordance with
its terms;
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(c) by either Sellers or Buyer, by notice to the other, if the
Closing shall not have occurred by January 31, 1997, or earlier, if the parties
mutually agree that the transactions contemplated herein can no longer be
accomplished under the economic terms contemplated;
(d) by Sellers or by Buyer, by notice to the other, if on the date
scheduled for Closing any order shall have been entered restraining or
prohibiting consummation of the transactions contemplated hereby;
(e) by Buyer, without affecting any of its other rights hereunder at
any time after the Closing Date, if it is prepared to tender full performance of
its obligations hereunder on the Closing Date and any one or more of the
conditions precedent to its obligations herein shall not have been fulfilled or
waived; or
(f) by Seller, without affecting any of its other rights hereunder
at any time after the Closing Date, if it is prepared to tender full performance
of its obligations hereunder on the Closing Date and any one or more of the
conditions precedent to its obligations herein shall not have been fulfilled or
waived.
8.2 Notice of Termination. Written notice of any termination under clauses
(b), (c), (d), (e) or (f) of Section 8. 1, stating the grounds therefor, shall
be given by the party entitled to give such notice.
8.3 Effect of Termination. Except for Sections 5.2(b), 5.4 and 10.1 and
for liability for breaches of this Agreement, upon the termination of this
Agreement pursuant to Section 8. 1, this Agreement shall forthwith become null
and void.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES, INDEMNIFICATION
9.1 Survival. The representations and warranties of Sellers and Buyer
herein shall survive the execution and delivery hereof and the Closing
hereunder, and shall thereafter terminate and expire fifteen (15) months after
the Closing Date with respect to any theretofore unasserted claim relating to or
arising out of any Sellers' breach of any representation or warranty contained
in Section 3 or Buyer's breach of any representation or warranty contained in
Section 4, except (i) that Sellers' representations and warranties as to title
contained in Sections 3.1, 3.7 and 3.8 shall continue indefinitely and (ii) that
Sellers' representation contained in the final sentence of Section 3.31 shall
not survive the Closing. The period of survival of the representations and
warranties as contemplated by this Section 9.1 are referred to herein as the
"Survival Period." The liabilities of the parties under their respective
representations and warranties shall expire as of the expiration of the
applicable Survival Period; provided, however, that such expiration shall not
include, extend or apply to any representation or warranty, the breach of which
shall have been asserted in a written notice before such expiration, such notice
to specify (in reasonable detail) the matter which gives rise to the breach, the
nature of the breach
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and the amount claimed in respect thereof. The covenants and agreements of the
parties herein and in the other documents and instruments contemplated hereby
shall survive the Closing and shall continue in full force and effect forever,
except as otherwise explicitly limited by their terms.
9.2 Indemnification by Seller. Sellers hereby jointly and severally agree
to indemnify, save and hold harmless Buyer, its successors and permitted assigns
and all of its officers, directors, stockholders, agents and employees from and
against any and all damages, liabilities, losses, claims, deficiencies,
penalties, interest, expenses, fines, assessments, charges or costs, including
reasonable attorney's fees and expenses and costs of investigation
(collectively, the "Damages") arising from (a) the Excluded Liabilities, (b) the
breach of any covenant or agreement of any Seller contained herein and (c) any
inaccuracy or breach of any representation or warranty of any Seller in this
Agreement or in any other agreement or certificate or other writing delivered
pursuant hereto.
9.3 Indemnification by Buyer. Buyer hereby agrees to indemnify, save and
hold harmless Sellers, their respective successors and permitted assigns and all
of their respective officers, directors, shareholders, agents and employees from
and against any Damages arising from (a) the Assumed Liabilities, (b) the breach
of any covenant or agreement of Buyer contained herein, and (c) any inaccuracy
or breach of any representation or warranty of Buyer in this Agreement or in any
other agreement or certificate or other writing delivered pursuant hereto.
9.4 Limitation of Liability. For purposes of this Article IX, all Damages
shall be computed net of (a) any insurance proceeds actually received from
insurance for the event or occurrence giving rise to the Damages, and (b) any
amounts actually received, from any third parties based on claims related to the
event or occurrence giving rise to the Damages that the indemnified party has
against such third parties, which reduce the Damages that would otherwise be
sustained; provided, however, that no indemnified party shall have any
obligation to pursue such recoveries under such insurance or against such third
parties, and provided, further, however, that, in all cases, the timing of the
receipt or realization of insurance proceeds or recoveries from third parties,
the amount of increased costs of insurance arising from the payment or
collection of such insurance proceeds, and the costs of collection shall be
taken into account in determining the amount of reduction of Damages. If any
indemnifying party pays to the indemnified party any Damages under this Article
IX and the indemnified party subsequently recovers from some other person any
sum in respect of any matter giving rise to the relevant claim, the indemnified
party shall repay to the indemnifying party the lesser of (a) the amount paid by
the indemnifying party to the indemnified party and (b) the sum recovered from
such other person. No indemnified party hereunder shall be entitled to seek
indemnification from an indemnifying party until and unless the aggregate of all
claims for indemnification by the indemnified party exceeds $150,000, in which
event the indemnifying party shall only be liable for the excess over such
amount. In no event shall the aggregate liability of any indemnifying party to
indemnify, save and hold harmless any indemnified party hereunder exceed
$7,500,000.
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9.5 Notice and Right to Defend. The Sellers, on the one hand, and the
Buyer, on the other hand, hereto agree to give prompt notice to the other of the
assertion of any claim, or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought hereunder, provided that the failure to
give such notice to the indemnifying party shall not relieve the indemnifying
party of any liability that it may have to an indemnified party except to the
extent that the indemnifying party shall have been materially prejudiced in its
ability to defend the claim, suit, action or proceeding for which such indemnity
is sought by reason of such failure. The indemnifying party shall have the right
to assume the defense of any third-party claim, suit, action or proceeding in
respect of which indemnity hereunder is sought by giving prompt notice to the
indemnified party. In the event that the indemnifying party elects to assume the
defense of such claim, suit, action or proceeding, the indemnifying party shall
promptly retain counsel reasonably satisfactory to the indemnified party. The
indemnified party shall have the right to employ its own counsel in any such
claim, suit, action or proceeding, but the fees and expenses of such counsel
shall be at the expense of the indemnified party unless (a) the employment of
such counsel shall have been authorized by the indemnifying party, (b) the
indemnifying party shall not have promptly retained counsel reasonably
satisfactory to the indemnified party to take charge of the defense of such
claim, suit, action or proceeding; (c) the indemnified party shall have
concluded that there may be one or more legal defenses available to it which are
different from or additional to those available to the indemnifying party or (d)
the resolution of the matter being contested may, in the reasonable judgment of
the indemnified party, have a material adverse effect on the indemnified party's
business, in which event such fees and expenses shall be borne by the
indemnifying party. If an indemnifying party elects to assume the defense of any
such claim, suit, action or proceeding, (i) no compromise or settlement thereof
may be effected by the indemnifying party without the indemnified party's
written consent, and (ii) the indemnifying party shall have no liability for any
settlement or compromise by the indemnified party with any third party relating
to any such claim, suit, action or proceeding effected without the prior written
consent of the indemnifying party. Notwithstanding the foregoing, if an
indemnified party determines that there is a reasonable possibility that any
such claim, suit, action or proceeding may adversely affect it or its business
or any of its subsidiaries or affiliates, such indemnified party may, by written
notice to the indemnifying party assume the exclusive right to defend such
claim, suit, action or proceeding.
If the indemnifying party fails to give written notice to the
indemnified party of its election to assume the defense of any claim, suit,
action or proceeding for which it is called upon to indemnify an indemnified
party pursuant to this Article IX within thirty (30) days after the indemnified
party gives notice to the indemnifying party of the commencement of such claim,
suit, action or proceeding, the indemnifying party shall be bound by any
determination made in any such claim, suit, action or proceeding or compromise
or settlement thereof effected by the indemnified party.
9.6 Remedies Exclusive. The remedies provided in this Article IX shall be
the sole and exclusive remedies, and shall preclude assertion by an indemnified
party of any other rights or the seeking of any and all other remedies against
an indemnifying party, for claims based on any breach of any representation or
warranty contained in this Agreement.
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ARTICLE X
ADDITIONAL COVENANTS
10.1 No Disposition. Until the date of the FTC Final Order, each of T&C
and Gold Lance shall not, and T&C shall cause Gold Lance not to, sell, dispose
of, lease, sublease, distribute or enter into discussions or negotiate with any
party for the sale or other distribution of, or enter into any agreement,
arrangement or commitment, whether oral or written, directly or indirectly, or
enter into discussions or negotiations with any party with respect to any such
agreement, arrangement or commitment for the sale, disposition, leasing,
subleasing, distribution or other transfer of any direct or indirect interest in
(i) any capital stock of Gold Lance or (ii) any asset of Gold Lance, other than
sales of inventory in the ordinary course of Gold Lance's business and sales or
dispositions of obsolete assets that, individually and in the aggregate with all
other such sales or dispositions, are not material to Gold Lance.
10.2 Employees. For a period of 12 months commencing on the Closing Date,
neither Gold Lance nor any of its affiliates shall hire or, directly or
indirectly, solicit, induce or encourage any individual who is then an employee
of Buyer or the Business or offer such employee employment with Gold Lance or
any of its affiliates; provided, however, that the foregoing shall not apply to
(a) employees whose employment has been terminated by Buyer and (b) after a
period of at least thirty days since the termination of employment with Buyer or
the Business, employees who have terminated their employment with Buyer.
10.3 Non-Compete. Gold Lance agrees that for a period of 18 months
following the Closing Date, neither it nor any of its affiliates will sell,
offer to sell, or seek to obtain the right to sell or distribute any products
manufactured or distributed by it or under its name or trademarks to any school
or other educational institution to or in which Balfour has sold or distributed
products during the past year or currently sells or distributes or has been
granted the right to sell or distribute any products. The parties hereto
acknowledge that the covenants and restrictions contained in this Section 10.3
are reasonable. The parties agree that the Buyer shall have the right and remedy
to have this Section 10.3 specifically enforced, it being agreed that any breach
or threatened breach of this Section 10.3 would cause irreparable injury to
Buyer and that money damages would not provide an adequate remedy to Buyer.
ARTICLE XI
MISCELLANEOUS
11.1 Expenses, Taxes. Except as otherwise specifically set forth herein,
each party shall pay all fees and expenses incurred by it in connection with
this Agreement and the consummation of the transactions contemplated hereby
(other than any excise, sales, use or transfer taxes or any other such taxes
which are payable or arise as a result of execution of this Agreement or the
transfer of Assets to Buyer pursuant to this Agreement, which shall be paid by
Sellers).
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11.2 Further Assurances. From time to time after the Closing and without
further consideration, (i) Sellers, upon the request of Buyer and at Sellers'
expense, shall, subject to applicable law, execute and deliver such documents
and instruments of conveyance and transfer as Buyer may reasonably request in
order to consummate more effectively the purchase and sale of the Assets as
contemplated hereby and to vest in Buyer title to the Assets transferred
hereunder and (ii) Buyer, upon the request of Sellers and at Buyer's expense,
shall, subject to applicable law, execute and deliver such documents and
instruments of assumption as Sellers may reasonably request in order to vest in
Buyer obligations under the Assumed Liabilities. In addition to the actions,
contracts and other agreements and documents and other papers specifically
required to be taken or delivered pursuant to this Agreement, each of the
parties hereto shall execute such contracts and other agreements and documents
and take such further actions as may be reasonably required or desirable to
carry out the provisions hereof and the transactions contemplated hereby.
11.3 Notices. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given when
delivered in person or transmitted by facsimile transmission or upon receipt
after dispatch by registered or certified mail, postage prepaid, or overnight
courier services, addressed, as follows:
If to Sellers or Gold Lance to:
Town & Country Corporation
25 Union Street
Chelsea, Massachusetts 02150
Attention: C. William Carey, Chairman
Telephone: (617) 884-8500
Telecopy: (617) 889-6707
with a copy to:
Kevin Dennis, Esq.
Goodwin, Procter & Hoar, LLP
Exchange Place
Boston, Massachusetts 02109
Telephone: (617) 570-1000
Telecopy: (617) 523-1231
If to Buyer to:
Mr. David B. Pittaway
Castle Harlan, Inc.
150 East 58th Street
New York, New York 10155
Telephone: (212) 644-8600
Telecopy: (212) 207-8042
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<PAGE>
with a copy to:
Janet C. Walden, Esq.
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Telephone: (212) 756-2495
Telecopy: (212) 593-5955
or such other address as the person to whom notice is to be given has furnished
in writing to the other party. A notice of change in address shall not be deemed
to have been given until received by the addressee.
11.4 Headings; Interpretation. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience only and do
not constitute a part of this Agreement. Unless otherwise specified, references
in this Agreement to Sections, Articles and Schedules are to Sections and
Articles of, and Schedules to, this Agreement.
11.5 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts regardless of the
laws that might otherwise govern under applicable principles of conflict of laws
thereof.
11.6 Succesors and Assigns. This Agreement, and each party's rights and
obligations hereunder, shall be binding upon each of such party's successors
(including, without limitation, any successor or to all or any substantial
portion of such party's assets or business, by operation of law or otherwise)
and permitted assigns. No party shall assign this Agreement in whole or in part
without the prior written consent of the other party; provided, however, that
Buyer may assign its rights and obligations hereunder or any portion thereof to
one or more wholly-owned subsidiaries of Buyer. Any assignment made or attempted
in violation of this Section 12.6 shall be void and of no effect.
11.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.8 Entire Agreement. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties and (b) other than as provided in Sections 9.2 or 9.3, is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
11.9 Severability. In the event that any one or more of the provisions or
parts of a provision contained in this Agreement shall for any reason be held to
be invalid, illegal or unenforceable in any respect in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement or any other jurisdiction, but this
Agreement shall be reformed and construed in any such jurisdiction as if
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<PAGE>
such invalid or illegal or unenforceable provision or part of a provision had
never been contained herein and such provision or part shall be reformed so that
it would be valid, legal and enforceable to the maximum extent permitted in such
jurisdiction.
11.10 Bulk Sales Laws. The parties hereby waive compliance with the Bulk
Sales Laws of any state or territory in which the Assets are located or in which
operations relating to the Business are conducted. Sellers jointly and severally
shall defend, indemnify and hold Buyer harmless from any liability, damage, cost
or expense relating to such non-compliance.
11.11 Amendment. This Agreement may be amended by the parties at any time
but only by an instrument in writing signed by Buyer and Sellers; provided,
however, that the provisions of Article X and this Article XI may be amended
only by an instrument in writing signed by all parties hereto.
11.12 Waiver. Either Sellers, on the one hand, or Buyers, on the other
hand, may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto or (c) waive compliance by the other party
with any of the agreements, or satisfaction of any of the conditions, contained
herein. Any agreement on the part of the other party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
such party.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf by its duly authorized officer, all as of the day
and year first above written.
TOWN & COUNTRY CORPORATION,
Seller
By: /s/ C. William Carey
----------------------------------------------
Name: C. William Carey
Title: Chairman and CEO
L. G. BALFOUR COMPANY, INC., Seller
By: /s/ C. William Carey
----------------------------------------------
Name: C. William Carey
Title: Chairman and CEO
GOLD LANCE, INC.
(Solely for Purposes of Articles X and XI hereof)
By: /s/ C. William Carey
----------------------------------------------
Name: C. William Carey
Title: Chairman and CEO
SCHOLASTIC BRANDS, INC., Buyer
By: /s/ David B. Pittaway
----------------------------------------------
Name: David B. Pittaway
Title: President
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EXHIBIT 2.5
Town & Country Corporation
L.G. Balfour Company, Inc.
Gold Lance, Inc.
December 16, 1996
Page 1
SCHOLASTIC BRANDS, INC.
c/o Castle Harlan, Inc.
150 East 58th Street
New York, New York 10155
December 16, 1996
Town & Country Corporation
25 Union Street
Chelsea, MA 02150
L.G. Balfour Company, Inc.
15 John Dietsch Boulevard
P.O. Box 1999
No. Attleboro, MA 02763
Gold Lance, Inc.
1920 North Memorial
Houston, TX 77007
Re: Amended and Restated Asset Purchase Agreement,
dated November 21,1996
Gentlemen:
Reference is made to the Amended and Restated Asset Purchase Agreement,
dated as of November 21, 1996 (the "Agreement"), by and among Scholastic Brands,
Inc. ("Buyer"), Town & Country Corporation ("T&C"), L. G. Balfour Company, Inc.
("Balfour", and together with T&C, individually a "Seller" and together the
"Sellers"), and for purposes of Article X and XI thereof, Gold Lance, Inc., a
wholly-owned subsidiary of T&C ("Gold Lance"). All capitalized terms used
herein which are not defined herein which are defined in the Agreement shall
have the meanings ascribed to them in the Agreement.
<PAGE>
Town & Country Corporation
L.G. Balfour Company, Inc.
Gold Lance, Inc.
December 16, 1996
Page 2
You and we hereby agree to amend the Agreement in accordance with
Section 11.11 thereof to provide as follows:
<PAGE>
Town & Country Corporation
L.G. Balfour Company, Inc.
Gold Lance, Inc.
December 16, 1996
Page 3
1. Notwithstanding anything contained in the Agreement to the contrary,
Buyer shall have the option to acquire any of the machinery, motor vehicles and
other equipment listed on Schedule 1.1(c)(viii) of the Agreement used in or held
for use in the Business at any time during the past two years for no additional
consideration at any time on or after the Closing Date and prior to the earliest
to occur of (i) 60 days after Buyer leaves its facilities in Massachusetts,
(ii) the date on which Sellers are required to vacate the premises where such
machinery, motor vehicle or equipment are stored pursuant to a binding agreement
between any Seller and an unaffiliated third party for the sale or lease of such
premises, or (iii) Buyer advises Sellers that it no longer desires to have the
right to acquire any such machinery, motor vehicles or other equipment..
2. The fourth paragraph of Section 1.4(a) of the Agreement is hereby
deleted and there is hereby added a new subsection 1.4(c) that provides as
follows:
"(c) Sellers shall have no liability to Buyer if the FTC Final Order
differs from the FTC Preliminary Order, or for any consequences of such
difference, except to the extent of a reduction in the Purchase Price payable
pursuant to Subsection 1.4(a) in an amount not to exceed $14,000,000 (and the
right to receive an amount equal to such reduction from the Escrow Fund held by
the Escrow Agent), except to the extent that Sellers would otherwise be liable
to Buyer pursuant to any other provision of this Agreement or any other Seller
Agreement without regard to any difference between the FTC Final Order and the
FTC Preliminary Order. Without limiting the foregoing, (i) in no event shall
the sale of the Assets and the Business and the assumption of the Assumed
Liabilities be rescinded, set aside, or unwound as a consequence of any
difference in the FTC Final Order from the FTC Preliminary Order; (ii) if Buyer
for any reason should be required to divest any portion of the Assets or the
Business, Sellers shall not be obligated to repurchase or reacquire same; and
(iii) in no event shall any portion of the Purchase Price paid under Subsection
1.4(a)(i) be refundable as a consequence of any difference in the FTC Final
Order from the FTC Preliminary Order."
3. Section 1.5(d) of the Agreement is hereby amended by deleting the
number "One Hundred Thousand ($100,000) Dollars" in the proviso contained in the
last sentence thereof and substituting therefor the number "Two Hundred Sixty
Thousand ($260,000) Dollars,"
<PAGE>
Town & Country Corporation
L.G. Balfour Company, Inc.
Gold Lance, Inc.
December 16, 1996
Page 4
and by adding the following to the end thereof "and provided further that Buyer
and Sellers shall only be entitled to recover disputed amounts in excess of an
aggregate of Two Hundred Thousand Sixty Thousand ($260,000) Dollars."
4. Subsection 1.8(a) of the Agreement is hereby deleted and replaced in
its entirety with the following:
"(a) The Purchase Price shall be allocated among the Assets based on
their relative fair market value in accordance with Section 351 of the Code and
Revenue Ruling 68-55. Buyer shall prepare such an allocation of the Purchase
Price and deliver such allocation to Sellers not later than 45 days after the
Closing Date (the "Proposed Allocation"). Such allocation shall be binding and
conclusive if Sellers fail to object to such allocation within 5 days of its
delivery. If Sellers object to the Proposed Allocation, Buyer and Sellers shall
use their reasonable best efforts to resolve their differences within 5 days of
Buyer's delivery of the Proposed Allocation and any resolution reached during
such period shall thereafter be binding and conclusive. In the absence of any
such resolution, Buyer and Sellers shall immediately select an appraiser by lot
from among the "Big 6" accounting firms that audit neither Buyer nor any Seller
and deliver their respective proposed allocations to such appraiser. The
appraiser shall select as most reasonable either the allocation prepared by
Buyer or the allocation prepared by Sellers. The allocation so selected shall
thereafter be binding and conclusive. The fee of any appraiser selected
pursuant to this subsection 1.8(a) shall be paid by the party whose allocation
was not selected by such appraiser. Neither Buyer nor any Seller shall file any
tax return, report or form inconsistent with any allocation that becomes binding
and conclusive pursuant to this subsection 1.8(a)."
5. Pursuant to Section 2.3 of the Agreement, Buyer has advised
Seller that it desires to acquire all of the Equipment. In connection
therewith, Buyer and Sellers hereby agree that Buyer shall have the right to
return any of such Equipment to Sellers without any refunds therefor or payments
in connection therewith at any time prior to the earliest to occur of (i) 60
days after Buyer leaves the facility where such Equipment is located; (ii) the
date on which Sellers are required to vacate the premises where such Equipment
is stored pursuant to a binding agreement between any Seller and an unaffiliated
third party for the sale or lease of such
<PAGE>
Town & Country Corporation
L.G. Balfour Company, Inc.
Gold Lance, Inc.
December 16, 1996
Page 5
premises; or (iii) Buyer advises Sellers that it no longer desires to have the
right to return such Equipment. Sellers shall have no liabilities and no
obligation to secure, insure or maintain such Equipment or otherwise incur any
costs in connection with such Equipment; PROVIDED, that if any costs are imposed
on Sellers pursuant to applicable law arising from the storage or the ownership
of such Equipment (for example, for personal property taxes) upon notice to
Buyer by Sellers of the imposition of such costs and evidence of the amount
thereof, Buyer shall reimburse Sellers for such costs.
6. Gold Lance hereby agrees that, in addition to its covenants and
agreements set forth in Section 10.3 of the Agreement, Gold Lance shall not, for
a period of five years commencing on the Closing Date and ending on the fifth
anniversary thereof (or earlier upon the sale of all of the outstanding capital
stock of Gold Lance or all or substantially all of the assets and businesses of
Gold Lance to an unaffiliated third party in a bona fide sale transaction),
directly or indirectly, engage in any managerial, administrative, advisory,
operational or sales activities, or organize, establish, operate, own, manage,
control or have a direct or indirect investment or ownership interest in any
entity that engages in the manufacture or sale of licensed sports jewelry or
other licensed sports products anywhere in the United States. The parties
hereto acknowledge that the covenants and restrictions contained in this
paragraph are reasonable and agree that Buyer shall have the right and remedy to
have this paragraph specifically enforced, it being agreed that any breach or
threatened breach of this paragraph would cause irreparable injury to Buyer and
that money damages would not provide an adequate remedy to Buyer.
7. Concurrently herewith, Sellers are delivering to Buyer the consent of
the National Basketball League ("NBA") to the transfer of Balfour's licensing
arrangements and agreements with the NBA to Buyer and in connection therewith
Sellers shall have paid in full all required transfer fees to the NBA and shall
indemnify and hold harmless Buyer from and against any and all fees, claims and
expenses arising out of or in connection with such transfer.
8. The parties hereto acknowledge that as of the date hereof Sellers have
not obtained certain consents required to transfer certain of the Contracts to
Buyer as set forth on Exhibit A hereto. Pursuant to an Assignment and
Assumption Agreement of even date herewith, Sellers have assigned to Buyer all
Contracts included in the Assets or used in the Business and Buyer has assumed
liabilities under such Contracts to the extent (a) they have been validly
assigned to Buyer with consent, if necessary, or (b) following the Closing Date
Buyer continues to enjoy the benefits thereof.
<PAGE>
Town & Country Corporation
L.G. Balfour Company, Inc.
Gold Lance, Inc.
December 16, 1996
Page 6
9. Sellers hereby reconfirm that all royalty payments due under Balfour's
contractual arrangements with the Atlanta Olympic Committee are, and shall
remain, the sole obligation of Sellers and that Buyer shall assume no obligation
or liabilities in connection therewith or arising therefrom. In addition,
Sellers agree to pay or reimburse Buyer promptly upon demand for any royalties
owed to Buyer on account of Olympic merchandise returned to Buyer after the
Closing Date. Sellers shall indemnify and hold harmless Buyer and its
successors and assigns from and against any and all losses, liabilities, claims
or expenses, including, without limitation, the costs of collection and
attorney's fees) incurred by any of them arising from or resulting from or
relating to Sellers' failure to fulfill its obligations hereunder.
10. Buyer and Sellers agree that there shall be established a special
additional fixed minimum reserve against the Atlanta Olympic Inventory of
$300,000 for purposes of the Statement of Estimated Working Capital as of the
Closing Date (in addition to a $50,000 reserve previously established against
the Atlanta Olympic Committee) which $300,000 reserve amount shall not be
adjusted downward in connection with any adjustment to the Estimated Working
Capital for purposes of the Statement of Net Working Capital but may be adjusted
upward. As a result of such adjustment, Seller's good faith estimate of the
Estimated Working Capital as of the Closing Date is $23,529,853. Except as
otherwise provided herein, such adjustment shall not amend or alter in any way
the Estimated Working Capital Statement or the obligations of the parties under
the Agreement.
11. Buyer shall indemnify and hold harmless Sellers and their affiliates
from and against any and all liabilities, claims or expenses (including, without
limitation, reasonable attorney's fees) incurred by either of them arising from
or relating to the trademark infringement and unfair competition action
commenced against Balfour, Buyer and others in the United States District Court
for the Southern District of New York, on or about December 13, 1996, by
Scholastic, Inc. seeking injunctive and other relief against the use of the name
"Scholastic" by Buyer.
12. Sellers hereby represent and warrant that all Uniform Commercial Code
UCC-1 filings covering any of the Assets which represent valid liens or security
interests in or claims against Balfour have been released today. Sellers hereby
agree to indemnify and hold harmless Buyer and its successors and assigns from
and against any and all damages, liabilities, costs or expenses arising from or
in connection with or relating to any liens or security interests which are the
subject of any such UCC filings with respect to any of Sellers' Assets which are
the subject of
<PAGE>
Town & Country Corporation
L.G. Balfour Company, Inc.
Gold Lance, Inc.
December 16, 1996
Page 7
any such UCC filings on the date hereof or to any secured party named therein
(or assignee thereof), other than any liens placed thereon by Buyer.
13. Sellers hereby agree that from and after the Closing Date and until
the later of (a) six months after the Closing Date and (b) the earlier to occur
of (i) 60 days after Buyer leaves the facilities where any of such furniture or
furnishings are located or (ii) the date on which Sellers are required to vacate
the premises where such furniture or furnishings are stored pursuant to a
binding agreement between Sellers and an unaffiliated third party, any and all
furniture and furnishings which are the subject of that certain Master Lease
Agreement, No. 136, 331, dated as of August 2, 1994, between T&C and Computer
Sales International, Inc. shall remain on the premises being leased or subleased
to Buyer by Seller today. In connection therewith, Buyer agrees that it will
reimburse T&C for the rental payments under such Master Lease Agreement in the
amount of $25,000 per month for a period of six months from and after the
Closing Date whether Buyer uses the furniture for six months or less than six
months or more than six months.
<PAGE>
Town & Country Corporation
L.G. Balfour Company, Inc.
Gold Lance, Inc.
December 16, 1996
Page 8
If you are in agreement with the foregoing, please sign this letter in the
space below and return a copy to the undersigned. Except as otherwise expressly
amended hereby all provisions of the Agreement shall remain the same and the
Agreement shall remain in full force and effect.
Very truly yours,
SCHOLASTIC BRANDS, INC.
By: /s/ David B. Pittaway
ACCEPTED AND AGREED TO
This 16th day of December, 1996:
TOWN & COUNTRY CORPORATION
By: /s/
L.G. BALFOUR COMPANY, INC.
By: /s/ George Agle
GOLD LANCE, INC.
By: /s/
<PAGE>
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILE 03:00 PM 03/28/1996
960091431 - 2607410
CERTIFICATE OF INCORPORATION
OF
KEEPSAKE JEWELRY, INC.
1. The name of the corporation is Keepsake Jewelry, Inc. (the
"Corporation").
2. The address of the Corporation is registered office in the State of
Delaware is 9 East Loockerman Street, County of Kent, Dover, Delaware 19901.
National Corporate Research, Ltd, is the Corporation's registered agent at that
address.
3. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "General Corporation Law").
4. The Corporation shall have authority to issue one thousand (1,000)
shares of Common Stock, par value one cent ($.01) per share.
5. The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by the General Corporation Law
(including, without limitation, paragraph (7) of subsection (b) of Section 102
thereof), as the same be amended and supplemented from time to Lime,
6. The Board of Directors shall have the power to adopt, amend or repeal
By laws of the Corporation, subject to the right of the stockholders of the
Corporation to adopt, amend or repeal any By-law.
<PAGE>
7. The Corporation shall, to the fullest extent permitted by the General
Corporation Law (including, without limitation, Section 145 thereof), as the
same may be amended and supplemented from time to time, indemnify any and all
persons whom it shall have power to indemnify under the General Corporation Law.
The indemnification provided for herein shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled whether as a
matter of law, under any By-law of the Corporation, by agreement, by vote of
stockholders or disinterested directors of the Corporation or otherwise.
8. The election of directors of the Corporation need not be by written
ballot, unless the By-laws of the Corporation otherwise provide.
9. Janet C. Walden is the sole incorporator and her mailing address is c/o
Schulte Roth & Zabel, 900 Third Avenue, New York, New York 10022.
Date: March 28, 1996
/s/ Janet C. Walden
----------------------------------
Janet C. Walden, Sole Incorporator
<PAGE>
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILE 09:00 AM 05/14/1996
960138862 - 2607410
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
KEEPSAKE JEWELRY, INC.
KEEPSAKE JEWELRY, INC. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY THAT:
1. The board of directors of the Corporation, by the unanimous written
consent of its members filed with the minutes of the board, duly adopted a
resolution proposing and declaring advisable, in accordance with Section 242 of
the General Corporation Law of the State of Delaware, the following amendment to
the Certificate of Incorporation of the Corporation.
Article First of the Certificate of Incorporation of the Corporation
is hereby amended to read in its entirety as follows:
"FIRST. The name of the corporation is CLASS RINGS. INC."
2. The aforesaid amendment was duly adopted by the written consent of the
sole stockholder of the Corporation in accordance with Section 242 of the
General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed this 14th day of May, 1996
By: /s/ David B. Pittaway
-----------------------------
Name: David B. Pittaway
Title: President
<PAGE>
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILE 09:00 AM 11/18/1996
960335140 - 2607410
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CLASS RINGS, INC.
CLASS RINGS, INC. (the "Corporation"), a corporation organized and
existing under the Law of the State of Delaware, DOES HEREBY CERTIFY THAT:
1. The board of directors of the Corporation, by the unanimous written
consent of its members filed with the minutes of the board, duly adopted a
resolution proposing and declaring advisable, in accordance with Section 242 of
the General Corporation Law of the State of Delaware, the following amendment to
the Certificate of Incorporation of the Corporation:
Article First of the Certificate of Incorporation of the Corporation
is hereby amended to read in its entirety as follows:
"FIRST, The name of the corporation is SCHOLASTIC BRANDS,
INC."
2. The aforesaid amendment was duly adopted by the written consent of the
sole stockholder of the Corporation in accordance with Section 242 of the
General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificates to be
signed this 18th day of November, 1996.
By: /s/ David B. Pittaway
---------------------
Name: David B. Pittaway
Title: President
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILE 09:00 AM 12/10/1996
960360539 - 2607410
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF SCHOLASTIC BRANDS, INC.
Scholastic Brands, Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that:
1. The board of directors of the Corporation, by the unanimous written
consent of its members filed with the minutes of the board, duly adopted a
resolution proposing and declaring advisable, in accordance with Section 2442 of
the General Corporation Law of the State of Delaware, the following amendment to
the Certificate of Incorporation of the Corporation.
Article 4 of the Certificate of Incorporation of the corporation is
hereby amended to read in its entirety as follows:
"4A. The Corporation shall have authority to issue Seven Hundred
Fifty Thousand (750,000) shares of Common Stock, par value $.01 per share,
and Seven Hundred Fifty Thousand (750,000) shares of Preferred Stock, par
value $.01 per share.
4B. Shares of Preferred Stock may be issued by the corporation from
time to time in one or more classes or series, with such designations,
powers, privileges, preferences and relative, participating, optional or
other rights, if any, and such qualifications, limitations or restrictions
thereon, as are permitted by law and as the Board of Directors shall from
time to time provide for by resolution or resolutions duly adopted,
including, without limitation, voting powers, if any (including multiple
or fractional votes per share), dividend rights, if any (including
dividend preferences or limited or unlimited dividend participation),
conversion rights, mandatory or optional redemption rights or restrictions
and preferences, on limited or unlimited participation or in the amount to
be paid on liquidation, and the Board of Directors is hereby authorized to
fix and determine the powers, privileges, preferences and rights of any
series of Preferred Stock (including, but not limited to, applicable
conversion or redemption rates or prices or dividend rates), and to fix
the number of shares constituting any such series and to increase or
decrease the
<PAGE>
number of shares of any such series (but not below the number of shares
thereof then outstanding). In case the number of shares of any series
shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series."
2. The aforesaid amendment was duly adopted by the written consent of the
sole stockholder of the Corporation in accordance with Sections 242 and 228 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed this 10th day of December, 1996.
By: /s/ David B. Pittaway
---------------------
Name: David B. Pittaway
Title: President
-2-
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILE 03:00 PM 12/13/1996
960368265 - 2607410
SCHOLASTIC BRANDS, INC.
CERTIFICATE OF DESIGNATIONS OF
SERIES A PREFERRED STOCK SETTING FORTH THE POWERS,
PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS OF SUCH PREFERRED STOCK
Pursuant to Section 151 of the Delaware General Corporation Law, the
undersigned DOES HEREBY CERTIFY that the Board of Directors of Scholastic
Brands, Inc., a Delaware corporation (the "Corporation"), duly adopted the
following resolution on December 10, 1996, with the preferences and rights set
forth therein having been fixed by the Board of Directors pursuant to Article 4
of the Corporation's Certificate of Incorporation, as amended, and that such
resolution has not been modified and is in full force and effect.
RESOLVED that, pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of the Certificates of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), a series of preferred stock of the Corporation is hereby
created and that the designation and number of shares thereof and the voting
powers, preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications, limitations and
restrictions thereof, are as follows:
Section 1. Designation, Number and Ranking.
(a) The shares of such series shall be designated as "Series A Preferred
Stock" (the "Series A Preferred Stock"). The number of shares constituting the
Series A Preferred Stock shall be 100,000.
(b) The Series A Preferred Stock shall, with respect to dividend rights
and rights on liquidation, dissolution or winding up, rank senior to the Series
B Preferred Stock, par value $.01 per share, of the Corporation ("Series B
Preferred Stock") and the Common Stock, par value $.01 per share, of the
Corporation ("Common Stock") and shall, at all times and with respect to
dividend rights and rights on liquidation, dissolution and winding-up, rank
senior to all other classes and series of capital stock of the Corporation,
other than capital stock authorized as provided in Section 3(b), now or
hereafter authorized.
Section 2. Dividends.
(a) The holders of shares of Series A Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds of the
Corporation legally available therefor, cumulative dividends at an annual rate
on the Liquidation Preference (as defined in Section 6 below) thereof equal to
13%, calculated on the basis of a 360-day year consisting of twelve 30-day
months, accruing and payable in equal quarterly payments, in cash in
<PAGE>
immediately available funds on the last Business Day (as defined in paragraph
(e) below) of January, April, July and October in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"), commencing
January 31, 1997.
(b) Dividends payable pursuant to Section 2(a) shall begin to accrue and
be cumulative from the date on which the shares of Series A Preferred Stock are
issued, and shall accrue on a daily basis, in each case whether or not declared
and whether or not in any fiscal year there shall be surplus, not profits or the
assets of the Company legally available for the payment of dividends. All
dividends declared upon Series A Preferred Stock shall be paid pro rata to the
holders entitled thereto. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive payment of the dividends payable pursuant to Section 2(a), which record
date shall be no more than 60 days or less than 10 days prior to the date fixed
for the payment thereof. Accumulated but unpaid dividends for any past quarterly
dividend periods may be declared and paid at any time, without reference to any
regular Quarterly Dividend Payment Date, to holders of record on such date, not
more than 60 days nor less than 10 days preceding the payment date thereof, as
may be fixed by the Board of Directors.
(c) No dividends shall be paid upon, or declared and set apart for payment
on, any shares of Series A Preferred Stock, unless and until all the cumulative
dividends required to be paid to the holders of the shares of Series A Preferred
Stock for all prior dividend periods shall have been declared and paid in full.
(d) The holders of shares of Series A Preferred Stock shall not be
entitled to receive any dividends except as provided herein.
(e) For the purposes of this Certificate of Designations, "Business Day"
shall mean any day other than a Saturday, Sunday or other day on which
commercial banks in the City of New York are authorized or required by law or
executive order to close.
Section 3. Voting Rights.
In addition to any voting rights required by law, unless the consent or
approval of a greater number of shares shall then be required by law, the
affirmative vote of the holders of at least a majority of the outstanding shares
of Series A Preferred Stock, voting separately as a single class, in person or
by proxy, at a special or annual meeting of stockholders called for that purpose
(or by written consent), shall be necessary to (i) amend, alter or repeal any
provision of the Certificate of Incorporation or Bylaws of the Corporation so as
to affect adversely any of the preferences, rights, powers or privileges of the
Series A Preferred Stock or the holders thereof, and (ii) effect the
consolidation or merger of the Corporation with or into any other person or the
sale or other distributions to another person of all or substantially all of the
assets of the Corporation, in either case so as to affect adversely any of the
preferences, rights, powers or privileges of the Series A Preferred Stock or the
holders thereof.
2
<PAGE>
Section 4. Certain Restrictions
So long as any share of Series A Preferred Stock shall be issued and
outstanding, the Corporation shall not declare, pay or set aside for payment,
any dividends on, or make any other distributions with respect to, or redeem or
otherwise repurchase, any shares of Common Stock or other shares of capital
stock of the Corporation ranking, as to dividend rights or rights on
liquidation, dissolution or winding up, junior to the Series A Preferred Stock,
other than dividends payable in Common Stock or in another stock ranking junior
to the Series A Preferred Stock as to dividend rights and rights on liquidation,
dissolution and winding up.
Section 5. Redemption.
(a) The Corporation, at its option, may redeem all or any portion of the
outstanding shares of Series A Preferred Stock at the liquidation preference of
$100 per share plus an amount equal to any dividends thereon cumulated or
accrued but unpaid, whether or not declared, if any, to the date fixed for
redemption (such amount being referred to herein as the "Redemption Price"), at
any time or from time to time (any such date of redemption being referred to
herein as a "Redemption Date").
(b) In the event of any redemption of only a part of the then outstanding
Series A Preferred Stock, the Corporation shall effect such redemption pro rata
among the holders thereof (based on the number of shares of Series A Preferred
Stock held on the date of notice of redemption).
(c) At least thirty (30) days prior to any proposed Redemption Date,
written notice shall be mailed, postage prepaid, to each holder of record of
Series A Preferred Stock to be redeemed, at his or its post office address last
shown on the records of the Corporation, notifying such holder of the number of
shares so to be redeemed, specifying the Redemption Date and calling upon such
holder to surrender to the Corporation, in the manner and at the place
designated, his or its certificate or certificates representing the shares to be
redeemed (such notice being referred to herein as the "Redemption Notice"). On
or prior to each Redemption Date, each holder of record of Series A Preferred
Stock to be redeemed shall surrender his or its certificate or certificates
representing such shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and thereupon the Redemption Price of such
shares shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the Redemption Date, unless
there shall have been a default in payment of the Redemption Price, all rights
of the holders of the Series A Preferred Stock designated for redemption in the
Redemption Notice as holders of Series A Preferred Stock of the Corporation
(except the right to receive the Redemption Price upon surrender of their
certificate or certificates) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of the Corporation or be
deemed outstanding for any purpose whatsoever.
3
<PAGE>
(d) Except as provided in paragraph (a) above, the Corporation shall have
no right to redeem the shares of Series A Preferred Stock. Any shares of Series
A Preferred Stock so redeemed shall be permanently retired, shall no longer be
deemed outstanding and shall not under any circumstances be reissued, and the
Corporation may from time to time take such appropriate corporate action as may
be necessary to reduce the amount of authorized Series A Preferred Stock
accordingly. Nothing herein contained shall prevent or restrict the purchase by
the Corporation, from time to time either at public or private sale, of the
whole or any part of the Series A Preferred Stock at such price or prices as the
Corporation and the selling holders of the Series A Preferred Stock may mutually
determine, subject to the provisions of applicable law.
Section 6. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the holders of shares of Series A Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders before any payment
shall be made to the holders of the Series B Preferred Stock, the Common Stock
or any other capital stock of the Corporation ranking junior to the Series A
Preferred Stock upon liquidation, dissolution or winding up (such stock being
referred to herein as "Junior Stock"), an amount equal to $100 per share (the
"Liquidation Preference"), plus any dividends thereon cumulated or accrued but
unpaid, whether or not declared, if any. If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for the distribution to its stockholders shall be
insufficient to pay the holders of shares of Series A Preferred Stock and the
holders of shares of capital stock of the Corporation ranking on a parity with
the Series A Preferred Stock upon liquidation, dissolution or winding up (such
stock being referred to herein as "Parity Stock") the full amount to which they
shall be entitled, the holders of shares of Series A Preferred Stock and shares
of Parity Stock shall share ratably in any distribution of the remaining assets
and funds of the Corporation in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to said shares were paid
in full.
(b) Neither the consolidation or merger of the Corporation with or into
any other person nor the sale or other distribution to another person of all or
substantially all the
4
<PAGE>
assets of the Corporation, in each case when permitted by Section 3(b), shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 6.
IN WITNESS WHEREOF, Scholastic Brands, Inc. has caused this Certificate of
Designations to be duly executed by its President on this 12th day of December,
1996.
SCHOLASTIC BRANDS, INC.
By: /s/ David B. Pittaway
--------------------------------
Name: David B. Pittaway
Title: President
5
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:01 PM 12/13/1996
960368271 - 2607410
SCHOLASTIC BRANDS, INC.
CERTIFICATE OF DESIGNATIONS OF
SERIES B PREFERRED STOCK SETTING FORTH THE POWERS,
PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS OF SUCH PREFERRED STOCK
Pursuant to Section 151 of the Delaware General Corporation Law, the
undersigned DOES HEREBY CERTIFY that the Board of Directors of Scholastic
Brands, Inc., a Delaware corporation (the "Corporation"), duly adopted the
following resolution on December 10, 1996, with the preferences and rights set
forth therein having been fixed by the Board of Directors pursuant to Article 4
of the Corporation's Certificate of Incorporation, as amended, and that such
resolution has not been modified and is in full force and effect:
RESOLVED that, pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), a series of preferred stock of the Corporation is hereby
created and that the designation and number of shares thereof and the voting
powers, preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications, limitations and
restrictions thereof, are as follows:
Section 1. Designation, Number and Ranking.
(a) The shares of such series shall be designated as "Series B Preferred
Stock" (the "Series B Preferred Stock"). The number of shares constituting the
Series B Preferred Stock shall be 375,000.
(b) The Series B Preferred Stock shall, with respect to dividend rights
and rights on liquidation, dissolution or winding up, rank junior to the Series
A Preferred Stock, par value $.01 per share, of the Corporation ("Series A
Preferred Stock") and shall rank senior to the Common Stock, par value $.01 per
share, of the Corporation ("Common Stock").
Section 2. Dividends.
No dividends shall accrue on the Series B Preferred Stock. Dividends on
the Series B Preferred Stock shall be payable only when, as and if declared by
the Board of Directors out of funds of the Corporation legally available
therefor.
Section 3. Voting Rights.
In addition to any voting rights required by law, the holders of shares of
Series B Preferred Stock shall have the following voting rights:
<PAGE>
(a) Except as otherwise required by applicable law or by the provisions of
paragraph (b) of this Section 3, each share of Series B Preferred Stock shall
entitle the holder thereof to one vote, in person or by proxy, at any annual or
special meeting of stockholders, on all matters presented to holders of Common
Stock generally, voting together as a single class with the holders of the
Common Stock.
(b) Unless the consent or approval of a greater number of shares shall
then be required by law, the affirmative vote of the holders of at least a
majority of the outstanding shares of Series B Preferred Stock, voting
separately as a single class, in person or by proxy, at an annual or special
meeting of stockholders called for that purpose (or by written consent), shall
be necessary to (i) amend, alter or repeal any provision of the Certificate of
Incorporation or Bylaws of the Corporation so as to affect adversely any of the
preferences, rights, powers or privileges of the Series B Preferred Stock or the
holders thereof, and (ii) effect the consolidation or merger of the Corporation
with or into any other person or the sale or other distribution to another
person of all or substantially all of the assets of the Corporation, in either
case so as to affect adversely any of the preferences, rights, powers or
privileges of the Series B Preferred Stock or the holders thereof.
Section 4. Certain Restrictions.
So long as any share of Series B Preferred Stock shall be issued and
outstanding, the Corporation shall not declare, pay or set aside for payment,
any dividends on, or make any other distributions with respect to, any shares of
Common Stock or other shares of capital stock of the Corporation ranking junior
to the Series B Preferred Stock with respect to the payment of dividends or upon
liquidation, dissolution or winding up, other than dividends payable in Common
Stock or in another stock ranking junior to the Series B Preferred Stock as to
dividend rights and rights on liquidation, dissolution or winding up.
Section 5. Redemption.
The Corporation shall not have the right to redeem any shares of Series B
Preferred Stock.
Section 6. Liquidation, Dissolution or Winding Up.
(a) In the event any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of shares of Series B Preferred Stock
then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, after and subject to
the payment in fully of all amounts required to be distributed to the holders of
the Series B Preferred Stock and any other class of stock of the Corporation
ranking senior to the Series B Preferred Stock upon liquidation, dissolution or
winding-up (such stock being referred to herein in "Senior Stock") in respect of
such stock, but before any payment shall be made to the holders of Common Stock
or other capital stock of the Corporation ranking junior to the Series B
Preferred Stock upon liquidation, dissolution or winding up (such stock
2
<PAGE>
being referred to herein as "Junior Stock"), an amount equal to $100 per share,
plus all accrued and unpaid dividends thereon, if any. If upon any such
liquidation, dissolution or winding up of the Corporation the remaining assets
of the Corporation available for the distribution to its stockholders after
payment in full of amounts required to be paid or distributed to holders of
Senior Stock shall be insufficient to pay the holders of Series B Preferred
Stock and the holders of shares of capital stock of the Corporation ranking on a
parity with the Series B Preferred Stock upon liquidation, dissolution or
winding up (such stock being referred to herein as "Parity Stock") the full
amount to which they shall be entitled, the holders of shares of Series B
Preferred Stock and shares of Parity Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to said shares were paid in full.
(b) Neither the consolidation or merger of the Corporation with or into
any other person nor the sale or other distribution to another person of all or
substantially all the assets of the Corporation, in each case when permitted by
Section 3(b), shall be deemed to be a liquidation, dissolution or winding up of
the Corporation for purposes of this Section 6.
IN WITNESS WHEREOF, Scholastic Brands, Inc. has caused this Certificate of
Designations to be duly executed by its President on this 12th day of December,
1996.
SCHOLASTIC BRANDS, INC.
By: /s/ David B. Pittaway
--------------------------------
Name: David B. Pittaway
Title: President
3
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SCHOLASTIC BRANDS, INC.
SCHOLASTIC BRANDS, INC. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY THAT:
1. The board of directors of the Corporation by the unanimous written
consent of its members filed with the minutes of the board, duly adopted a
resolution proposing and declaring advisable, in accordance with Section 242 of
the General Corporation Law of the State of Delaware, the following amendment to
the Certificate of Incorporation of the Corporation:
Article First of the Certificate of Incorporation of the Corporation
is hereby amended to read in its entirety as follows:
"FIRST. The name of the corporation is COMMEMORATIVE BRANDS, INC."
2. The aforesaid amendment was duly adopted by the written consent of the
sole stockholder of the Corporation in accordance with Section 242 of the
General Corporation Law of the State of Delaware.
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 01:30 PM 12/16/1996
960369240 - 2607410
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed this 16th day of December, 1996.
By: /s/ David B. Pittaway
--------------------------------
Name: David B. Pittaway
Title: President
<PAGE>
SCHOLASTIC BRANDS, INC.
CERTIFICATE OF DESIGNATIONS OF
SERIES A PREFERRED STOCK SETTING FORTH THE POWERS,
PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS OF SUCH PREFERRED STOCK
Pursuant to Section 151 of the Delaware General Corporation Law, the
undersigned DOES HEREBY CERTIFY that the Board of Directors of Scholastic
Brands, Inc., a Delaware corporation (the "Corporation"), duly adopted the
following resolution on December 10, 1996, with the preferences and rights set
forth therein having been fixed by the Board of Directors pursuant to Article 4
of the Corporation's Certificate of Incorporation, as amended, and that such
resolution has not been modified and is in full force and effect:
RESOLVED that, pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), a series of preferred stock of the Corporation is hereby
created and that the designation and number of shares thereof and the voting
powers, preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications, limitations and
restrictions thereof, are as follows:
Section 1. Designation, Number and Ranking.
(a) The shares of such series shall be designated as "Series A Preferred
Stock" (the "Series A Preferred Stock"). The number of shares constituting the
Series A Preferred Stock shall be 100,000.
(b) The Series A Preferred Stock shall, with respect to dividend rights
and rights on liquidation, dissolution or winding up, rank senior to the Series
B Preferred Stock, par value $.01 per share, of the Corporation ("Series B
Preferred Stock") and the Common Stock, par value $.01 per share, of the
Corporation ("Common Stock") and shall, at all times and with respect to
dividend rights and rights on liquidation, dissolution and winding-up, rank
senior to all other classes and series of capital stock of the Corporation,
other than capital stock authorized as provided in Section 3(b), now or
hereafter authorized.
Section 2. Dividends.
(a) The holders of shares of Series A Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds of the
Corporation legally available therefor, cumulative dividends at an annual rate
on the Liquidation Preference (as defined in Section 6 below) thereof equal to
12%, calculated on the basis of a 360-day year consisting of twelve 30-day
months, accruing and payable in equal quarterly payments, in cash in
<PAGE>
immediately available funds on the last Business Day (as defined in paragraph
(e) below) of January, April, July and October in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"), commencing
January 31, 1997.
(b) Dividends payable pursuant to Section 2(a) shall begin to accrue and
be cumulative from the date on which the shares of Series A Preferred Stock are
issued, and shall accrue on a daily basis, in each case whether or not declared
and whether or not in any fiscal year there shall be surplus, net profits or the
assets of the Company legally available for the payment of dividends. All
dividends declared upon Series A Preferred Stock shall be paid pro rata to the
holders entitled thereto. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive payment of the dividends payable pursuant to Section 2(a), which record
date shall be no more than 60 days or less than 10 days prior to the date fixed
for the payment thereof. Accumulated but unpaid dividends for any past quarterly
dividend periods may be declared and paid at any time, without reference to any
regular Quarterly Dividend Payment Date, to holders of record on such date, not
more than 60 days nor less than 10 days preceding the payment date thereof, as
may be fixed by the Board of Directors.
(c) No dividends shall be paid upon, or declared and set apart for payment
on, any shares of Series A Preferred Stock, unless and until all the cumulative
dividends required to be paid to the holders of the shares of Series A Preferred
Stock for all prior dividend periods shall have been declared and paid in full.
(d) The holders of shares of Series A Preferred Stock shall not be
entitled to receive any dividends except as provided herein.
(e) For the purposes of this Certificate of Designations, "Business Day"
shall mean any day other than a Saturday, Sunday or other day on which
commercial banks in the City of New York are authorized or required by law or
executive order to close.
Section 3. Voting Rights.
In addition to any voting rights required by law, unless the consent or
approval of a greater number of shares shall then be required by law, the
affirmative vote of the holders of at least a majority of the outstanding shares
of Series A Preferred Stock, voting separately as a single class, in person or
by proxy, at a special or annual meeting of stockholders called for that purpose
(or by written consent), shall be necessary to (i) amend, alter or repeal any
provision of the Certificate of Incorporation or Bylaws of the Corporation so as
to affect adversely any of the preferences, rights, powers or privileges of the
Series A Preferred Stock or the holders thereof, and (ii) effect the
consolidation or merger of the Corporation with or into any other person or the
sale or other distribution to another person of all or substantially all of the
assets of the Corporation, in either case so as to affect adversely any of the
preferences, rights, powers or privileges of the Series A Preferred Stock or the
holders thereof.
2
<PAGE>
Section 4. Certain Restrictions.
So long as any share of Series A Preferred Stock shall be issued and
outstanding, the Corporation shall not declare, pay or set aside for payment,
any dividends on, or make any other distributions with respect to, or redeem or
otherwise repurchase, any shares of Common Stock or other shares of capital
stock of the Corporation ranking, as to dividend rights or rights on
liquidation, dissolution or winding up, junior to the Series A Preferred Stock,
other than dividends payable in Common Stock or in another stock ranking junior
to the Series A Preferred Stock as to dividend rights and rights on liquidation,
dissolution and winding up.
Section 5. Redemption.
(a) The Corporation, at its option, may redeem all or any portion of the
outstanding shares of Series A Preferred Stock at the liquidation preference of
$100 per share plus an amount equal to any dividends thereon cumulated or
accrued but unpaid, whether or not declared, if any, to the date fixed for
redemption (such amount being referred to herein as the "Redemption Price"), at
any time or from time to time (any such date of redemption being referred to
herein as a "Redemption Date").
(b) In the event of any redemption of only a part of the then outstanding
Series A Preferred Stock, the Corporation shall effect such redemption pro rata
among the holders thereof (based on the number of shares of Series A Preferred
Stock held on the date of notice of redemption).
(c) At least thirty (30) days prior to any proposed Redemption Date,
written notice shall be mailed, postage prepaid, to each holder of record of
Series A Preferred Stock to be redeemed, at his or its post office address last
shown on the records of the Corporation, notifying such holder of the number of
shares so to be redeemed, specifying the Redemption Date and calling upon such
holder to surrender to the Corporation, in the manner and at the place
designated, his or its certificate or certificates representing the shares to be
redeemed (such notice being referred to herein as the "Redemption Notice"). On
or prior to each Redemption Date, each holder of record of Series A Preferred
Stock to be redeemed shall surrender his or its certificate or certificates
representing such shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and thereupon the Redemption Price of such
shares shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the Redemption Date, unless
there shall have been a default in payment of the Redemption Price, all rights
of the holders of the Series A Preferred Stock designated for redemption in the
Redemption Notice as holders of Series A Preferred Stock of the Corporation
(except the right to receive the Redemption Price upon surrender of their
certificate or certificates) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of the Corporation or be
deemed outstanding for any purpose whatsoever.
3
<PAGE>
(d) Except as provided in paragraph (a) above, the Corporation shall have
no right to redeem the shares of Series A Preferred Stock. Any shares of Series
A Preferred Stock so redeemed shall be permanently retired, shall no longer be
deemed outstanding and shall not under any circumstances be reissued, and the
Corporation may from time to time take such appropriate corporate action as may
be necessary to reduce the amount of authorized Series A Preferred Stock
accordingly. Nothing herein contained shall prevent or restrict the purchase by
the Corporation, from time to time either at public or private sale, of the
whole or any part of the Series A Preferred Stock at such price or prices as the
Corporation and the selling holders of the Series A Preferred Stock may mutually
determine, subject to the provisions of applicable law.
Section 6. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the holders of shares of Series A Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders before any payment
shall be made to the holders of the Series B Preferred Stock, the Common Stock
or any other capital stock of the Corporation ranking junior to the Series A
Preferred Stock upon liquidation, dissolution or winding up (such stock being
referred to herein as "Junior Stock"), an amount equal to $100 per share (the
"Liquidation Preference"), plus any dividends thereon cumulated or accrued but
unpaid, whether or not declared, if any. If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for the distribution to its stockholders shall be
insufficient to pay the holders of shares of Series A Preferred Stock and the
holders of shares of capital stock of the Corporation ranking on a parity with
the Series A Preferred Stock upon liquidation, dissolution or winding up (such
stock being referred to herein as "Parity Stock") the full amount to which they
shall be entitled, the holders of shares of Series A Preferred Stock and shares
of Parity Stock shall share ratably in any distribution of the remaining assets
and funds of the Corporation in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to said shares were paid
in full.
(b) Neither the consolidation or merger of the Corporation with or into
any other person nor the sale or other distribution to another person of all or
substantially all the
4
<PAGE>
assets of the Corporation, in each case when permitted by Section 3(b), shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 6.
IN WITNESS WHEREOF, Scholastic Brands, Inc. has caused this Certificate of
Designations to be duly executed by its President on this 12th day of December,
1996.
SCHOLASTIC BRANDS, INC.
By:/s/ David B. Pittaway
---------------------------
Name: David B. Pittaway
Title: President
5
<PAGE>
COMMEMORATIVE BRANDS, INC.
CERTIFICATE OF CORRECTION FILED TO CORRECT CERTAIN
ERRORS IN THE CERTIFICATE OF DESIGNATIONS OF SERIES A
PREFERRED STOCK SETTING FORTH THE POWERS, PREFERENCES,
RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS
OF SUCH PREFERRED STOCK FILED IN THE OFFICE OF THE
SECRETARY OF STATE OF DELAWARE ON DECEMBER 13, 1996
Commemorative Brands, Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), DOES HEREBY CERTIFY:
1. The name of the corporation is Commemorative Brands, Inc.
2. That a Certificate of Designations of Series A Preferred Stock
setting forth the Powers, Preferences, Rights, Qualifications,
Limitations and Restrictions of Such Preferred Stock was filed by
the Secretary of State of Delaware on December 13, 1996 and that
said Certificate requires correction as permitted by Section 103 of
the DGCL.
3. The inaccuracies or defects of said Certificate to be corrected are
as follows:
(i) the following language was inadvertently omitted from the end
of Section 4 of said Certificate: "and other than redemptions
or repurchases of shares of Common Stock or other capital
stock of the Corporation issued to or held by any officer,
director, employee, independent sales representative or agent
of the Corporation or its subsidiaries (including, without
limitation, any former officer, director, employee,
independent sales representative or agent of the Corporation
or its subsidiaries) or any employee stock ownership plan or
similar trust for the account of any such person;"
(ii) Sections 1(b) and 6(b) of said Certificate inaccurately
reference Section 3(b) instead of Section 3; and
(iii) the last sentence of Section 3 of said Certificate was
inadvertently omitted.
4. Section 1(b) of said Certificate is hereby corrected to read in its
entirety as follows:
"(b) The Series A Preferred Stock shall, with respect to
dividend rights and rights on liquidation, dissolution or winding
up, rank senior to the Series B Preferred Stock, par value $.01 per
share, of the Corporation ("Series B Preferred Stock") and the
Common Stock, par value $.01 per share, of the Corporation ("Common
Stock") and shall, at all times and with respect to dividend rights
and rights on liquidation, dissolution and winding-up, rank senior
to all other classes and series of capital stock of the Corporation,
other than capital stock authorized as provided in Section 3, now or
hereafter authorized."
5. Section 3 of said Certificate is hereby corrected to read in its
entirety as follows:
<PAGE>
"Section 3. Voting Rights
"In addition to any voting rights required by law, unless the
consent or approval of a greater number of shares shall then be
required by law, the affirmative vote of the holders of at least a
majority of the outstanding shares of Series A Preferred Stock,
voting separately as a single class, in person or by proxy, at a
special or annual meeting of stockholders called for that purpose
(or by written consent), shall be necessary to (i) amend, alter or
repeal any provision of the Certificate of Incorporation or Bylaws
of the Corporation so as to affect adversely any of the preferences,
rights, powers or privileges of the Series A Preferred Stock or the
holders thereof, and (ii) effect the consolidation or merger of the
Corporation with or into any other person or the sale or other
distribution to another person of all or substantially all of the
assets of the Corporation, in either case so as to affect adversely
any of the preferences, rights, power or privileges of the Series A
Preferred Stock or the holders thereof. The outstanding shares of
Series A Preferred Stock shall have no voting rights other than as
set forth in this Section 3."
6. Section 4 of said Certificate is hereby corrected to read in its
entirety as follows:
"Section 4. Certain Restrictions
So long as any share of Series A Preferred Stock shall be
issued and outstanding, the Corporation shall not declare, pay or
set aside for payment, any dividends on, or make any other
distributions with respect to, or redeem or otherwise repurchase,
any shares of Common Stock or other shares of capital stock of the
Corporation ranking, as to dividend rights or rights on liquidation,
dissolution or winding up, junior to the Series A Preferred Stock,
other than dividends payable in Common Stock or in another stock
ranking junior to the Series A Preferred Stock as to dividend rights
and rights on liquidation, dissolution and winding up and other than
redemptions or repurchases of shares of Common Stock or other
capital stock of the Corporation issued to or held by any officer,
director, employee, independent sales representative or agent of the
Corporation or its subsidiaries (including, without limitation, any
former officer, director, employee, independent sales representative
or agent of the Corporation or its subsidiaries) or any employee
stock ownership plan or similar trust for the account of any such
person."
7. Section 6(b) of said Certificate is hereby corrected to read in its
entirety as follows:
"(b) Neither the consolidation or merger of the Corporation
with or into any other person nor the sale or other distribution to
another person of all or substantially all of the assets of the
Corporation, in each case when permitted by Section 3, shall be
deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of this Section 6."
-2-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Correction to be duly executed by its Chief Executive Officer on this 28 day of
January, 1997.
COMMEMORATIVE BRANDS, INC.
By:/s/ Jeffrey H. Brennan
----------------------------------
Name: Jeffrey H. Brennan
Title: Chief Executive Officer & President
<PAGE>
SCHOLASTIC BRANDS, INC.
CERTIFICATE OF DESIGNATIONS OF
SERIES B PREFERRED STOCK SETTING FORTH THE POWERS,
PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS OF SUCH PREFERRED STOCK
Pursuant to Section 151 of the Delaware General Corporation Law, the
undersigned DOES HEREBY CERTIFY that the Board of Directors of Scholastic
Brands, Inc., a Delaware corporation (the "Corporation"), duly adopted the
following resolution on December 10, 1996, with the preferences and rights set
forth therein having been fixed by the Board of Directors pursuant to Article 4
of the Corporation's Certificate of Incorporation, as amended, and that such
resolution has not been modified and is in full force and effect:
RESOLVED that, pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), a series of preferred stock of the Corporation is hereby
created and that the designation and number of shares thereof and the voting
powers, preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications, limitations and
restrictions thereof, are as follows:
Section 1. Designation, Number and Ranking.
(a) The shares of such series shall be designated as "Series B Preferred
Stock" (the "Series B Preferred Stock"). The number of shares constituting the
Series B Preferred Stock shall be 375,000.
(b) The Series B Preferred Stock shall, with respect to dividend rights
and rights on liquidation, dissolution or winding up, rank junior to the Series
A Preferred Stock, par value $.01 per share, of the Corporation ("Series A
Preferred Stock") and shall rank senior to the Common Stock, par value $.01 per
share, of the Corporation ("Common Stock").
Section 2. Dividends.
No dividends shall accrue on the Series B Preferred Stock. Dividends on
the Series B Preferred Stock shall be payable only when, as and if declared by
the Board of Directors out of funds of the Corporation legally available
therefor.
Section 3. Voting Rights.
In addition to any voting rights required by law, the holders of shares of
Series B Preferred Stock shall have the following voting rights:
<PAGE>
(a) Except as otherwise required by applicable law or by the provisions of
paragraph (b) of this Section 3, each share of Series B Preferred Stock shall
entitle the holder thereof to one vote, in person or by proxy, at any annual or
special meeting of stockholders, on all matters presented to holders of Common
Stock generally, voting together as a single class with the holders of the
Common Stock.
(b) Unless the consent or approval of a greater number of shares shall
then be required by law, the affirmative vote of the holders of at least a
majority of the outstanding shares of Series B Preferred Stock, voting
separately as a single class, in person or by proxy, at an annual or special
meeting of stockholders called for that purpose (or by written consent), shall
be necessary to (i) amend, alter or repeal any provision of the Certificate of
Incorporation or Bylaws of the Corporation so as to affect adversely any of the
preferences, rights, powers or privileges of the Series B Preferred Stock or the
holders thereof, and (ii) effect the consolidation or merger of the Corporation
with or into any other person or the sale or other distribution to another
person of all or substantially all of the assets of the Corporation, in either
case so as to affect adversely any of the preferences, rights, powers or
privileges of the Series B Preferred Stock or the holders thereof.
Section 4. Certain Restrictions.
So long as any share of Series B Preferred Stock shall be issued and
outstanding, the Corporation shall not declare, pay or set aside for payment,
any dividends on, or make any other distributions with respect to, any shares of
Common Stock or other shares of capital stock of the Corporation ranking junior
to the Series B Preferred Stock with respect to the payment of dividends or upon
liquidation, dissolution or winding up, other than dividends payable in Common
Stock or in another stock ranking junior to the Series B Preferred Stock as to
dividend rights and rights on liquidation, dissolution and winding up.
Section 5. Redemption.
The Corporation shall not have the right to redeem any shares of Series B
Preferred Stock.
Section 6. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the holders of shares of Series B Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, after and subject to
the payment in full of all amounts required to be distributed to the holders of
the Series A Preferred Stock and any other class of stock of the Corporation
ranking senior to the Series B Preferred Stock upon liquidation, dissolution or
winding-up (such stock
2
<PAGE>
being referred to herein as "Senior Stock") in respect of such stock, but before
any payment shall be made to the holders of Common Stock or other capital stock
of the Corporation ranking junior to the Series B Preferred Stock upon
liquidation, dissolution or winding up (such stock being referred to herein as
"Junior Stock"), an amount equal to $100 per share, plus all accrued and unpaid
dividends thereon, if any. If upon any such liquidation, dissolution or winding
up of the Corporation the remaining assets of the Corporation available for the
distribution to its stockholders after payment in full of amounts required to be
paid or distributed to holders of Senior Stock shall be insufficient to pay the
holders of shares of Series B Preferred Stock and the holders of shares of
capital stock of the Corporation ranking on a parity with the Series B Preferred
Stock upon liquidation, dissolution or winding up (such stock being referred to
herein as "Parity Stock") the full amount to which they shall be entitled, the
holders of shares of Series B Preferred Stock and shares of Parity Stock shall
share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to said shares were paid in full.
(b) Neither the consolidation or merger of the Corporation with or into
any other person nor the sale or other distribution to another person of all or
substantially all the assets of the Corporation, in each case when permitted by
Section 3(b), shall be deemed to be a liquidation, dissolution or winding up of
the Corporation for purposes of this Section 6.
IN WITNESS WHEREOF, Scholastic Brands, Inc. has caused this Certificate of
Designations to be duly executed by its President on this 12th day of December,
1996.
SCHOLASTIC BRANDS, INC.
By:/s/ David B. Pittaway
---------------------------------
Name: David B. Pittaway
Title: President
3
<PAGE>
RESTATED BY-LAWS
OF
COMMEMORATIVE BRANDS, INC.
(F/K/A SCOLASTIC BRANDS, INC.)
ARTICLE I
Offices
Section 1. The registered office of the Corporation shall be in the City of
Dover, County of Kent, State of Delaware. The Corporation also may have offices
at such other places, within or without the State of Delaware, as the Board of
Directors determines from time to time or the business of the Corporation
requires. Until such time as the Board of Directors otherwise determines, the
Corporation shall also have an office in the City of New York, State of New
York.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meetings. Except as otherwise provided in these
By-laws, all meetings of the stockholders shall be held on such dates and at
such times and places, within or without the State of Delaware, as shall be
determined by the Board of Directors and as shall be stated in the notice of the
meeting or in waivers of notice thereof. If the place of any meeting is not so
fixed, it shall be held at the registered office of the Corporation in the State
of Delaware.
Section 2. Annual Meeting. The annual meeting of stockholders for the
election of directors and the transaction of such other proper business as may
be brought before the
<PAGE>
meeting shall be held on such date after the close of the Corporation's fiscal
year, and at such time, as the Board of Directors may from time to time
determine.
Section 3. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, may be called by the Board of Directors or the President
and shall be called by the President or the Secretary upon the written request
of a majority of the directors. The request shall state the date, time, place
and purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings. Except as otherwise required or permitted by
law, whenever the stockholders are required or permitted to take any action at a
meeting, written notice thereof shall be given, stating the place, date and hour
of the meeting and, unless it is the annual meeting, by or at whose direction it
is being issued. The notice also shall designate the place where the
stockholders list is available for examination, unless the list is kept at the
place where the meeting is to be held. Notice of a special meeting also shall
state the purpose or purposes for which the meeting is called. A copy of the
notice of any meeting shall be delivered personally or shall be mailed, not less
than 10 and not more than 60 days before the date of the meeting, to each
stockholder entitled to vote at the meeting. If mailed, the notice shall be
deemed given when deposited in the United States mail, postage prepaid, directed
to each stockholder at such stockholder's address as it appears on the records
of the Corporation, unless such stockholder shall have filed with the Secretary
of the Corporation a written request that such notices be mailed to some other
address, in which case it shall be directed to such other address. Notice of any
meeting of stockholders need not be given to any stockholder who shall attend
the meeting, other than for the express purpose of objecting at the beginning
thereof to the transaction of any business because the meeting is not lawfully
called or convened, or who shall submit, either before or after the time stated
therein, a signed waiver of notice. Unless the Board
-2-
<PAGE>
of Directors, after an adjournment is taken, shall fix a new record date for an
adjourned meeting or unless the adjournment is for more than 30 days, notice of
an adjourned meeting need not be given if the place, date and time to which the
meeting shall be adjourned are announced at the meeting at which the adjournment
is taken.
Section 5. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation of the Corporation, at all meetings of stockholders
the holders of a majority of the shares of the Corporation entitled to vote,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business.
Section 6. Voting. Except as otherwise provided by law or by the
Certificate of Incorporation of the Corporation, at any meeting of the
stockholders every stockholder of record having the right to vote thereat shall
be entitled to one vote for every share of stock standing in his name as of the
record date and entitling him to so vote. A stockholder may vote in person or by
proxy. Except as otherwise provided by law or by the Certificate of
Incorporation, any corporate action to be taken by a vote of the stockholders,
other than the election of directors, shall be authorized by the affirmative
vote of a majority of the shares present or represented by proxy at the meeting
and entitled to vote on the subject matter. Directors shall be elected as
provided in Section 2 of Article III of these By-laws. Written ballots shall not
be required for voting on any matter unless ordered by the chairman of the
meeting, except that, unless otherwise provided in the Certificate of
Incorporation of the Corporation, all elections of directors shall be by written
ballot.
Section 7. Proxies. Every proxy shall be executed in writing by the
stockholder or by his authorized representative, or otherwise as provided in the
General Corporation Law of the State of Delaware (the "General Corporation
Law").
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<PAGE>
Section 8. List of Stockholders. At least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing their addresses and the
number of shares registered in their names as of the record date shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 9. Conduct of Meetings. At each meeting of the stockholders, the
President or, in his absence, any one of the Vice Presidents (if any), in order
of their seniority, shall act as chairman of the meeting. The Secretary or, in
his absence, any person appointed by the chairman of the meeting shall act as
secretary of the meeting and shall keep the minutes thereof. The order of
business at all meetings of the stockholders shall be as determined by the
chairman of the meeting.
Section 10. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the Certificate of Incorporation of the Corporation, any action
required to be taken or which may be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed, in person or by proxy, by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted in person or by proxy and shall be delivered to
the Corporation as required by law. Prompt notice
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<PAGE>
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
ARTICLE III
Board of Directors
Section 1. Number of Directors. Except as otherwise provided in the
Certificate of Incorporation of the Corporation, until such time as the Board of
Directors determines otherwise, the number of directors shall be six (6). The
number of directors may be reduced or increased from time to time by action of a
majority of the whole Board, but no decrease may shorten the term of an
incumbent director. When used in these By-laws, the term "whole Board" means the
total number of directors which the Corporation would have if there were no
vacancies.
Section 2. Election and Term. Except as otherwise provided by law, by the
Certificate of Incorporation of the Corporation or by these By-laws, the
directors shall be elected at the annual meeting of the stockholders and the
persons receiving a plurality of the votes cast shall be so elected. Subject to
his earlier death, resignation or removal as provided in Section 3 of this
Article III, each director shall hold office until his successor shall have been
elected and shall have qualified.
Section 3. Removal. A director may be removed at any time, with or without
cause, by the holders of a majority of the shares then entitled to vote at an
election of directors.
Section 4. Resignations. Any director may resign at any time by giving
written notice of his resignation to the Corporation. A resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately
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<PAGE>
upon its receipt, and, unless otherwise specified therein, the acceptance of a
resignation shall not be necessary to make it effective.
Section 5. Vacancies. Except as otherwise provided in the Certificate of
Incorporation of the Corporation, any vacancy in the Board of Directors arising
from an increase in the number of directors or otherwise may be filled by the
vote of a majority of the directors then in office, although less than a quorum,
or by a sole remaining director.
Section 6. Place of Meetings. Except as otherwise provided in these
By-laws, all meetings of the Board of Directors shall be held at such places,
within or without the State of Delaware, as the Board determines from time to
time.
Section 7. Annual Meeting. The annual meeting of the Board of Directors
shall be held either without notice immediately after the annual meeting of
stockholders and in the same place, or as soon as practicable after the annual
meeting of stockholders on such date and at such time and place as the Board
determines from time to time.
Section 8. Regular Meetings. Regular meetings of the Board of Directors
shall be held on such dates and at such times and places as the Board determines
from time to time. Notice of regular meetings need not be given, except as
otherwise required by law.
Section 9. Special Meetings. Special meetings of the Board of Directors,
for any purpose or purposes, may be called by the President and shall be called
by the President or the Secretary upon the written request of a majority of the
directors. The request shall state the date, time, place and purpose or purposes
of the proposed meeting.
Section 10. Notice of Meetings. Notice of each special meeting of the Board
(and of each annual meeting which is not held immediately after, and in the same
place as, the annual meeting of stockholders) shall be given, not later than 24
hours before the meeting is scheduled
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<PAGE>
to commence, by the President or the Secretary and shall state the place, date
and time of the meeting. Notice of each meeting may be delivered to a director
by hand or given to a director orally (either by telephone or in person) or
mailed, telegraphed or sent by facsimile transmission to a director at his
residence or usual place of business, provided, however, that if notice of less
than 72 hours is given it may not be mailed. If mailed, the notice shall be
deemed given when deposited in the United States mail, postage prepaid; if
telegraphed, the notice shall be deemed given when the contents of the telegram
are transmitted to the telegraph service with instructions that the telegram
immediately be dispatched; and if sent by facsimile transmission, the notice
shall be deemed given when transmitted with transmission confirmed. Notice of
any meeting need not be given to any director who shall submit, either before or
after the time stated therein, a signed waiver of notice or who shall attend the
meeting, other than for the express purpose of objecting at the beginning
thereof to the transaction of any business because the meeting is not lawfully
called or convened. Notice of an adjourned meeting, including the place, date
and time of the new meeting, shall be given to all directors not present at the
time of the adjournment, and also to the other directors unless the place, date
and time of the new meeting are announced at the meeting at the time at which
the adjournment is taken.
Section 11. Quorum. Except as otherwise provided by law or in these
By-laws, at all meetings of the Board of Directors a majority of the whole Board
shall constitute a quorum for the transaction of business, and the vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. A majority of the directors present, whether or
not a quorum is present, may adjourn any meeting to another place, date and
time.
Section 12. Conduct of Meetings. At each meeting of the Board of Directors,
the President or, in his absence, a director chosen by a majority of the
directors present shall act as
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<PAGE>
chairman of the meeting. The Secretary or, in his absence, any person appointed
by the chairman of the meeting shall act as secretary of the meeting and keep
the minutes thereof. The order of business at all meetings of the Board shall be
as determined by the chairman of the meeting.
Section 13. Committees of the Board. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate an executive committee
and other committees, each consisting of one or more directors. Each committee
(including the members thereof) shall serve at the pleasure of the Board of
Directors and shall keep minutes of its meetings and report the same to the
Board. The Board of Directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member or
members at any meeting of the committee. In addition, in the absence or
disqualification of a member of a committee, if no alternate member has been
designated by the Board of Directors, the member or members present at any
meeting and not disqualified from voting, whether or not they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of the absent or disqualified member. Except as
limited by law, each committee, to the extent provided in the resolution of the
Board of Directors establishing it, shall have and may exercise all the powers
and authority of the Board in the management of the business and affairs of the
Corporation.
Section 14. Operation of Committees. A majority of all the members of a
committee shall constitute a quorum for the transaction of business, and the
vote of a majority of all the members of a committee present at a meeting at
which a quorum is present shall be the act of the committee. Each committee
shall adopt whatever other rules of procedure it determines for the conduct of
its activities.
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<PAGE>
Section 15. Consent to Action. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
Section 16. Attendance Other Than in Person. Members of the Board of
Directors or any committee thereof may participate in a meeting of the Board or
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at the meeting.
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<PAGE>
ARTICLE IV
Officers
Section 1. Executive and Other Officers. The executive officers of the
Corporation shall be a President, a Treasurer and a Secretary. The positions of
President and Treasurer may be filled by the same individual. The Board of
Directors also may elect or appoint one or more Vice Presidents (any of whom may
be designated as Executive Vice Presidents or otherwise), and any other officers
it deems necessary or desirable for the conduct of the business of the
Corporation, each of whom shall have such powers and duties as the Board
determines. Any officer may devote less than all of his working time to his
activities as such if the Board so approves.
Section 2. Duties.
(a) The President. The President shall be the chief executive officer
and chief operating officer of the Corporation, and shall preside at all
meetings of the stockholders and of the Board of Directors, and he shall be ex
officio a member of all committees established by the Board. The President shall
have general management of the business and affairs of the Corporation, subject
to the control of the Board of Directors, and he shall have such other powers
and duties as the Board assigns to him.
(b) The Vice President. The Vice President or, if there shall be more
than one, the Vice Presidents, if any, in the order of their seniority or in any
other order determined by the Board of Directors, shall perform, in the absence
or disability of the President, the duties and exercise the powers of the
President, and shall have such other powers and duties as the Board or the
President assigns to him or them.
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<PAGE>
(c) The Secretary. Except as otherwise provided in these By-laws or as
directed by the Board of Directors, the Secretary shall attend all meetings of
the stockholders and the Board; he shall record the minutes of all proceedings
in books to be kept for that purpose; he shall give notice of all meetings of
the stockholders and special meetings of the Board; and he shall keep in safe
custody the seal of the Corporation and, when authorized by the Board, he shall
affix the same to any corporate instrument. The Secretary shall have such other
powers and duties as the Board or the President assigns to him.
(d) The Treasurer. Subject to the control of the Board, the Treasurer
shall have the care and custody of the corporate funds and the books relating
thereto; and he shall perform all other duties incident to the office of
Treasurer. The Treasurer shall have such other powers and duties as the Board or
the President assigns to him.
Section 3. Term; Removal. Subject to his earlier death, resignation or
removal, each officer shall hold his office until his successor shall have been
elected or appointed and shall have qualified, or until his earlier death,
resignation or removal. Any officer may be removed at any time, with or without
cause, by the Board of Directors.
Section 4. Resignations. Any officer may resign at any time by giving
written notice of his resignation to the Corporation. A resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt, and,
unless otherwise specified therein, the acceptance of a resignation shall not be
necessary to make it effective.
Section 5. Vacancies. If an office becomes vacant for any reason, the Board
of Directors or the stockholders may fill the vacancy, and each officer so
elected or appointed shall
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<PAGE>
serve for the remainder of his predecessor's term and until his successor shall
have been elected or appointed and shall have qualified.
ARTICLE V
Provisions Relating to Stock
Certificates and Stockholders
Section 1. Certificates. Certificates for the Corporation's capital stock
shall be in such form as required by law and as approved by the Board of
Directors. Each certificate shall be signed in the name of the Corporation by
the President or any Vice President and by the Secretary-Treasurer, any
Assistant Secretary or any Assistant Treasurer. Any or all of the signatures on
a certificate may be a facsimile. In case any officer, transfer agent or
registrar who shall have signed or whose facsimile signature shall have been
placed on any certificate shall have ceased to be such officer, transfer agent
or registrar before the certificate shall be issued, the certificate may be
issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 2. Replacement Certificates. The Corporation may issue a new
certificate of stock in place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the Board of Directors may
require the owner of the lost, stolen or destroyed certificate, or such person's
legal representative, to make an affidavit of that fact and to give the
Corporation a bond sufficient to indemnify the Corporation against any claim
that may be made against it on account of the alleged loss, theft or destruction
of the certificate or the issuance of such new certificate.
Section 3. Transfers of Shares. Transfers of shares shall be registered on
the books of the Corporation maintained for that purpose after due presentation
of the stock certifi-
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<PAGE>
cates therefor, appropriately endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer.
Section 4. Record Date. For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or other distribution or the allotment of any
rights, or for the purpose of any other action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which record date
shall not be more than 60 or less than 10 days before the date of any such
meeting, shall not be more than 10 days after the date on which the Board fixes
a record date for any such consent in writing, and shall not be more than 60
days prior to any other action.
ARTICLE VI
Indemnification
Section 1. Indemnification. Unless otherwise determined by the Board of
Directors, the Corporation shall, to the fullest extent permitted by the General
Corporation Law (including, without limitation, Section 145 thereof) or other
provisions of the laws of Delaware relating to indemnification of directors,
officers, employees and agents, as the same may be amended and supplemented from
time to time, indemnify any and all such persons whom it shall have power to
indemnify under the General Corporation Law or such other provisions of law.
Section 2. Statutory Indemnification. Without limiting the generality of
Section 1 of this Article VI, to the fullest extent permitted, and subject to
the conditions imposed, by law,
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<PAGE>
and pursuant to Section 145 of the General Corporation Law, unless otherwise
determined by the Board of Directors:
(i) the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation)
by reason of the fact that such person is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
reasonable expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if such person acted in
good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful; and
(ii) the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against reasonable expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if such person acted in
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<PAGE>
good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Corporation, except as otherwise provided by
law.
Section 3. Indemnification by Resolution of Stockholders or Directors or
Agreement. To the fullest extent permitted by law, indemnification may be
granted, and expenses may be advanced, to the persons described in Section 145
of the General Corporation Law or other provisions of the laws of Delaware
relating to indemnification and advancement of expenses, as from time to time
may be in effect, by (i) a resolution of stockholders, (ii) a resolution of the
Board of Directors, or (iii) an agreement providing for such indemnification and
advancement of expenses.
Section 4. General. It is the intent of this Article VI to require the
Corporation, unless otherwise determined by the Board of Directors, to indemnify
the persons referred to herein for judgments, fines, penalties, amounts paid in
settlement and reasonable expenses (including attorneys' fees), and to advance
expenses to such persons, in each and every circumstance in which such
indemnification and such advancement of expenses could lawfully be permitted by
express provision of by-laws, and the indemnification and expense advancement
provided by this Article VI shall not be limited by the absence of an express
recital of such circumstances. The indemnification and advancement of expenses
provided by, or granted pursuant to, these By-laws shall not be deemed exclusive
of any other rights to which a person seeking indemnification or advancement of
expenses may be entitled, whether as a matter of law, under any provision of the
Certificate of Incorporation of the Corporation, these By-laws, by agreement, by
vote of stockholders or disinterested directors of the Corporation or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
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Section 5. Indemnification Benefits. Indemnification pursuant to these
By-laws shall inure to the benefit of the heirs, executors, administrators and
personal representatives of those entitled to indemnification.
ARTICLE VII
General Provisions
Section 1. Dividends. To the extent permitted by law, the Board of
Directors shall have full power and discretion, subject to the provisions of the
Certificate of Incorporation of the Corporation and the terms of any other
corporate document or instrument binding upon the Corporation, to determine
what, if any, dividends or distributions shall be declared and paid or made.
Section 2. Seal. The Corporation's seal shall be in such form as is
required by law and as shall be approved by the Board of Directors.
Section 3. Fiscal Year. The fiscal year of the Corporation shall end on the
last Saturday of August of each year.
Section 4. Voting Shares in Other Corporations. Unless otherwise directed
by the Board of Directors, shares in other corporations that are held by the
Corporation shall be represented and voted only by the President or by a proxy
or proxies appointed by him.
ARTICLE VIII
Amendments
Section 1. By-Laws may be adopted, amended or repealed by the Board of
Directors, provided the conferral of such power on the Board shall not divest
the stockholders of the power, or limit their power, to adopt, amend or repeal
By-laws.
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Exhibit 4.1
- - --------------------------------------------------------------------------------
SCHOLASTIC BRANDS, INC.
$90,000,000
11% Senior Subordinated Notes due 2007
----------------------
INDENTURE
Dated as of December 16, 1996
----------------------
Marine Midland Bank,
as Trustee
- - --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE TABLE*
Indenture
Trust Indenture Act Section Section
- - ---------------------------- ---------
310 (a)(1)................................................... 7.10
(a)(2)................................................... 7.10
(a)(3)................................................... N.A.
(a)(4)................................................... N.A.
(a)(5) .................................................. 7.10
(b)...................................................... 7.3
7.8
7.10
(c)...................................................... N.A.
311(a).................................................... 7.11
(b)...................................................... 7.11
(c)...................................................... N.A.
312(a).................................................... 2.5
(b)...................................................... 11.3
(c)...................................................... 11.3
313(a).................................................... 7.6
(b)(1)................................................... N.A.
(b)(2)................................................... 7.6
(c)...................................................... 7.6
11.2
314(a).................................................... 4.3
4.4
(b)...................................................... N.A.
(c)(1)................................................... 11.4
(c)(2)................................................... 11.4
(c)(3)................................................... 11.4
(d)...................................................... N.A.
(e)...................................................... 11.5
(f)...................................................... N.A.
315(a).................................................... 7.2
(b)...................................................... 7.5
11.2
(c)...................................................... 7.1
(d)...................................................... 7.1
(e)...................................................... 6.12
316(a)(last sentence)..................................... 2.9
(a)(1)(A)................................................ 6.5
(a)(1)(B)................................................ 6.4
(a)(2)................................................... N.A.
(b)...................................................... 6.7
(c)...................................................... N.A.
317(a)(1)................................................. 6.8
(a)(2)................................................... 6.10
(b)...................................................... 2.4
- - ----------
* This Cross Reference Table shall not, for any purpose, be deemed a part of
this Indenture.
<PAGE>
318(a).................................................... 11.1
318(b).................................................... N.A.
318(c).................................................... 11.1
N.A. means not applicable.
<PAGE>
TABLE OF CONTENTS**
Page
----
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions....................................................1
Section 1.2. Other Definitions.............................................23
Section 1.3. Incorporation by Reference of Trust Indenture Act.............24
Section 1.4. Rules of Construction.........................................24
Section 1.5. Acts of Holders...............................................24
ARTICLE 2.
THE NOTES
Section 2.1. Form and Dating...............................................25
Section 2.2. Execution and Authentication..................................26
Section 2.3. Registrar and Paying Agent....................................27
Section 2.4. Paying Agents To Hold Money in Trust..........................27
Section 2.5. Holder Lists..................................................28
Section 2.6. Transfer and Exchange.........................................28
Section 2.7. Replacement Notes.............................................37
Section 2.8. Outstanding Notes.............................................37
Section 2.9. Treasury Notes................................................37
Section 2.10. Temporary Notes...............................................38
Section 2.11. Cancellation..................................................38
Section 2.12. Defaulted Interest............................................38
Section 2.13. Persons Deemed Owners.........................................38
Section 2.14. CUSIP Numbers.................................................39
ARTICLE 3.
REDEMPTION AND REPURCHASE
Section 3.1. Notices to Trustee............................................39
Section 3.2. Selection of Notes............................................39
Section 3.3. Notice of Optional or Special Redemption......................40
Section 3.4. Effect of Notice of Redemption................................41
Section 3.5. Deposit of Redemption Price or Purchase Price.................41
Section 3.6. Notes Redeemed or Repurchased in Part.........................42
Section 3.7. Optional Redemption...........................................42
- - ----------
** This Table on Contents shall not, for any purpose, be deemed a part of
the Indenture.
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<PAGE>
Section 3.8. Special Redemption............................................42
Section 3.9. Repurchase Upon Change of Control Offer.......................42
Section 3.10. Repurchase Upon Application of Excess Proceeds................44
ARTICLE 4.
COVENANTS
Section 4.1. Payment of Principal and Interest.............................46
Section 4.2. Maintenance of Office or Agency...............................46
Section 4.3. Reports.......................................................47
Section 4.4. Compliance Certificate........................................47
Section 4.5. Taxes.........................................................48
Section 4.6. Stay, Extension and Usury Laws................................48
Section 4.7. Restricted Payments...........................................48
Section 4.8. Dividend and Other Payment Restrictions Affecting
Subsidiaries................................................52
Section 4.9. Incurrence of Indebtedness and Issuance of Preferred Stock....53
Section 4.10. Asset Sales...................................................56
Section 4.11. Transactions with Affiliates..................................57
Section 4.12. Liens.........................................................58
Section 4.13. Continued Existence...........................................58
Section 4.14. Insurance Matters.............................................59
Section 4.15. Offer to Repurchase upon Change of Control....................59
Section 4.16. Limitations on Issuances and Sales of Capital Stock of
Subsidiaries................................................59
Section 4.17. Limitation on Future Subordinated Indebtedness................60
Section 4.18. Subsidiary Guarantees.........................................60
Section 4.19. Business Activities...........................................62
Section 4.20. Payments for Consent..........................................62
Section 4.21. Restrictions under Senior Indebtedness........................62
ARTICLE V.
SUCCESSORS
Section 5.1. Merger, Consolidation, or Sale of Assets......................63
Section 5.2. Successor Corporation Substituted.............................63
ARTICLE VI.
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.............................................64
Section 6.2. Acceleration..................................................66
Section 6.3. Other Remedies................................................66
Section 6.4. Waiver of Past Defaults.......................................67
Section 6.5. Control by Majority...........................................67
Section 6.6. Limitation on Suits...........................................68
Section 6.7. Rights of Holders of Notes to Receive Payment.................68
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<PAGE>
Section 6.8. Collection Suit by Trustee...................................68
Section 6.9. Event of Default to Avoid Premium............................69
Section 6.10. Trustee May File Proofs of Claim.............................69
Section 6.11. Priorities...................................................69
Section 6.12. Undertaking for Costs........................................70
ARTICLE 7.
TRUSTEE
Section 7.1. Duties of Trustee............................................70
Section 7.2. Rights of Trustee............................................71
Section 7.3. Individual Rights Of Trustee.................................72
Section 7.4. Trustee's Disclaimer.........................................72
Section 7.5. Notice of Defaults...........................................73
Section 7.6. Reports by Trustee to Holders of the Notes...................73
Section 7.7. Compensation, Reimbursement and Indemnity....................73
Section 7.8. Replacement Of Trustee.......................................74
Section 7.9. Successor Trustee by Merger, Etc.............................75
Section 7.10. Eligibility; Disqualification................................75
Section 7.11. Preferential Collection of Claims against Company............75
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance......76
Section 8.2. Legal Defeasance and Discharge................................76
Section 8.3. Covenant Defeasance...........................................76
Section 8.4. Conditions to Legal or Covenant Defeasance....................77
Section 8.5. Deposited Money and U.S. Government Securities to Be
Held in Trust; Other Miscellaneous Provisions...............78
Section 8.6. Repayment to the Company......................................79
Section 8.7. Reinstatement.................................................79
ARTICLE 9.
AMENDMENT SUPPLEMENT AND WAIVER
Section 9.1. Without Consent of Holders of Notes...........................80
Section 9.2. With Consent of Holders of Notes..............................80
Section 9.3. Compliance with Trust Indenture Act...........................82
Section 9.4. Revocation And Effect Of Consents.............................82
Section 9.5. Notation on or Exchange of Notes..............................82
Section 9.6. Trustee to Sign Amendments, Etc...............................82
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<PAGE>
ARTICLE 10.
SUBORDINATION
Section 10.1. Notes Subordinated to Senior Indebtedness....................83
Section 10.2. Priority and Payment Over of Proceeds in Certain Events......83
Section 10.3. Payments May Be Made Prior to Dissolution....................86
Section 10.4. Rights of Holders of Senior Indebtedness Not to Be Impaired..86
Section 10.5. Authorization to Trustee to Take Action to Effectuate
Subordination..............................................86
Section 10.6. Subrogation..................................................87
Section 10.7. Obligations of Company Unconditional.........................87
Section 10.8. The Trustee Entitled to Assume Payments Not
Prohibited in Absence of Notice............................88
Section 10.9. Right of Trustee to Hold Senior Indebtedness.................88
Section 10.10. No Implied Covenants by or Obligations of the Trustee........88
ARTICLE 11.
MISCELLANEOUS
Section 11.1. Trust Indenture Act Controls.................................89
Section 11.2. Notices......................................................89
Section 11.3. Communication by Holders of Notes with Other
Holders of Notes...........................................90
Section 11.4. Certificate and Opinion as to Conditions Precedent...........90
Section 11.5. Statements Required in Certificate or Opinion................91
Section 11.6. Rules by Trustee and Agents..................................91
Section 11.7. No Personal Liability of Directors, Officers,
Employees and Stockholders.................................91
Section 11.8. Governing Law; Submission to Jurisdiction; Waiver of Jury
Trial......................................................91
Section 11.9. No Adverse Interpretation of Other Agreements................92
Section 11.10. Successors...................................................92
Section 11.11. Severability.................................................92
Section 11.12. Counterpart Originals........................................92
Section 11.13. Table of Contents, Headings, Etc.............................92
Section 11.14. Qualification of Indenture...................................93
-vi-
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EXHIBITS
- - --------
Exhibit A Form of Note
Exhibit B(1) Form of Regulation S Certification
Exhibit B(2) Form of Certificate to be Delivered upon Exchange or Registration
of Transfer of Notes
Exhibit C Form of Subsidiary Guarantee
Exhibit D Form of Certificate to be Delivered in connection with Transfers
to Non QIB Accredited Investors
Exhibit E Form of Certificate to be Delivered in connection with
Transfers Pursuant to Regulation S
-vii-
<PAGE>
INDENTURE
INDENTURE dated as of December 16, 1996 between Scholastic Brands, Inc., a
Delaware corporation (the "Company"), and Marine Midland Bank, as trustee (the
"Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders (as defined below) of the Company's 11%
Senior Subordinated Notes due 2007:
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person or
assumed in connection with the acquisition of assets from such other
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Subsidiary of such specified Person or such acquisition of
assets, and (ii) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"Acquisition Subsidiary" means any Wholly Owned Subsidiary of the
Company or any of its Wholly Owned Subsidiaries which is newly formed in
anticipation of and in order to effectuate the acquisition by such entity
of the capital stock or assets of another Person; provided that the making
of an Investment in such Subsidiary by the Company or any other Subsidiary
shall be made in compliance with the Section 4.7 hereof.
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used
with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that beneficial ownership
of 10% or more of the voting securities of a Person shall be deemed to be
control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means (i) the sale (other than sales of inventory),
lease, conveyance or other disposition of any assets (including, without
limitation, by way of a sale and leaseback) other than in the ordinary
course of business
<PAGE>
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries taken
as a whole will be governed by the provisions of Section 4.15 and/or
Section 5.1 hereof, and not by Section 4.10 hereof), and (ii) the issue or
sale by the Company or any of its Subsidiaries of Capital Stock of any of
the Company's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $1.0 million or (b) for net
proceeds in excess of $1.0 million. Notwithstanding the foregoing: (i) a
transfer of assets by the Company to a Wholly Owned Subsidiary of the
Company or by a Wholly Owned Subsidiary of the Company to the Company or to
another Wholly Owned Subsidiary of the Company, (ii) an issuance or sale of
Capital Stock by a Wholly Owned Subsidiary of the Company to the Company or
to another Wholly Owned Subsidiary of the Company, (iii) a Permitted
Investment or a Restricted Payment that is permitted by Section 4.7 hereof,
(iv) a Permitted Lien, provided that no steps or actions have been taken by
the holder of such Permitted Lien to realize upon or dispose of the assets
subject thereto, (v) a sale or other disposition or abandonment of damaged,
worn out or obsolete property, (vi) the licensing of any intellectual
property for a period of not more than five years which is not in
connection with the sale of any other assets of the Company (except for any
such licensing of intellectual property that causes a reduction of the
assets of the Company or any of its Subsidiaries under GAAP), and (vii) the
sale of owned gold to consignment banks under the Bank Credit Facility in
the ordinary course of business, will not be deemed to be Asset Sales.
"Attributable Debt" means, in respect of a sale and leaseback
transaction, at the time of determination, the present value (discounted at
the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during
the remaining term of the lease included in such sale and leaseback
transaction (including any period for which such lease has been extended or
may, at the option of the lessee, be extended).
"Bank Credit Facility" means the Revolving Credit, Term Loan and Gold
Consignment Agreement among the Company, the Banks from time to time
parties thereto, and The First National Bank of Boston and Rhode Island
Hospital Trust National Bank, as agents for such Banks, together with the
related documents thereto (including, without limitation, any letters of
credit issued pursuant thereto, and any related guarantee agreements and
security documents), in each case as such agreements may be amended
(including any amendment and restatement thereof), supplemented or
otherwise modified or replaced (including with other lenders or
consignors), from time to time and including any agreement extending the
maturity of, refinancing, modifying, increasing, substituting for or
otherwise restructuring (including, but not limited to, the inclusion of
additional or different or substitute lenders, consignors or bank agents
thereunder) all or any portion of the Indebtedness, including changing the
borrowing limits, under such
2
<PAGE>
agreements or any successor or replacement agreements, regardless of
whether the Bank Credit Facility or any portion thereof was outstanding or
in effect at the time of such replacement, refinancing, increase,
substitution, extension, restructuring, supplement or modification.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or
state law for the relief of debtors.
"Board" means the Board of Directors of the Company or any duly
authorized committee of the Board of Directors.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in the City of New York or at a place of
payment are authorized by law, regulation or executive order to remain
closed. If a payment date is not a Business Day at a place of payment,
payment may be made at that place on the next succeeding day that is a
Business Day, and no interest shall accrue for the intervening period.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of a partnership, partnership interests (whether
general or limited), (iii) in the case of an association or any other
business entity, any and all shares, interests, participations, rights or
other equivalents (however designated) in the equity of such association or
entity, and (iv) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States Dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of
not more than six months from the date of acquisition, (iii) demand and
time deposits, 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 million and a Keefe Bank Watch Rating of "B" or
better, (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the
qualifications specified in clause (iii) above and (v) commercial paper
having the highest rating obtainable from Moody's Investors Service, Inc.
or Standard & Poor's and in each case maturing within six months after the
date of acquisition.
3
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"Cedel" shall mean Cedel, S.A.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole, to any "person" (as
such term is used in Section 13(d)(3) of the Exchange Act),
(ii) the adoption of a plan relating to the liquidation or
dissolution of the Company,
(iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that
(a) prior to a Public Equity Offering, the Principals and their
Related Parties cease to be the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of a
majority of the total outstanding Voting Stock of the Company, or (b)
after a Public Equity Offering, any "person" (as defined above), other
than the Principals and their Related Parties, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the
Exchange Act), directly or indirectly, of more than 35% of the total
outstanding Voting Stock of the Company and the Principals and their
Related Parties beneficially own a lesser percentage of the Voting
Stock of the Company than such person, or
(iv) the first day on which a majority of the members of the
Board are not Continuing Directors.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means, with respect to any Person, Capital Stock of
such Person that does not rank prior, as to the payment of dividends or as
to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Company" means Scholastic Brands, Inc., a Delaware corporation, until
a successor Person shall have become such pursuant to the applicable
provisions of this Indenture, and thereafter means such successor Person.
4
<PAGE>
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus, to
the extent deducted in computing Consolidated Net Income:
(i) an amount equal to any extraordinary loss plus any net loss
realized in connection with any Asset Sale plus any loss realized on
an extraordinary or non-recurring actuarial assumption adjustment with
regard to post-retirement, medical and other benefits, in each case
for such periods, plus
(ii) provision for taxes based on income or profits of such
Person and its Subsidiaries for such period, plus
(iii) consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of
original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to
Hedging Obligations), plus
(iv) depreciation, amortization (including amortization of
goodwill, other intangibles, and other assets) and other non-cash
charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future
period) of such Person and its Subsidiaries for such period,
in each case, on a consolidated basis and determined in accordance with
GAAP. Notwithstanding the foregoing, the provision for taxes on the income
or profits of, and the depreciation and amortization and other non-cash
charges of, a Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the
extent (and in same proportion) that the Net Income of such Subsidiary was
included in calculating the Consolidated Net Income of such Person and only
if a corresponding amount would be permitted at the date of determination
to be dividended to the Company by such Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to, the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the net income of such Person and its Subsidiaries
for
5
<PAGE>
such period, on a consolidated basis, determined in accordance with GAAP;
provided that there shall be excluded therefrom, without duplication:
(i) all items classified as extraordinary, unusual or
nonrecurring gains (but not losses);
(ii) any net loss or net income of any other Person (other than a
Subsidiary of such Person), except to the extent of the amount of
dividends or other distributions actually paid to such Person or its
Subsidiaries by such other Person during such period;
(iii) the net income of any Person acquired by such Person or a
Subsidiary thereof in a pooling-of-interests transaction for any
period prior to the date of such acquisition;
(iv) any gain or loss, net of taxes, realized on the termination
of any employee pension benefit plan;
(v) gains (but not losses) in respect of Asset Sales by such
Person or its Subsidiaries;
(vi) the net income (but not net loss) of any Subsidiary of such
Person to the extent that the declaration or payment of dividends or
distributions to such Person is restricted by the terms of its
constituent documents or any agreement, instrument, contract,
judgment, order, decree, statute, rule, governmental regulation or
otherwise, except for any dividends or distributions actually paid by
such Subsidiary to such Person or another Subsidiary of such Person;
(vii) with regard to a Subsidiary of such Person (other than a
Wholly Owned Subsidiary), any aggregate net income (or loss) in excess
of such Person's pro rata share of such Subsidiary's net income (or
loss) ; and
(viii) the cumulative effect of any change in accounting
principles.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the consolidated stockholders' equity of such Person and its
consolidated Subsidiaries, as determined in accordance with GAAP, less, to
the extent included therein, all amounts, if any, attributable to
Disqualified Stock.
"Continuing Directors" means, as of any date of determination, any
member of the Board who (i) was a member of the Board on the date of this
Indenture or (ii) was nominated for election or elected to the Board with
the
6
<PAGE>
approval of a majority of the Continuing Directors who were members of the
Board at the time of such nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.2 hereof or such other address as to which
the Trustee may give notice to the Company.
"Default" means any event, occurrence or condition that, with the
passage of time, the giving of notice or both, would constitute an Event of
Default.
"Depositary" means, with respect to the Notes issuable in whole or in
part in global form, the Person specified in Section 2.6 hereof as the
Depositary with respect to the Notes, until a successor shall have been
appointed and become such pursuant to the applicable provisions of this
Indenture, and, thereafter, "Depositary" shall mean or include such
successor.
"Designated Investment Stock" means any Capital Stock of the Company,
designated as such by the Board of Directors of the Company upon issuance
for use in the capitalization of an Acquisition Subsidiary of the Company,
up to a maximum net cash proceeds of $12.0 million.
"Designated Senior Indebtedness" means (i) Indebtedness of the Company
under the Bank Credit Facility, including without limitation all principal,
interest (including interest accruing after the filing of a petition
initiating any proceeding under any applicable bankruptcy law, whether or
not a claim therefor is allowable in such proceeding), reimbursements of
amounts drawn under letters of credit, reimbursements of other amounts,
Hedging Obligations with any agent or other representative of the lenders
under the Bank Credit Facility, guarantees in respect thereof, and all
charges, consignment and other fees, indemnifications, damages, penalties,
expenses (including expenses accruing after the filing of a petition
initiating any proceeding under any applicable bankruptcy law, whether or
not a claim therefor is allowable in such proceeding) and all other amounts
or liabilities payable in respect thereof; and (ii) any other Senior
Indebtedness, and all fees, expenses, indemnities and other monetary
obligations in respect thereof, which, at the date of creation thereof or
determination, has an aggregate principal amount outstanding of, or under
which at the date of creation thereof or determination, the holders thereof
are committed to lend, at least $7.5 million and is specifically designated
by the Company (with the consent of the Senior Representative for the Bank
Credit Facility unless the Trustee has received written notice from such
Senior Representative waiving such right of consent) in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of this Indenture.
"disposition" or "sale" or "transfer" or other words of similar
meaning do not include the granting or suffering of a Permitted Lien in
order to secure Indebtedness permitted by the Indenture, provided that no
steps or actions have
7
<PAGE>
been taken by the holder of such Permitted Lien to realize upon or dispose
of the assets subject thereto.
"Disqualified Stock" means any Capital Stock of any Person which, by
its terms, or upon the happening of any event or with the passage of time,
matures or is mandatorily redeemable, pursuant to a sinking fund obligation
or otherwise, or is redeemable at the option of the holder thereof, in
whole or in part, on or prior to 91 days after the maturity date of the
Notes, or which is exchangeable or convertible into debt securities of such
Person, except to the extent that such exchange or conversion rights cannot
be exercised prior to 91 days after the maturity date of the Notes. Series
A Preferred Stock is not Disqualified Stock.
"Escrow Agreement" means the escrow or other similar arrangement
referred to in Exhibit D to the Asset Purchase Agreement dated as of May
20, 1996 and amended as of November 21, 1996 among Town & Country
Corporation, L.G. Balfour Company, Inc. and the Company.
"Euroclear" means the Euroclear System.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the offer that shall be made by the Company
pursuant to the Registration Rights Agreement to exchange New Senior
Subordinated Notes for Senior Subordinated Notes.
"Existing Indebtedness" means all Indebtedness of the Company and its
Subsidiaries (other than under the Bank Credit Facility) in existence on
the Issue Date, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any specified
Person for any period, the ratio of the Consolidated Cash Flow of such
Person for such period to the Fixed Charges of such Person for such period.
In the event that such specified Person or any of its Subsidiaries
incurs, assumes, Guarantees, repays or redeems any Indebtedness (other than
ordinary course repayments of revolving credit borrowings under the
Revolving Credit Facility or payments in connection with the consignment of
gold under the Gold Consignment Facility) or such specified Person issues
or redeems Disqualified Stock subsequent to the commencement of the period
for which the Fixed Charge Coverage Ratio is being calculated but prior to
the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, Guarantee, repayment or redemption of Indebtedness
or such issuance or redemption of Disqualified Stock (including giving pro
forma effect to the application of any cash net proceeds
8
<PAGE>
therefrom), as if the same had occurred at the beginning of the applicable
four-quarter reference period.
In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the specified Person or
any of its Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, and
(ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be
excluded, and
(iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but only
to the extent that the obligations giving rise to such Fixed Charges
will not be obligations of the specified Person or any of its
Subsidiaries following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the
sum of:
(i) the consolidated interest expense of such Person and its
Subsidiaries (other than any Acquisition Subsidiary or any Subsidiary
thereof) for such period, whether paid or accrued and whether expensed
or capitalized, determined on a consolidated basis and in accordance
with GAAP (including, without limitation, amortization of original
issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all
Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations)
excluding, however, in the case of the Company, obligations of the
Company resulting from any extraordinary or non-recurring actuarial
adjustment assumptions with respect to post-retirement medical and
other benefits, plus
9
<PAGE>
(ii) any interest expense on Indebtedness of another Person that
is Guaranteed by such Person or one of its Subsidiaries (other than
any Acquisition Subsidiary or any Subsidiary thereof) or secured by a
Lien on assets of such Person or one of its Subsidiaries (other than
Acquisition Subsidiary or any Subsidiary thereof) (whether or not such
Guarantee or Lien is called upon), plus
(iii) the product of (a) all cash dividend payments (and non-cash
dividend payments in the case of a Person that is a Subsidiary) on any
series of Preferred Stock of such Person, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus
the then current combined federal, state and local statutory tax rate
of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Foreign Subsidiary" means any Subsidiary formed under the laws of any
jurisdiction other than the United States of America or any state,
territory, possession or political subdivision thereof.
"FTC Order" means any order of the Federal Trade Commission requiring
the Company to sell certain Assets or to refrain from certain business
activities or lines of business.
"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 may be approved by a significant segment
of the accounting profession of the United States, as in effect on the
Issue Date; provided, however, that all financial statements of the Company
(but not any other financial information or ratios calculated pursuant
hereto) provided by the Company to the Holders of the Notes or the Trustee
shall be prepared in accordance with GAAP as in effect on the date of such
report or other financial information.
"Gold Consignment Facility" means the gold consignment facility, as
set forth in the Bank Credit Facility, together with the related documents
thereto (including, without limitation, any related guarantee agreements
and security documents), in each case as such agreements may be amended
(including any amendment and restatement thereof), supplemented or
otherwise modified or replaced (including with other lenders), from time to
time and including any agreement extending the maturity of, refinancing,
modifying, increasing, substituting for or otherwise restructuring
(including, but not limited to, the inclusion of additional or different or
substitute lenders or bank agents thereunder)
10
<PAGE>
all or any portion of the Indebtedness, including changing the consignment
limits, under such agreements or any successor or replacement agreements,
regardless of whether the Gold Consignment Facility or any portion thereof
was outstanding or in effect at the time of such replacement, refinancing,
increase, substitution, extension, restructuring, supplement or
modification.
"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.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under interest rate swap agreements, interest
rate cap agreements, interest rate collar agreements, foreign currency
exchange contracts, foreign currency swaps, commodities futures and any
other agreement designed to protect such Person against fluctuations in
interest rates, currency valuations or commodity prices.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, without duplication,
(i) any liability of such Person (a) for borrowed money, or under
any reimbursement obligation relating to a letter of credit, bankers'
acceptance or note purchase facility; (b) evidenced by a bond, note,
debenture or similar instrument; (c) for the balance deferred and
unpaid of the purchase price for any property or service or any
obligation upon which interest charges or consignment fees are
customarily paid (except for trade payables (other than consignments)
arising in the ordinary course of business); (d) for the payment of
money relating to a lease that is required to be classified as a
Capitalized Lease Obligation in accordance with GAAP; or (e) for the
maximum fixed repurchase price of any Disqualified Stock of such
Person plus accrued and unpaid dividends thereon;
(ii) any obligation of others secured by a Lien on any asset of
such Person, whether or not any obligation secured thereby has been
assumed, by such Person;
(iii) any obligations of such Person under any Hedging
Obligation; and
(iv) any Guarantee of such person or any obligation of such
Person which in economic effect is a guarantee with respect to any
Indebtedness of another Person.
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<PAGE>
For purposes of this definition, "maximum fixed repurchase price" of any
Disqualified Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Stock as if
such Disqualified Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such
price is based upon, or measured by, the fair market value of such
Disqualified Stock, such fair market value shall be determined in good
faith by the board of directors of the Person issuing such Disqualified
Stock.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Investment" by any Person means any direct or indirect loan, advance
(or other extension of credit) or capital contribution (by means of any
transfer of cash or other Property) to another Person or any other payments
for Property or services for the account or use of another Person,
including without limitation the following:
(i) the purchase or acquisition of any Capital Stock or other
evidence of beneficial ownership in another Person;
(ii) the purchase, acquisition or Guarantee of the Indebtedness
of another Person or the issuance of a "keep well" with respect
thereto; and
(iii) the purchase or acquisition of the business or assets of
another Person;
but shall exclude:
(a) accounts receivable and other extensions of trade credit on
commercially reasonable terms in accordance with normal trade
practices;
(b) the acquisition of property and assets from equipment
suppliers and other vendors in the ordinary course of business,
provided that such property and assets do not represent all or
substantially all of the production capacity of the supplier or other
vendor; and
(c) the acquisition of assets, Capital Stock or other securities
by the Company for consideration consisting solely of the Capital
Stock of the Company other than Disqualified Stock.
"Issue Date" means the date on which the Notes are first authenticated
and delivered under this Indenture.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under
applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement
to sell or give a security interest in and any filing of or agreement to
give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"Net Proceeds" means the sum of the aggregate cash proceeds received
by the Company or any of its Subsidiaries (other than an Acquisition
Subsidiary or a Subsidiary of an Acquisition Subsidiary) in respect of any
Asset Sale (including, without limitation, any cash received upon the sale
or other disposition of any non-cash consideration received in any such
Asset Sale), and any funds received by the Company pursuant to the Escrow
Agreement, net of (i) the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking
fees, and sales commissions) and any relocation, severance or shut-down
costs or expenses incurred as a result thereof, (ii) taxes paid or payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), (iii) amounts required to be
applied to the repayment of Indebtedness that is (a) secured by a Lien on
the asset or assets that were the subject of such Asset Sale, (b) Senior
Indebtedness, the repayment of which is required either pursuant to the
terms thereof, by applicable law, or in order to obtain a necessary consent
to such transaction, or (c) Indebtedness pari passu with Notes, the
repayment or purchase of which is required pursuant to the terms thereof on
a pro rata basis with the Notes in the event of an Asset Sale, and (iv) any
reserves established in accordance with GAAP for adjustment in respect of
the sale price of such asset or assets or for any liabilities associated
with such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities relating to environmental
matters and liabilities under any indemnification obligations associated
with such Asset Sale; provided that any reversal of any such reserve shall
be added back in the determination of Net Proceeds.
"New Senior Subordinated Notes" means notes issued by the Company
hereunder containing terms identical to the Senior Subordinated Notes
(except that (i) interest thereon shall accrue from the last date on which
interest was paid on the Senior Subordinated Notes or, if no such interest
has been paid, from the date of original issuance, (ii) the legend or
legends relating to transferability and other related matters set forth on
the Senior Subordinated Notes, including the text referred to in footnote 2
of Exhibit A hereto, shall be removed or appropriately altered, and (iii)
as otherwise set forth herein), to be offered to Holders of Senior
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Subordinated Notes in exchange for Senior Subordinated Notes pursuant to
the Exchange Offer.
"Note Custodian" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.
"Notes" means the Senior Subordinated Notes and the New Senior
Subordinated Notes, if any, that are issued under this Indenture, as
amended or supplanted from time to time.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable
under the documentation governing any Indebtedness.
"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, the
Controller, the Secretary or any Vice-President of such Person and (b) with
respect to any other Person, the individuals selected by 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, the Chief Financial Officer, the Treasurer or the
principal accounting officer of the Company, that meets the requirements of
Sections 11.4 and 11.5 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of
Sections 11.4 and 11.5 hereof. The counsel may be an employee of or counsel
to the Company, any Subsidiary of the Company or the Trustee.
"Permitted Investments" means:
(a) any Investment in the Company or in a Wholly Owned Subsidiary
of the Company (other than an Acquisition Subsidiary or a Subsidiary
thereof);
(b) any Investment in cash or Cash Equivalents;
(c) any Investment by the Company or any Subsidiary of the
Company in a Person, if as a result of such Investment (i) such Person
becomes a Wholly Owned Subsidiary of the Company (other than an
Acquisition Subsidiary or a Subsidiary thereof) or (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is
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liquidated into, the Company or a Wholly Owned Subsidiary of the
Company (other than an Acquisition Subsidiary or a Subsidiary
thereof);
(d) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with Section 4.10 hereof;
(e) any obligations or shares of Capital Stock received in
connection with or as a result of a bankruptcy, workout or
reorganization of the issuer of such obligations or shares of Capital
Stock;
(f) any Investment received involuntarily;
(g) any Investment existing on the date of the Indenture;
(h) Investments by the Company or any Subsidiary of the Company
in Permitted Lines of Business that do not exceed $5 million in the
aggregate at any one time outstanding;
(i) Investments by any Acquisition Subsidiary or any Subsidiary
of an Acquisition Subsidiary in Permitted Lines of Business (without
regard to the aggregate amount thereof) but excluding any Investment
in Capital Stock or Indebtedness of the Company or any of its
Subsidiaries (other than an Acquisition Subsidiary or any Subsidiary
thereof);
(j) Investments representing loans or advances made to employees
in the ordinary course of business not exceeding $500,000 at any one
time; and
(k) Investments representing loans or advances made to
independent sales representatives made in the ordinary course of
business.
"Permitted Liens" means:
(i) Liens on assets of the Company or its Subsidiaries securing
the Bank Credit Facility;
(ii) Liens on assets of the Company or its Subsidiaries securing
Senior Indebtedness which is permitted by the terms of the Indenture
to be incurred;
(iii) Liens securing Existing Indebtedness;
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(iv) Liens in favor of the Company;
(v) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any
Subsidiary of the Company; provided that such Liens were not incurred
in contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated
with the Company or any Subsidiary of the Company;
(vi) Liens on property existing at the time of acquisition
thereof by the Company or any Subsidiary of the Company, provided that
such Liens were not incurred in contemplation of such acquisition and
do not extend to any assets other than those so acquired by the
Company or any Subsidiary of the Company;
(vii) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business (or to secure
reimbursement obligations in respect of letters of credit issued in
connection with any of the foregoing obligations);
(viii) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted to be incurred by clause (v) of the second
paragraph of Section 4.9 hereof covering only the assets acquired with
such Indebtedness;
(ix) Liens existing on the Issue Date;
(x) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good
faith by appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision as
shall be required in conformity with GAAP shall have been made
therefor;
(xi) Liens incurred in the ordinary course of business of the
Company or any Subsidiary of the Company with respect to obligations
that do not exceed $5.0 million at any one time outstanding and that
(a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair
the use thereof in the operation of business by the Company or such
Subsidiary;
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(xii) Liens to secure any Indebtedness which is pari passu with
or subordinate in right of payment to the Notes, where (a) in the case
of any Lien securing Indebtedness that is pari passu in right of
payment with the Notes, all obligations with respect to the Notes are
secured on an equal and ratable basis with the Indebtedness so secured
and (b) in the case of any Lien securing Indebtedness that is
subordinated in right of payment to the Notes, all obligations with
respect to the Notes are secured on a senior basis reflecting the
subordination of the Indebtedness so secured on terms substantially
similar to, or more favorable to senior creditors than, those
contained herein, in each case, until such time as such pari passu or
subordinated Indebtedness is no longer secured by such Lien, at which
time such Lien securing the Notes may be automatically released; and
(xiii) Liens granted by an Acquisition Subsidiary or a Subsidiary
of an Acquisition Subsidiary to secure Indebtedness incurred by such
Acquisition Subsidiary or Subsidiary of an Acquisition Subsidiary in
accordance with Section 4.9 hereof.
"Permitted Line of Business" means (i) the scholastic,
graduation-related and commemorative products business, the fine paper and
non-textbook graphics products business, the recognition, affinity and
insignia products business, and such business activities as are incidental
or related thereto, and (ii) such other businesses as the Company or its
Subsidiaries are engaged in on the Issue Date.
"Permitted Refinancing Debt" means any Indebtedness of the Company or
any of its Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund
other Indebtedness of the Company or any of its Subsidiaries (other than an
Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary);
provided that, except with respect to Indebtedness incurred to repay,
repurchase, redeem or defease all of the outstanding Notes at one time:
(i) the principal amount (or accreted value, if applicable), of
such Permitted Refinancing Debt does not exceed the principal amount
(or accreted value, if applicable), of the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount
of up to six months of accrued and unpaid interest on such
Indebtedness and reasonable premiums, fees and expenses incurred in
connection therewith);
(ii) such Permitted Refinancing Debt has a final maturity date
later than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted
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Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded;
(iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Debt has a final maturity date
later than the final maturity date of, and is subordinated in right of
payment to, the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded; and
(iv) such Indebtedness is incurred either by the Company or by
the Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, limited or general
partnership, limited liability company, joint venture, association, joint
stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"PORTAL Market" means the Private Offerings, Resales and Trading
through Automated Linkages Market operated by the National Association of
Securities Dealers, Inc. or any successor thereto.
"Preferred Stock" means, with respect to any Person, all Capital Stock
of such Person of any class or classes (however designated, whether voting
or non-voting) that ranks prior, as to distribution in profit or
liquidation, to shares of Common Stock of such Person.
"Principals" means Castle Harlan Partners II, L.P., Castle Harlan,
Inc. and their respective Affiliates and the officers and directors of the
Company.
"Public Equity Offering" means any underwritten primary public
offering of the Common Stock or other Voting Stock of the Company, pursuant
to an effective registration statement (other than a registration statement
on Form S-4, Form S-8, or any successor or similar form) under the
Securities Act.
"Purchase Date" means, with respect to any Note to be repurchased, the
date fixed for such repurchase by or pursuant to this Indenture.
"Purchase Price" means the amount payable for the repurchase of any
Note on a Purchase Date, exclusive of accrued and unpaid interest and
Liquidated Damages (if any) thereon to the Purchase Date, unless otherwise
specifically provided.
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"QIB" means a qualified institutional buyer as defined in Rule 144A
under the Securities Act.
"Redemption Date" means, with respect to any Note to be redeemed, the
date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" means the amount payable for the redemption of any
Note on a Redemption Date, exclusive of accrued and unpaid interest and
Liquidated Damages (if any) thereon to the Redemption Date, unless
otherwise specifically provided.
"Related Party" means, with respect to any Principal, (A) any
controlling stockholder, director or officer, 80% (or more) owned
Subsidiary, or spouse or immediate family member or estate thereof (in the
case of an individual) of such Principal or (B) any 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).
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of December 16, 1996, among the Company, Lehman
Brothers Inc. and BT Securities Corporation, as such agreement may be
amended, modified or supplemented from time to time.
"Regulation S" means Regulation S as promulgated under the Securities
Act.
"Responsible Officer" means, when used with respect to the Trustee,
any officer of the Trustee assigned by the Trustee to administer this
Indenture and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Revolving Credit Facility" means the revolving credit facility, as
set forth in the Bank Credit Facility, together with the related documents
thereto (including, without limitation, any letters of credit issued
pursuant thereto, and any related guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified or
replaced (including with other lenders), from time to time and including
any agreement extending the maturity of, refinancing, modifying,
increasing, substituting for or otherwise restructuring (including, but not
limited to, the inclusion of additional or different or substitute lenders
or bank agents thereunder) all or any portion of the Indebtedness,
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including changing the borrowing limits, under such agreements or any
successor or replacement agreements, regardless of whether the Revolving
Credit Facility or any portion thereof was outstanding or in effect at the
time of such replacement, refinancing, increase, substitution, extension,
restructuring, supplement or modification.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means Designated Senior Indebtedness and the
principal of, and premium (if any) and interest (including interest
accruing after the filing of a petition initiating any proceeding under any
applicable bankruptcy law, whether or not a claim therefor is allowable in
such proceeding) on, any other Indebtedness of the Company, whether
outstanding on the date of the Indenture or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing, or the agreement governing, such Indebtedness or
pursuant to which such Indebtedness is outstanding expressly provides that
such Indebtedness shall not be senior in right of payment to the Notes.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include:
(i) Indebtedness evidenced by the Notes;
(ii) Indebtedness that is by its terms subordinate or junior in
right of payment to any other Indebtedness of the Company;
(iii) that portion of any Indebtedness which is incurred in
violation of this Indenture;
(iv) Indebtedness of the Company to a Subsidiary or any other
Affiliate of the Company;
(v) Indebtedness which is represented by Disqualified Stock;
(vi) any liability for federal, state, local or other taxes owed
or owing by the Company;
(vii) accounts payable or other obligations to trade creditors
created, incurred or assumed in the ordinary course of business in
connection with obtaining materials or services and other current
liabilities (excluding the current portion of long-term Senior
Indebtedness);
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(viii) Indebtedness of or amounts owing by the Company for
compensation to employees for services; and
(ix) amounts owing under leases (other than Capital Lease
Obligations).
"Senior Representative" means any trustee, agent or representative (if
any) for the holders of any Designated Senior Indebtedness.
"Senior Subordinated Notes" means the Company's 11% Senior
Subordinated Notes due 2007 issued pursuant to this Indenture, but excludes
the New Senior Subordinated Notes.
"Series A Preferred Stock" means the Series A preferred stock of the
Company, par value $.01 per share.
"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 date hereof.
"Subsidiary" of any Person means any other Person, the majority of the
Voting Stock or other ownership interests having ordinary voting power to
elect a majority of the board of directors of which is directly or
indirectly owned by such Person.
"Subsidiary Guarantee" means a Guarantee, substantially in the form of
Exhibit C hereto, executed and delivered by a Subsidiary Guarantor in
accordance with the provisions hereof.
"Subsidiary Guarantor" means any Subsidiary of the Company that
executes a Subsidiary Guarantee in accordance with the provisions of
Section 4.18 hereof, and its successors and assigns.
"Transfer Restricted Security" means a Note that is a restricted
security as defined in Rule 144(a)(3) under the Securities Act.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture,
and thereafter means the successor serving hereunder.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA; provided that in the event the Trust Indenture Act of 1939
is amended after such date, "TIA" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939 as so amended.
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"U.S. Government Securities" shall mean securities which are (i)
direct obligations of the United States of America for the payment of which
its full faith and credit is pledged or (ii) obligations of a Person
controlled or supervised by and acting as an agency or instrumentality of
the United States of America, the 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 or trust company as custodian with respect to any such
U.S. Government Securities or a specific payment of interest on or
principal of any such U.S. Government Securities held by such custodian for
the account of the holder of a depository receipt; provided that (except as
required by law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depository receipt from any
amount received by the custodian in respect of the U.S. Government
Securities or the specific payment of interest on or principal of the U.S.
Government Securities evidenced by such depository receipt.
"U.S. Persons" means any U.S. Person as defined in Regulation S.
"Voting Stock" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holders
thereof (whether at all times or at the times that such class of Capital
Stock has voting power by reason of the happening of any contingency) to
vote in the election of members of the board of directors or other
governing body of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment, by (ii)
the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person, all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares or, in the case of a
Foreign Subsidiary of the Company, shares otherwise required by law to be
owned by other Persons, up to a maximum of 5% of the outstanding Capital
Stock, Voting Stock or other ownership interests of such Subsidiary) is at
the time owned by (i) such Person or (ii) one or more Wholly Owned
Subsidiaries of such Person or (iii) Such Person and one or more Wholly
Owned Subsidiaries of such Person.
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Section 1.2. Other Definitions.
Defined in
Term Section
---- ----------
"Affiliate Transaction"........................4.11
"Asset Sale Offer".............................4.10
"Agent Member".................................2.6
"Asset Sale Offer Period"......................3.10
"Calculation Date".............................1.1
"Certificated Notes"...........................2.1
"Change of Control Offer"......................4.15
"Change of Control Offer Period"...............3.9
"Change of Control Payment"....................4.15
"Change of Control Payment Date"...............4.15
"Covenant Defeasance"..........................8.3
"Event of Default..............................6.1
"Excess Proceeds...............................4.10
"Foreign Person"...............................2.6
"Global Note"..................................2.1
"incur"........................................4.9
"Institutional Accredited Investors"...........2.1
"Legal Defeasance".............................8.2
"Management Agreement".........................4.7
"Offer Amount".................................3.10
"Offshore Certificated Notes"..................2.1
"Paying Agent".................................2.3
"Payment Default"..............................6.1
"Permanent Regulation S Global Note"...........2.1
"Private Placement Legend".....................2.6
"Public Equity Offering".......................3.9
"Registrar"....................................2.3
"Regulation S Global Note".....................2.1
"Restricted Payments"..........................4.7
"Rule 144A Global Note"........................2.1
"Senior Covenant Default".....................10.2
"Senior Payment Default"......................10.2
"Special Redemption"...........................3.9
"Surviving Entity".............................5.1
"Temporary Regulation S Global Note"...........2.1
"U.S. Certificated Notes"......................2.1
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Section 1.3. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company and any successor obligor
upon the Notes.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by Commission rule under the TIA
have the meanings so assigned to them.
Section 1.4. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural
include the singular;
(e) provisions apply to successive events and transactions; and
(f) references to sections of or rules under the Securities Act, the
Exchange Act and the TIA shall be deemed to include substitute, replacement
and successor sections or rules adopted by the Commission from time to
time.
Section 1.5. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly appointed in writing;
and, except as herein otherwise expressly
24
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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 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 (subject to Section 7.1) conclusive in favor of
the Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by
the certificate of any 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 or her the execution thereof. Where such
execution is by an officer of a corporation or a member of a partnership, on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his or her authority.
(c) The ownership of Notes shall be proved by the register maintained by
the Registrar.
(d) 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 holder of every Note issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done
or suffered to be done by the Trustee or the Company in reliance thereon,
whether or not notation of such action is made upon such Note.
ARTICLE II.
THE NOTES
Section 2.1. Form and Dating.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto. The Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage in
addition to those set forth in Exhibit A hereto. Each Note shall be dated the
date of its authentication. The Notes shall be in denominations of $1,000 and
integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and are
hereby expressly made, a part of this Indenture and the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued initially
in the form of a single permanent global Note in registered form, substantially
in the form set forth in Exhibit A (the "Rule 144A 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 Rule 144A Global Note may from time to time be increased or
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decreased by adjustments made on the records of the Trustee, as custodian for
the Depositary or its nominee, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on Regulation S
shall be issued initially in the form of a single temporary global Note in
registered form substantially in the form set forth in Exhibit A (the "Temporary
Regulation 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. At any time following 40 days after the later of the
commencement of the offering of the Notes and the Issue Date, upon receipt by
the Trustee and the Company of a duly executed certificate substantially in the
form of Exhibit B(1) hereto, a single permanent Global Note in registered form
substantially in the form set forth in Exhibit A (the "Permanent Regulation S
Global Note," and together with the Temporary Regulation S Global Note, the
"Regulation S Global Note") duly executed by the Company and authenticated by
the Trustee as hereinafter provided shall be deposited with the Trustee, as
custodian for the Depositary, and the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of the Temporary
Regulation S Global Note in an amount equal to the principal amount of the
beneficial interest in the Temporary Regulation S Global Note transferred.
Notes offered and sold to institutional "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) ("Institutional
Accredited Investors") shall be issued in the form of permanent U.S.
Certificated Notes in registered form in substantially the form set forth in
Exhibit A (the "U.S. Certificated Notes"). Securities issued pursuant to Section
2.1 in exchange for interests in the Rule 144A Global Note or the Regulation S
Global Note shall be in the form of permanent Certificated Notes in registered
form substantially in the form set forth in Exhibit A (the "Offshore
Certificated Notes").
The Offshore Certified Notes and U.S. Certificated Notes are sometimes
collectively herein referred to as the "Certificated Notes". The Rule 144A
Global Note and the Regulation S Global Note are sometimes referred to herein as
the "Global Note."
Section 2.2. Execution and Authentication.
Two Officers of the Company shall sign the Notes for the Company by manual
or facsimile signature. The seal of the Company shall be reproduced on the Notes
and may be in facsimile form.
If an Officer whose signature is on a Note no longer holds that office at
the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture.
The Trustee, upon a written order of the Company signed by two Officers of
the Company, together with the other documents required by Sections 11.4 and
11.5 hereof, shall authenticate Senior Subordinated Notes for original issue up
to the aggregate principal amount stated in paragraph 4 of the Notes. The
Trustee, upon written order of the Company signed by
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two Officers of the Company, together with the other documents required by
Sections 11.4 and 11.5 hereof, shall authenticate New Senior Subordinated Notes
for original issue up to the aggregate principal amount stated in paragraph 4 of
the Notes; provided that such New Senior Subordinated Notes shall be issuable
only upon the valid surrender for cancellation of Senior Subordinated Notes of a
like aggregate principal amount in accordance with the Exchange Offer. Such
written order of the Company shall specify the amount of Notes to be
authenticated and the date on which the original issue of Notes is to be
authenticated. The aggregate principal amount of Notes outstanding at any time
may not exceed such amount except as provided in Section 2.7 hereof.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. An authenticating agent may authenticate Notes whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate of the Company.
Section 2.3. Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be presented
for registration of transfer or for exchange ("Registrar") and an office or
agency where Notes may be presented for payment ("Paying Agent"). The Registrar
shall keep a register of the Notes and of their transfer and exchange. At the
option of the Company, payment of interest and Liquidated Damages may be made by
check mailed to the Holders at their addresses set forth in the register of
Holders, provided that payment by wire transfer of immediately available funds
will be required with respect to principal, Redemption Price and Purchase Price
of, and interest and Liquidated Damages (if any) on, all Global Notes and all
other Notes the Holders of which shall have provided wire transfer instructions
to the Trustee or the Paying Agent. The Company may appoint one or more
co-registrars and one or more additional paying agents. The term "Registrar"
includes any co-registrar and the term "Paying Agent" includes any additional
paying agent. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company shall notify the Trustee in writing of the
name and address of any Paying Agent not a party to this Indenture. If the
Company fails to appoint or maintain another entity as Registrar or Paying
Agent, the Trustee shall act as such. The Company may act as Paying Agent or
Registrar. The Depositary shall, by acceptance of a Global Note, agree that
transfers of beneficial interests in such Global Note may be effected only
through a book-entry system maintained by the Depositary (or its agent), and
that ownership of a beneficial interest in the Note shall be required to be
reflected in a book entry.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.
Section 2.4. Paying Agents To Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent will hold in trust for the benefit of Holders
or the Trustee all money held by the Paying Agent for the payment of principal
of and premium, if any, interest and Liquidated
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Damages, if any, on the Notes, and will notify the Trustee of any default by the
Company in making any such payment. While any such default continues, the
Trustee may require a Paying Agent to pay all money held by it to the Trustee.
The Company at any time may require a Paying Agent to pay all money held by it
to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other
than the Company) shall have no further liability for the money. If the Company
acts as Paying Agent, it shall segregate and hold in a separate trust fund for
the benefit of the Holders all money held by it as Paying Agent. Upon any
bankruptcy or reorganization proceedings relating to the Company, the Trustee
shall serve as Paying Agent for the Notes.
Section 2.5. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss.312(a). If the Trustee is not
the Registrar, the Company shall furnish to the Trustee at least seven Business
Days before each interest payment date and at such other times as the Trustee
may request in writing, a list in such form and as of such date as the Trustee
may reasonably require of the names and addresses of the Holders of Notes, and
the Company shall otherwise comply with TIA ss.312(a).
Section 2.6. Transfer and Exchange.
(a) Transfer and Exchange Generally: Book Entry Provisions. Upon surrender
for registration of transfer of any Note to the Registrar, and satisfaction of
the requirements for such transfer set forth in this Section 2.6, 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 denominations and of a like aggregate principal amount and bearing
such restrictive legends as may be required by this Indenture.
Notes may be exchanged for other Notes of any authorized denominations and
of a like aggregate principal amount, upon surrender of the Notes to be
exchanged at any such office or agency maintained by the Company pursuant to
Section 4.2. Whenever any Notes are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Notes which
the Holder making the exchange is entitled to receive bearing registration
numbers not contemporaneously outstanding.
All Notes presented or surrendered for registration of transfer or exchange
shall be duly endorsed, or be accompanied by a written instrument or instruments
of transfer in form satisfactory to the Company and the Registrar, and the Notes
shall be duly executed by the Holder thereof or his attorney duly authorized in
writing. Except as otherwise provided in this Indenture, and in addition to the
requirements set forth in the legend referred to in Section 2.6(g)(i) below, in
connection with any transfer of Transfer Restricted Securities any request for
transfer shall be accompanied by a certification to the Trustee relating to the
manner of such transfer substantially in the form of Exhibit B(2) hereto.
(b) Book-Entry Provisions for the Global Notes. The Rule 144A Global Note
and Regulation S Global Note initially shall (i) be registered in the name of
the Depositary or the
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nominee of such Depositary, (ii) be delivered to the Trustee as custodian for
the Depositary and (iii) bear legends as set forth in Section 2.6(g).
Members of, or participants in, the Depositary ("Agent Members") shall have
no rights under this Indenture with respect to any Rule 144A Global Note or
Regulation S Global Note, as the case may be, held on their behalf by the
Depositary, or the Trustee as its custodian, or under the Rule 144A Global Note
or Regulation S Global Note, as the case may be, 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 Rule 144A Global Note or Regulation S Global Note, as
the case may be, 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 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.
Transfers of the Rule 144A Global Note and the Regulation S Global Note
shall be limited to transfers of such Rule 144A Global Note or Regulation S
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Beneficial interests in Rule 144A Global Note and the
Regulation S Global Note may be transferred in accordance with the applicable
rules and procedures of the Depositary and the provisions of this Section 2.6.
The registration of transfer and exchange of beneficial interests in the Global
Note, which does not involve the issuance of a Certificated Note, shall be
effected through the Depositary, in accordance with this Indenture (including
the restrictions on transfer set forth herein) and the procedures of the
Depositary therefor. The Trustee shall have no responsibility or liability for
any act or omission of the Depositary.
At any time at the request of the beneficial holder of an interest in the
Rule 144A Global Note or Permanent Regulation S Global Note to obtain a
Certificated Note, such beneficial holder shall be entitled to obtain a
Certificated Note upon written request to the Trustee and the Note Custodian in
accordance with the standing instructions and procedures existing between the
Note Custodian and Depositary for the issuance thereof. Upon receipt of any such
request, the Trustee, or the Note Custodian at the direction of the Trustee,
will cause, in accordance with the standing instructions and procedures existing
between the Depositary and the Note Custodian, the aggregate principal amount of
the Rule 144A Global Note or Permanent Regulation S Global Note, as appropriate,
to be reduced by the principal amount of the Certificated Note issued upon such
request to such beneficial holder and, following such reduction, the Company
will execute and the Trustee will authenticate and deliver to such beneficial
holder (or its nominee) a Certificated Note or Certificated Notes in the
appropriate aggregate principal amount in the name of such beneficial holder (or
its nominee) and bearing such restrictive legends as may be required by this
Indenture.
(c) Transfers to Non-QIB Institutional Accredited Investors. The following
provisions shall apply with respect to the registration of any proposed transfer
of a Transfer Restricted Security to any Institutional Accredited Investor that
is not a QIB (other than any Person that is not a U.S. Person as defined under
Regulation S, a "Foreign Person"):
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(i) The Registrar shall register the transfer of any Note, whether or
not such Note bears the Private Placement Legend, if (x) (A) the requested
transfer is at least three years after the later of the Issue Date of the
Notes and (B) the proposed transferee has certified to the Registrar that
the requested transfer is at least three years after last date on which
such Note was held by an Affiliate of the Company, or (y) the proposed
transferee has delivered to the Registrar (A) a certificate substantially
in the form of Exhibit D hereto and (B) such certifications, legal opinions
and other information as the Trustee and the Company may reasonably request
to confirm that such transaction is in compliance with the Securities Act;
and
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Registrar of
(x) the documents, if any, required by clause (i) and (y) instructions
given in accordance with the Depositary's and the Registrar's procedures,
the Registrar shall reflect on its books and records the date and a
decrease in the principal amount of the Global Note in an amount equal to
the principal amount of the beneficial interest in the Global Note to be
transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Certificated Notes of like tenor and
amount.
(d) Transfers to QIBs. The following provisions shall apply with respect to
the registration of any proposed transfer of a Transfer Restricted Security to a
QIB (other than Foreign Persons):
(i) If the Note to be transferred consists of Certificated Notes or an
interest in the Regulation S Global Note, the Registrar shall register the
transfer if such transfer is being made by a proposed transferor who has
checked the box provided for on a certificate substantially in the form of
Exhibit B(2) stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who 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
(ii) If the proposed transferee is an Agent Member, and the Note to be
transferred consists of Certificated Notes or an interest in the Regulation
S Global Note, upon receipt by the Registrar of the documents referred to
in clause (i) and instructions given in accordance with the Depositary's
and the Registrar's procedures, the Registrar shall reflect on its books
and records the date and an increase in the principal amount of the Rule
144A Global Note in an amount equal to the principal amount of the
Certificated Notes or the interest in the Regulation S Global Note, as the
case may be, to be transferred, and the Trustee shall cancel the
Certificated Notes or decrease the amount of the Regulation S Global Note
so transferred.
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(e) Transfers of Interests in the Temporary Regulation S Global Note. The
following provisions shall apply with respect to the registration of any
proposed transfer of interests in the Temporary Regulation S Global Note:
(i) The Registrar shall register the transfer of an interest in the
Temporary Regulation S Global Certificate if (x) the proposed transferor
has delivered to the Registrar a certificate substantially in the form of
Exhibit E hereto stating, among other things, that the proposed transferee
is a Foreign Person or (y) the proposed transferee is a QIB and the
proposed transferor has checked the box provided for on a certificate
substantially in the form of Exhibit B(2) stating, or has otherwise advised
the Company and the Registrar in writing, that the sale has been made in
compliance with the provisions of Rule 144A to a transferee who 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
(ii) if the proposed transferee is an Agent Member, upon receipt by
the Registrar of the documents referred to in clause (i)(y) above and
instructions given in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and an increase in the principal amount of the Rule 144A Global Note in an
amount equal to the principal amount of the Temporary Regulation S Global
Note to be transferred, and the Trustee, as Note Custodian, shall decrease
the amount of the Temporary Regulation S Global Note.
(f) Transfers to Foreign Persons. The following provisions shall apply with
respect to any transfer of a Transfer Restricted Security to a Foreign Person:
(i) the Registrar shall register any proposed transfer of a Note to a
Foreign Person upon receipt of a certificate substantially in the form of
Exhibit E hereto from the proposed transferor and such certifications,
legal opinions and other information as the Trustee or the Company may
reasonably request; and
(ii) (a) If the proposed transferor is an Agent Member holding a
beneficial interest in the Rule 144A Global Note or the Note to be
transferred consists of Certificated Notes, upon receipt by the Registrar
of (x) the documents, if any, required by paragraph (i) and (y)
instructions in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of the Rule 144A Global Note in an
amount equal to the principal amount of the beneficial interest in the Rule
144A Global Note or cancel the Certificated Notes, as the case may be, to
be transferred, and (b) if the proposed transferee is an Agent Member, upon
receipt by the Registrar of instructions given in accordance with the
Depositary's and the Registrar's procedures, the Registrar shall reflect on
its books and records the date and an
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increase in the principal amount of the Regulation S Global Note in an
amount equal to the principal amount of the Certificated Notes to be
transferred, and the Trustee shall decrease the amount of the Rule 144A
Global Note.
(g) The Depositary. The Depositary shall be a clearing agency registered
under the Exchange Act. The Company initially appoints The Depository Trust
Company to act as Depositary with respect to the Global Note. Initially, the
Rule 144A Global Note and the Regulation S Global Note shall be issued to the
Depositary, registered in the name of Cede & Co., as the nominee of the
Depositary, and deposited with the Note Custodian for Cede & Co.
Notes in Certificated form issued in exchange for all or a part of a Global
Note pursuant to this Section 2.6 shall be registered in such names and in such
authorized denominations as the Depositary, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the Trustee. Upon
execution and authentication, the Trustee shall deliver such Certificated Notes
in Certificated form to the persons in whose names such Notes in Certificated
form are so registered.
Certificated Notes shall be transferred to all beneficial owners in
exchange for their beneficial interests in the Rule 144A Global Note or the
Permanent Regulation S Global Note, as the case may be, if at any time:
(i) the Depositary for the Notes notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the Rule
144A Global Note or the Permanent Regulation S Global Note, as the case may
be, and a successor Depositary is not appointed by the Company within 90
days after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Trustee in
writing that it elects to cause the issuance of Certificates Notes under
this Indenture,
and the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.2 hereof, authenticate and
deliver Certificated Notes in an aggregate principal amount equal to the
principal amount of the Rule 144A Global Note or the Permanent Regulation S
Global Note, as the case may be, in exchange for such Global Notes.
(h) Legends.
(i) Except as permitted by the following paragraphs (ii) and (iii),
each Note certificate evidencing Global Notes and Certificated Notes (and
all Notes issued in exchange therefor or substitution thereof) shall (x) be
subject to the restrictions on transfer set forth in this Section 2.6
(including those set forth in the legend below) unless such restrictions on
transfer shall be waived by written consent of the Company, and the holder
of each Transfer Restricted Security, by such Holder's acceptance thereof,
agrees to be bound by all such restrictions on transfer and (y) bear the
legend set forth below (the "Private Placement Legend"):
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THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR
(B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE
NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL
NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT (A) TO
THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED
INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE COMPANY AND MARINE MIDLAND BANK, AS TRUSTEE (OR
A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THE NOTES EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM
SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED
STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH
CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY
OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS
PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE COMPANY AND MARINE MIDLAND BANK, AS TRUSTEE (OR A
SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global Note)
pursuant to Rule 144 under the Securities Act or pursuant to an effective
registration statement under the Securities Act:
(a) in the case of any Transfer Restricted Security that is a
Certificated Note, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a Certificated Note
that
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does not bear the legend set forth in (i) above and rescind any
restriction on the transfer of such Transfer Restricted Security; and
(b) in the case of any Transfer Restricted Security represented
by a Global Note, such Transfer Restricted Security shall not be
required to bear the legend set forth in (i) above, but shall continue
to be subject to the provisions of Section 2.6(b) hereof; provided,
however, that with respect to any request for an exchange of a
Transfer Restricted Security that is represented by a Global Note for
a Certificated Note that does not bear the legend set forth in (i)
above, which request is made in reliance upon Rule 144, the Holder
thereof shall certify in writing to the Registrar that such request is
being made pursuant to Rule 144 (such certifications to be
substantially in the form of Exhibit B(2) hereto).
(iii) Notwithstanding the foregoing, upon consummation of the Exchange
Offer, the Company shall issue and, upon receipt of an authentication order
in accordance with Section 2.2 hereof, the Trustee shall authenticate New
Senior Subordinated Notes in exchange for Senior Subordinated Notes
accepted for exchange in the Exchange Offer, which New Senior Subordinated
Notes shall not bear the legend set forth in (i) above, and the Registrar
shall rescind any restriction on the transfer of such Senior Subordinated
Notes, in each case unless the Company has notified the Registrar in
writing that the Holder of such Senior Subordinated Notes is either (A) a
broker-dealer, (B) a Person participating in the distribution of the Senior
Subordinated Notes or (C) a Person who is an affiliate (as defined in Rule
144A) of the Company.
(iv) Each global Note, whether or not a transfer Restricted security,
shall also bear the following legend on the face thereof:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A
DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS NOT EXCHANGEABLE FOR
NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS
NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND
NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF
THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY
BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE
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BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.
(v) Any Global Note may be endorsed with or have incorporated in the
text thereof such legends or recitals or changes not inconsistent with the
provisions of this Indenture as may be required by the Note Custodian, the
Depositary or by the National Association of Securities Dealers, Inc. in
order for the Notes to be tradable on the PORTAL Market or tradable on
Euroclear or Cedel or as may be required for the Notes to be tradable on
any other market developed for trading of securities pursuant to Rule 144A
or Regulation S under the Securities Act or required to comply with any
applicable law or any regulation thereunder or with the rules and
regulations of any securities exchange or automated quotation system upon
which the Notes may be listed or traded or to conform with any usage with
respect thereto, or to indicate any special limitations or restrictions to
which any particular Notes are subject.
(i) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in Global Notes have been exchanged for Certificated Notes,
redeemed, repurchased or canceled, all Global Notes shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for Certificated Notes, redeemed, repurchased or canceled, the
principal amount of Notes represented by such Global Notes shall be reduced
accordingly and an endorsement shall be made on such Global Note by the Trustee
or the Note Custodian, at the direction of the Trustee, to reflect such
reduction. In the event of any transfer of any beneficial interest between the
Rule 144A Global Note and the Regulation S Global Note in accordance with the
standing procedures and instructions between the Depositary and the Note
Custodian and the transfer restrictions set forth herein, the aggregate
principal amount of each of the Rule 144A Global Note and the Regulation S
Global Note shall be appropriately increased or decreased, as the case may be,
and an endorsement shall be made on each of the Rule 144A Global Note and the
Regulation S Global Note by the Trustee or the Note Custodian, at the direction
of the Trustee, to reflect such reduction or increase.
(j) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Certificated Notes and
Global Notes at the Registrar's request.
(ii) No service charge shall be made to a Holder for any registration
of transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer pursuant to Sections
3.6 and 9.5 hereof).
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(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
(iv) All Certificated Notes and Global Notes issued upon any
registration of transfer or exchange of Certificated Notes or Global Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Certificated
Notes or Global Notes surrendered upon such registration of transfer or
exchange.
(v) The Company shall not be required:
(a) to issue, to register the transfer of or to exchange Notes
during a period beginning at the opening of business 15 days before
the day of any selection of Notes for redemption under Section 3.2
hereof and ending at the close of business on the day of selection; or
(b) to register the transfer of or to exchange any Note so
selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part; or
(c) to register the transfer of or to exchange a Note between a
record date and the next succeeding interest payment date.
(vi) Prior to due presentment of the registration of a transfer of any
Note, the Trustee, any Agent and the Company may deem and treat the Person
in whose name any Note is registered as the absolute owner of such Note for
the purpose of all payments with respect to such Notes, and neither the
Trustee, any Agent nor the Company shall be affected by notice to the
contrary.
(vii) The Trustee shall authenticate Certificated Notes and Global
Notes in accordance with the provisions of Section 2.2 hereof.
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Section 2.7. Replacement Notes.
If any mutilated Note is surrendered to the Trustee or either the Company
or the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon receipt of an
authentication order in accordance with Section 2.2 hereof, shall authenticate a
replacement Note if the Trustee's requirements for replacement of Notes are met.
If required by the Trustee or the Company, an indemnity bond must be supplied by
the Holder that is sufficient in the judgment of the Trustee and the Company to
protect the Company, the Trustee, any Agent and any authenticating agent from
any loss that any of them may suffer if a Note is replaced. The Trustee and the
Company may charge the Holder for their expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and shall
be entitled to all of the benefits of this Indenture equally and proportionately
with all other Notes duly issued hereunder.
Section 2.8. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those canceled by it, those delivered to it for cancellation,
those reductions in the interest in a Global Note effected by the Trustee or the
Note Custodian in accordance with the provisions hereof, and those described in
this Section as not outstanding. Except as set forth in Section 2.9 hereof, a
Note does not cease to be outstanding because the Company or an Affiliate of
either of the Company holds the Note.
If a Note is replaced pursuant to Section 2.7 hereof, it shall cease to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser for value.
If the principal amount of any Note is considered paid under Section 4.1
hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate
of any thereof) holds, on a redemption date or maturity date, money sufficient
to pay Notes payable on that date, then on and after that date such Notes shall
be deemed to be no longer outstanding and shall cease to accrue interest.
Section 2.9. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or by any Affiliate thereof shall be considered as though not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver of consent, only
Notes that a Responsible Officer of the Trustee knows are so owned shall be so
disregarded. The Company agrees to notify the Trustee of the existence of any
such treasury Notes or Notes owned by an Affiliate thereof.
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Section 2.10. Temporary Notes..
Until Certificated Notes are ready for delivery, the Company may prepare
and the Trustee, upon receipt of an authentication order in accordance with
Section 2.2 hereof, shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of Certificated Notes, but may have such variations as
the Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate Certificated Notes in exchange for temporary
Notes.
Holders of temporary Notes shall be entitled to all of the benefits of this
Indenture.
Section 2.11. Cancellation..
The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy all
canceled Notes in accordance with the Trustee's usual procedures. The Trustee
shall maintain a record of the destruction of all canceled Notes. Certification
of the destruction of all canceled Notes shall be delivered to the Company. The
Company may not issue new Notes to replace Notes that have been paid or that
have been delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest..
If the Company defaults in a payment of interest on the Notes, the Company
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.1 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
Section 2.13. Persons Deemed Owners..
Prior to due presentment of a Note for registration of transfer and subject
to Section 2.12 hereof, the Company, the Trustee, any Paying Agent, any
co-registrar and any Registrar may deem and treat the person in whose name any
Note shall be registered upon the register of Notes kept by the Registrar as the
absolute owner of such Note (whether or not such Note shall be overdue and
notwithstanding any notation of the ownership or other writing thereon made by
anyone other than the Company, any co-registrar or any Registrar) for the
purpose of receiving all payments with respect to such Note and for all other
purposes, and none of the Company, the
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Trustee, any Paying Agent, any co-registrar or any Registrar shall be affected
by any notice to the contrary.
Section 2.14. CUSIP Numbers.
The Company in issuing the Notes may use a "CUSIP" number, and if so, the
Trustee shall use the CUSIP number in notices of redemption or exchange as a
convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes, and that reliance may be placed only on
the other identification numbers printed on the Notes.
ARTICLE III.
REDEMPTION AND REPURCHASE
Section 3.1. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the provisions of
Sections 3.7 or 3.8 hereof, it shall furnish to the Trustee, at least 45 days
but not more than 60 days before the Redemption Date, an Officers' Certificate
setting forth the Section of this Indenture pursuant to which the redemption
shall occur, the Redemption Date, the principal amount of Notes to be redeemed
and the Redemption Price.
If the Company is required to offer to repurchase Notes pursuant to the
provisions of Section 4.10 or 4.15 hereof, it shall notify the Trustee in
writing, at least 30 days but not more than 60 days before the Purchase Date, of
the Section of this Indenture pursuant to which the repurchase shall occur, the
Purchase Date, the principal amount of Notes required to be repurchased and the
Purchase Price and shall furnish to the Trustee an Officers' Certificate to the
effect that (a) the Company is required to make or has made an Asset Sale Offer
or a Change of Control Offer, as the case may be, and (b) the conditions set
forth in Section 4.10 or 4.15 hereof, as the case may be, have been satisfied.
If the Registrar is not the Trustee, the Company shall, concurrently with
each notice of redemption or repurchase, cause the Registrar to deliver to the
Trustee a certificate (upon which the Trustee may rely) setting forth the
principal amounts of Notes held by each Holder.
Section 3.2. Selection of Notes.
If less than all of the Notes are to be redeemed, 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 are
listed or, if the Notes are not listed on a national securities exchange, by
lot, pro rata or by such other method as the Trustee shall deem fair and
reasonable. In the event of partial redemption by lot, the particular Notes or
portions thereof to be redeemed shall be selected, unless otherwise provided
herein, not less than 30 nor more than 60 days prior to the Redemption Date by
the Trustee from the outstanding Notes not previously called for redemption.
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If less than all of the Notes tendered are to be repurchased pursuant to
the provisions of Section 4.10 hereof, the Trustee shall select the Notes or
portions thereof to be repurchased in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed
or, if the Notes are not listed on a national securities exchange, on a pro rata
basis (with such adjustments as may be deemed appropriate by the Trustee so that
only Notes in denominations of $1,000, or integral multiples thereof, shall be
repurchased). In the event of partial repurchase by lot, the particular Notes or
portions thereof to be repurchased shall be selected at the close of business of
the last Business Day prior to the Purchase Date.
The Trustee shall promptly notify the Company in writing of the Notes or
portions thereof selected for redemption or repurchase and, in the case of any
Note selected for partial redemption or repurchase, the principal amount thereof
to be redeemed or repurchased. Notes and portions thereof selected shall be in
amounts of $1,000 or integral multiples of $1,000; except that if all of the
Notes of a Holder are to be redeemed, the entire outstanding amount of Notes
held by such Holder, even if not a multiple of $1,000, shall be redeemed.
Section 3.3. Notice of Optional or Special Redemption.
In the event Notes are to be redeemed pursuant to Section 3.7 or 3.8
hereof, at least 30 days but not more than 60 days before the Redemption Date,
the Company shall mail a notice of redemption to each Holder whose Notes are to
be redeemed in whole or in part, with a copy to the Trustee.
The notice shall identify the Notes or portions thereof to be redeemed and
shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the Redemption
Date, upon surrender of such Note, a new Note or Notes in principal amount
equal to the unredeemed portion will be issued;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the Redemption Price, Liquidated Damages, if any, and,
unless the Redemption Date is after a record date and on or before the
succeeding interest payment date, accrued interest thereon to the
Redemption Date;
(f) that, unless the Company defaults in making the redemption
payment, interest and any Liquidated Damages on Notes called for redemption
will cease to accrue on and after the Redemption Date, and the only
remaining right of the Holders of such Notes is to receive payment of the
Redemption Price, any Liquidated Damages and, unless the Redemption Date is
after a record date
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and on or before the succeeding interest payment date, accrued interest
thereon to the Redemption Date upon surrender to the Paying Agent of the
Notes redeemed;
(g) if fewer than all the Notes are to be redeemed, the identification
of the particular Notes (or portions thereof) to be redeemed, as well as
the aggregate principal amount of the Notes to be redeemed and the
aggregate principal amount of Notes to be outstanding after such partial
redemption; and
(h) the paragraph of the Notes pursuant to which the Notes called for
redemption are being redeemed.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; provided that the Company shall
deliver to the Trustee, at least 40 days prior to the Redemption Date, an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph.
Section 3.4. Effect of Notice of Redemption.
Once notice of redemption is mailed, Notes or portions thereof called for
redemption become due and payable on the Redemption Date at the Redemption
Price. Upon surrender to any Paying Agent, such Notes or portions thereof shall
be paid at the Redemption Price, plus Liquidated Damages, if any, and accrued
interest to the Redemption Date; provided, however, that installments of
interest which are due and payable on or prior to the Redemption Date shall be
payable to the Holders of such Notes, registered as such, at the close of
business on the relevant record date for the payment of such installment of
interest.
Section 3.5. Deposit of Redemption Price or Purchase Price.
On or before each Redemption Date or Purchase Date, the Company shall
irrevocably deposit with the Trustee or with the Paying Agent money sufficient
to pay the aggregate amount due on all Notes to be redeemed or repurchased on
that date, including without limitation any accrued and unpaid interest and
Liquidated Damages, if any, to the Redemption Date or Repurchase Date. Upon
written request by the Company, the Trustee or the Paying Agent shall promptly
return to the Company any money not required for that purpose.
Unless the Company defaults in making such payment, interest and any
Liquidated Damages on the Notes to be redeemed or repurchased will cease to
accrue on the applicable Redemption Date or Purchase Date, whether or not such
Notes are presented for payment. If any Note called for redemption shall not be
so paid upon surrender because of the failure of the Company to comply with the
preceding paragraph, interest will be paid on the unpaid principal, from the
applicable Redemption Date or Purchase Date until such principal is paid, and on
any interest not paid on such unpaid principal, in each case at the rate
provided in the Notes and in Section 4.1 hereof.
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Section 3.6. Notes Redeemed or Repurchased in Part.
Upon surrender of a Note that is redeemed or repurchased in part, the
Company shall issue and the Trustee shall authenticate for the Holder at the
expense of the Company a new Note equal in principal amount to portion of the
Note surrendered that is not to be redeemed or repurchased.
Section 3.7. Optional Redemption.
The Company may redeem any or all of the Notes at any time on or after
January 15, 2002 at the Redemption Prices set forth in the Notes (an "Optional
Redemption"). Any redemption pursuant to this Section 3.7 shall be made pursuant
to the provisions of Sections 3.1 through 3.6 hereof.
Section 3.8. Special Redemption.
In the event the Company completes one or more Public Equity Offerings on
or before January 15, 2000, the Company, in its discretion, may use the net cash
proceeds from any such Public Equity Offering to redeem up to 33-1/3% of the
original principal amount of the Notes (a "Special Redemption") at a Redemption
Price of 111% of the principal amount thereof, together with accrued and unpaid
interest and Liquidated Damages, if any, to the date of redemption, provided,
however, that at least 66-2/3% of the original principal amount of the Notes
will remain outstanding immediately after each such Special Redemption; and
provided, further, that such Special Redemption shall occur within 90 days after
the date of the closing of the applicable Public Equity Offering. Any redemption
pursuant to this Section 3.8 shall be made pursuant to the provisions of
Sections 3.1 through 3.6 hereof.
Section 3.9. Repurchase Upon Change of Control Offer.
In the event that, pursuant to Section 4.15 hereof, the Company shall be
required to commence a Change of Control Offer, it shall follow the procedures
specified below.
The Change of Control Offer shall remain open for a period from the date of
the mailing of the notice of the Change of Control Offer described in the next
paragraph until a date determined by the Company which is at least 30 but no
more 60 days from the date of mailing of such notice and no longer, except to
the extent that a longer period is required by applicable law (the "Change of
Control Offer Period"). On the Purchase Date, which shall be no later than the
last day of the Change of Control Offer Period, the Company shall purchase the
principal amount of Notes properly tendered in response to the Change of Control
Offer. Payment for any Notes so purchased shall be made in the same manner as
interest payments are made.
Within 30 days following any Change of Control, the Company shall send, by
first class mail, a notice to the Trustee and each of the Holders. The notice
shall contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to the Change of Control Offer. The Change of Control
shall be made to all Holders. The notice, which shall govern the terms of the
Change of Control Offer, shall state:
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(a) the transaction or transactions that constitute the Change of
Control, providing information, to the extent publicly available, regarding
the Person or Persons acquiring control, and stating that the Change of
Control Offer is being made pursuant to this Section 3.9 and Section 4.15
hereof and that, to the extent lawful, all Notes tendered will be accepted
for payment;
(b) the Purchase Price, the last day of the Change of Control Offer
Period, and the Purchase Date;
(c) that any Note not properly tendered or otherwise not accepted for
repurchase will continue to accrue interest and Liquidated Damages, if any;
(d) that, unless the Company defaults in the payment of the amount due
on the Purchase Date, all Notes or portions thereof accepted for repurchase
pursuant to the Change of Control Offer shall cease to accrue interest and
Liquidated Damages, if any, after the Purchase Date;
(e) that Holders electing to have any Notes purchased pursuant to the
Change of Control Offer will be required to tender the Notes, with the form
entitled "Option of Holder To Elect Purchase" on the reverse of the Notes
completed, or transfer by book-entry transfer, to the Company, a
Depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice not later than the third Business Day preceding the
Purchase Date;
(f) that Holders will be entitled to withdraw their election if the
Company, the Depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Change of Control Offer Period, a
telegram, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Notes delivered for repurchase, and a
statement that such Holder is withdrawing his election to have the Notes
redeemed in whole or in part; and
(g) that Holders whose Notes are being repurchased only in part will
be issued new Notes equal in principal amount to the portion of the Notes
tendered (or transferred by book-entry transfer) that is not to be
repurchased, which portion must be equal to $1,000 in principal amount or
an integral multiple thereof.
On or before the Purchase Date, the Company, shall, to the extent lawful,
(i) accept for payment all Notes or portions thereof properly tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent an amount
equal to the Purchase Price, together with accrued and unpaid interest and
Liquidated Damages, if any, thereon to the Purchase Date in respect of all Notes
or portions thereof so tendered and accepted for repurchase and (iii) deliver or
cause to be delivered to the Trustee the Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Notes or
portions thereof being repurchased by the Company. The Paying Agent shall
promptly (but in any case not later than five days after the Purchase Date) mail
to each Holder of Notes so repurchased the amount due in connection with such
Notes, and
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the Company shall promptly issue a new Note, and the Trustee, upon written
request from the Company in the form of an Officers' Certificate shall
authenticate and mail or deliver (or cause to transfer by book entry) to each
relevant Holder a new Note, in a principal amount equal to any unpurchased
portion of the Notes surrendered to the Holder thereof; provided, that each such
new Note shall be in a principal amount of $1,000 or an integral multiple
thereof. The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Purchase Date.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest and
Liquidated Damages, if any, in each case to the Purchase Date, shall be paid to
the Person in whose name a Note is registered at the close of business on such
record date, and no additional interest shall be payable to Holders pursuant to
the Change of Control Offer.
Section 3.10. Repurchase Upon Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company shall be
required to commence an Asset Sale Offer, it shall follow the procedures
specified below.
The Asset Sale Offer shall remain open for a period from the date of the
mailing of the notice of the Asset Sale Offer described in the next paragraph
until a date determined by the Company which is at least 30 but no more 60 days
from the date of mailing of such notice and no longer, except to the extent that
a longer period is required by applicable law (the "Asset Sale Offer Period").
On the Purchase Date, which shall be no later than the last day of the Asset
Sale Offer Period, the Company shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Notes properly tendered
in response to the Asset Sale Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.
Within 30 days following the accumulation of sufficient Excess Proceeds to
obligate the Company to commence an Asset Sale Offer, the Company shall send, by
first class mail, a notice to the Trustee and each of the Holders. The notice
shall contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be
made to all Holders. The notice, which shall govern the terms of the Asset Sale
Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.10 and Section 4.10 hereof;
(b) the Offer Amount, the Purchase Price, the last day of the Asset
Sale Offer Period, and the Purchase Date;
(c) that any Note not properly tendered or otherwise not accepted for
repurchase shall continue to accrue interest and Liquidated Damages, if
any;
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(d) that, unless the Company defaults in the payment of the amount due
on the Purchase Date, all Notes or portions thereof accepted for repurchase
pursuant to the Asset Sale Offer shall cease to accrue interest and
Liquidated Damages, if any, after the Purchase Date;
(e) that Holders electing to have any Notes repurchased pursuant to
any Asset Sale Offer shall be required to tender the Notes, with the form
entitled "Option of Holder To Elect Purchase" on the reverse of the Notes
completed, or transfer by book-entry transfer, to the Company, a
Depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice prior to the close of business on the third
Business Day preceding the Purchase Date;
(f) that Holders will be entitled to withdraw their election if the
Company, the Depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Asset Sale Offer Period, a telegram,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Notes delivered for repurchase and a statement that
such Holder is withdrawing his election to have such Notes repurchased in
whole or in part;
(g) that, if the aggregate principal amount of Notes tendered for
repurchase by Holders exceeds the Offer Amount, the Trustee shall select
the Notes or portions thereof to be purchased on a pro rata basis (with
such adjustments as may be deemed appropriate by the Trustee so that only
Notes in denominations of $1,000, or integral multiples thereof, shall be
purchased); and
(h) that Holders whose Notes are being repurchased only in part will
be issued new Notes equal in principal amount to the portion of the Notes
tendered (or transferred by book-entry transfer) that is not to be
repurchased, which portion must be equal to $1,000 in principal amount or
an integral multiple thereof.
On or before the Purchase Date, the Company shall, to the extent lawful,
(i) accept for payment, on a pro rata basis in accordance with this Indenture to
the extent necessary, the Offer Amount of Notes or portions thereof properly
tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has
been tendered, all Notes properly tendered, (ii) deposit with the Paying Agent
an amount equal to the Purchase Price, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the Purchase Date in respect of all Notes
or portions thereof so tendered and accepted for repurchase and (iii) deliver or
cause to be delivered to the Trustee the Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Notes or
portions thereof being repurchased by the Company. The Paying Agent shall
promptly (but in any case not later than five days after the Purchase Date) mail
to each Holder of Notes so repurchased the amount due in connection with such
Notes, and the Company shall promptly issue a new Note, and the Trustee, upon
written request from the Company in the form of an Officers' Certificate shall
authenticate and mail or deliver such new Note to such Holder, in a principal
amount equal to any unpurchased portion to the Holder
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thereof; provided, that each such new Note shall be in a principal amount of
$1,000 or an integral multiple thereof. The Company shall publicly announce the
results of the Asset Sale Offer on or as soon as practicable after the Purchase
Date.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest and
Liquidated Damages, if any, in each case to the Purchase Date, shall be paid to
the Person in whose name a Note is registered at the close of business on such
record date, and no additional interest shall be payable to Holders to the Asset
Sale Offer.
ARTICLE IV.
COVENANTS
Section 4.1. Payment of Principal and Interest.
The Company shall pay or cause to be paid the principal, Redemption Price
and Purchase Price of, and interest on the Notes on the dates, in the amounts
and in the manner provided herein and in the Notes. Principal, Redemption Price,
Purchase Price and interest shall be considered paid on the date due if the
Paying Agent, if other than the Company, holds as of 12:00 noon Eastern Time on
the due date money deposited by the Company in immediately available funds and
designated for and sufficient to pay the aggregate amount then due. The Company
shall pay all Liquidated Damages, if any, on the dates, in the amounts and in
the manner set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal, Redemption Price and
Purchase Price at the rate equal to 1% per annum in excess of the then
applicable interest rate on the Notes to the extent lawful; it shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace period) at the same rate to the extent
lawful.
Section 4.2. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Office of the
Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations: provided, however,
that no such designation or rescission shall
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in any manner relieve the Company or its obligations to maintain an office or
agency in the Borough of Manhattan, the City of New York. for such purposes. The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.3. The
Trustee may resign such agency at any time by giving written notice to the
Company no later than 30 days prior to the effective date of such resignation.
Section 4.3. Reports.
Whether or not required by the rules and regulations of the Commission, so
long as any of the Notes are outstanding, the Company, and, if the Company is
required to file financial statements for any Subsidiary Guarantor, such
Subsidiary Guarantor, shall furnish to the Holders of the Notes, within 15 days
after they are or would have been required to file such with the Commission, (i)
all quarterly and annual financial information that would be required to be
contained in filings with the Commission on Forms 10-Q and 10-K if the Company
and/or any Subsidiary Guarantor was required to file such forms, including
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to annual consolidated financial statements and
schedules only, a report thereon by the independent auditors of the Company
and/or any Subsidiary Guarantor, and (ii) all information that would be required
to be contained in filings with the Commission on Form 8-K if the Company and/or
any Subsidiary Guarantor was required to file such form. In addition, whether or
not required by the rules and regulations of the Commission, the Company shall
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. Upon qualification of this Indenture under the TIA, the Company and any
Subsidiary Guarantor shall at all times comply with TIA ss. 314(a). In addition,
the Company shall, for so long as any Notes remain outstanding, furnish to the
Holders, and to securities analysts and prospective investors upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
Section 4.4. Compliance Certificate.
The Company and each Subsidiary Guarantor shall deliver to the Trustee,
within 105 days after the end of each fiscal year, an Officers' Certificate
further 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 has kept, observed, performed and fulfilled its obligations under this
Indenture in all material respects, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
the Indenture in all material respects and is not in Default in the performance
or observance of any of the terms, provisions and conditions of this Indenture
(and, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of
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Default) of which he or she may have knowledge, and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event.
So long as not contrary to the then current recommendations of the American
Institute of Certified Public Accountants, the year-end financial statements
delivered pursuant to Section 4.3 above shall be accompanied by a written
statement of the Company's independent public accountants (who shall be a firm
of established national reputation) that in making the examination necessary for
certification of such financial statements, nothing has come to their attention
that would lead them to believe that the Company has violated any provisions of
Article IV or Article V hereof or, if any such violation has occurred,
specifying the nature and period of existence thereof, it being understood that
such accountants shall not be liable directly or indirectly to any Person for
any failure to obtain knowledge of any such violation.
The Company shall, so long as any of the Notes are outstanding, deliver to
the Trustee, forthwith (and in any event within five days) upon any Officer of
the Company becoming aware of any Default or Event of Default an Officers'
Certificate specifying such Default or Event of Default.
Section 4.5. Taxes.
The Company shall pay or discharge, and shall cause each of its
Subsidiaries to pay or discharge, prior to delinquency, all material taxes,
assessments, and governmental levies except such as are contested in good faith
and by appropriate proceedings or where the failure to effect such payment is
not adverse in any material respect to the Holders of the Notes.
Section 4.6. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants shall it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though such law has not
been enacted.
Section 4.7. Restricted Payments.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's Capital Stock (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of the Company's
Capital Stock in their capacity as such (other than dividends or distributions
payable in Capital Stock (other than Disqualified Stock) of the Company or
dividends or distributions
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payable to the Company or any Wholly Owned Subsidiary of the Company); (ii)
purchase, redeem or otherwise acquire or retire for value any Capital Stock of
the Company or any direct or indirect parent or other Affiliate of the Company
(other than a Wholly Owned Subsidiary of the Company); (iii) make any principal
payment on, or purchase, redeem, defease or otherwise acquire or retire for
value prior to any scheduled maturity, scheduled repayment or sinking fund
payment date any Indebtedness that is subordinated to the Notes; or (iv) make
any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
Section 4.9 hereof; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date
hereof (excluding Restricted Payments permitted by clauses (2), (3), (4),
(5), (6) and (8) of the next succeeding paragraph), is less than the sum
of:
(i) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the date hereof to the end of
the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale since the date hereof of Capital Stock
of the Company (to the extent not used as described in Section 3.8) or
of debt securities of the Company that have been converted into such
Capital Stock (other than Capital Stock (or convertible debt
securities) sold to a Subsidiary of the Company or Disqualified Stock
or debt securities that have been converted into Disqualified Stock),
plus
(iii) to the extent that any Restricted Investment that was made
after the date hereof is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (A) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition,
if any) and (B) the initial amount of such Restricted Investment.
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The foregoing provisions shall not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of this Indenture;
(2) the payment of dividends on Series A Preferred Stock pursuant to
the Certificate of Designation for such Series A Preferred Stock in effect
on the date of the Indenture, provided that the Fixed Charge Coverage Ratio
for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date
on which such payment of dividends is made would have been at least 2.25 to
1, determined on a pro forma basis, as if the Restricted Payment had been
made at the beginning of such four-quarter period, provided that the amount
of any such dividends paid on Series A Preferred Stock shall, after the
date of payment, be subtracted from the computation of Consolidated Net
Income solely for purposes of clause (c)(i) of the preceding paragraph;
(3) the redemption, repurchase, retirement or other acquisition of
Series A Preferred Stock pursuant to the Certificate of Designation for
such Series A Preferred Stock in effect on the date of the Indenture,
provided that (a) such redemption, repurchase, retirement or other
acquisition is for at least $2 million of Series A Preferred Stock, and (b)
the Fixed Charge Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such redemption, repurchase,
retirement or other acquisition is made would have been at least 2.5 to 1,
determined on a pro forma basis, as if the Restricted Payment had been made
at the beginning of such four-quarter period;
(4) the redemption, repurchase, retirement or other acquisition of any
Capital Stock of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the
Company) of other Capital Stock of the Company other than Disqualified
Stock; provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph;
(5) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Debt or the substantially concurrent sale (other than to a
Subsidiary of the Company) of Capital Stock of the Company (other than
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph;
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(6) any Investment made by the Company or any of its Subsidiaries in
an Acquisition Subsidiary with the net cash proceeds of an issuance of
Designated Investment Stock within 30 days of such issuance; provided that
the amount of any such net cash proceeds that are utilized for any such
Investment shall be excluded from clause (c)(ii) of the preceding
paragraph;
(7) the purchase or redemption of shares of Capital Stock of the
Company held by present or former officers, directors, employees or
independent sales representatives of the Company or by any employee stock
ownership plan or similar trust for the account of such present or former
officers, directors, employees or independent sales representatives upon
such person's death, disability, retirement or termination of employment or
other association with the Company or under the terms of any such plan or
trust or any other agreement under which such Capital Stock was issued in
an aggregate amount not to exceed $500,000 per year, provided that to the
extent that less than $500,000 of Capital Stock is purchased or redeemed in
a given year, the difference between $500,000 and the amount purchased or
redeemed during that year shall be added to the amount available to the
Company for purchases and redemptions in the next subsequent year only (for
which purpose the amount so added shall be deemed to be the last amount
expended in such next subsequent year);
(8) the payment to Castle Harlan, Inc. of a management fee of up to
$1.5 million per year pursuant to the Management Agreement entered into
between the Company and Castle Harlan, Inc., as in force on the Issue Date
(the "Management Agreement") (the payment for the first year following the
Issue Date to be a single installment payable at any time during such year
and payments thereafter to be payable in arrears in four equal quarterly
installments per annum), provided that, in the event the full amount
thereof is not paid in any year, the deficiency may cumulate and, provided
that there is no subsisting Default or Event of Default of a type described
in clause (a) or (b) in Section 6.1 at the time of payment, may be paid
together with the then current management fee for such subsequent year; and
(9) a Subsidiary of an Acquisition Subsidiary may purchase, redeem or
otherwise acquire or retire for value any of its Capital Stock.
The amount of all Restricted Payments (other than cash) shall be the fair market
value (evidenced by a resolution of the Board set forth in an Officers'
Certificate delivered to the Trustee) on the date of the Restricted Payment of
the asset(s) proposed to be transferred by the Company or such Subsidiary, as
the case may be, pursuant to the Restricted Payment. Not later than the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this Section 4.7
were computed, which calculations may be based upon the Company's latest
available financial statements.
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Section 4.8. Dividend and Other Payment Restrictions Affecting
Subsidiaries.
The Company shall not, and shall not permit any of its Subsidiaries (other
than an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary) to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of such Subsidiary to:
(i)(a) pay dividends or make any other distributions to the Company or
any of its Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (b) pay
any Indebtedness owed to the Company or any of its Subsidiaries,
(ii) make loans or advances to the Company or any of its Subsidiaries,
or
(iii) transfer any of its properties or assets to the Company or any
of its Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of:
(a) written agreements evidencing Existing Indebtedness as in effect
on the date hereof,
(b) the Bank Credit Facility as in effect from time to time, provided
that such provisions are no more restrictive with respect to such dividend
and other payment restrictions than those contained in the Bank Credit
Facility as in effect on the date hereof,
(c) this Indenture and the Notes,
(d) applicable law,
(e) any instrument or agreement governing Acquired Debt of the Company
or any of its Subsidiaries or Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Subsidiaries as in effect at the time
of such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which
encumbrances or restrictions are 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,
(f) by reason of customary non-assignment provisions in leases entered
into in the ordinary course of business,
(g) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired, or
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(h) Permitted Refinancing Debt, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Debt are
no more restrictive than those contained in the agreements governing the
Indebtedness being refinanced, or
(i) in the case of any Foreign Subsidiary, the laws, rules or
regulations of any foreign nation.
Section 4.9. Incurrence of Indebtedness and Issuance of Preferred Stock.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and the
Company shall not issue any Disqualified Stock and shall not permit any of its
Subsidiaries to issue any shares of Preferred Stock (other than to the Company
or a Wholly Owned Subsidiary of the Company other than an Acquisition Subsidiary
or a Subsidiary of an Acquisition Subsidiary); provided, however, that the
Company may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock, if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 2.0 to 1.0, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period; provided that (x) until the
Company has internal financial statements for two full fiscal quarters the
Company will not, and will not permit any of its Subsidiaries to, incur any
additional Indebtedness or issue any shares of Preferred Stock, and (y) after
the Company has internal financial statements for two full financial quarters,
but before the Company has such internal financial statements for four full
financial quarters, the Fixed Charge Coverage Ratio will be calculated by
annualizing the available internal financial statements of the Company on a pro
rata basis. Notwithstanding the foregoing, neither the Company nor any
Subsidiary of the Company (other than an Acquisition Subsidiary or a Subsidiary
of an Acquisition Subsidiary) may incur Indebtedness in respect of a Guarantee
of Indebtedness of an Acquisition Subsidiary or a Subsidiary of an Acquisition
Subsidiary.
The foregoing provisions shall not apply to the incurrence of the following
Indebtedness:
(i) the incurrence by the Company of Indebtedness under the term loan
portion of the Bank Credit Facility in an aggregate principal amount at any
time outstanding not to exceed $25 million less the aggregate amount of all
repayments, optional or mandatory, of the principal thereof that have been
made since the date hereof;
(ii) the incurrence by the Company of Indebtedness under the revolving
credit and/or the gold consignment portions of the Bank Credit Facility in
an aggregate principal amount at any time outstanding not to exceed the
greater
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of (x) $35 million less the aggregate amount of all Net Proceeds of Asset
Sales or other dispositions of assets that have been applied since the date
of the Indenture to permanently reduce the commitments with respect to such
Indebtedness pursuant to Section 4.10 hereof and (y) the "Borrowing Base"
(as determined and calculated under the terms of the Bank Credit Facility);
(iii) the incurrence by the Company and its Subsidiaries of Existing
Indebtedness;
(iv) the incurrence by the Company of Indebtedness represented by the
Notes;
(v) the incurrence by the Company or any of its Subsidiaries (other
than an Acquisition Subsidiary or a Subsidiary of an Acquisition
Subsidiary) of additional Indebtedness (including Acquired Debt)
represented by Capital Lease Obligations, mortgage financings, or purchase
money obligations, in each case incurred for the purpose of financing or
refinancing all or any part of the purchase price or cost of construction
or improvement of property, plant or equipment used in the business of the
Company or such Subsidiary, in an aggregate principal amount not to exceed
$5.0 million at any time outstanding;
(vi) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by this Indenture to be incurred;
(vii) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Wholly Owned Subsidiaries; provided, however, that (x) neither the Company
nor any of its Subsidiaries may incur any Indebtedness to any Acquisition
Subsidiary of the Company; (y) if the Company is the obligor of such
Indebtedness, such Indebtedness is evidenced in writing and expressly
subordinate to the payment in full of all obligations with respect to the
Notes and (z)(I) any subsequent issuance, transfer or other disposition of
Capital Stock that results in any such Indebtedness being held by a Person
other than the Company or a Wholly Owned Subsidiary which is not an
Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary and
(II) any sale, transfer or other disposition of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Subsidiary which is
not an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary
shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Subsidiary, as the case may be;
(viii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate, commodity or currency risk, in connection with the conduct
of its business and not for speculative purposes;
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(ix) the incurrence by the Company of Indebtedness under a Guarantee
of any Indebtedness permitted under the Indenture to be incurred by a
Subsidiary of the Company which is not an Acquisition Subsidiary or a
Subsidiary of an Acquisition Subsidiary;
(x) the incurrence by any Subsidiary of the Company of Indebtedness
under a Guarantee of any Indebtedness permitted under the Indenture to be
incurred by the Company; provided that (a) in the case such Guarantee is of
Indebtedness that is pari passu in right of payment with the Notes, all
obligations with respect to the Notes are Guaranteed on an equal and
ratable basis with the Indebtedness so Guaranteed, and (b) in the case such
Guarantee is of Indebtedness that is subordinated in right of payment to
the Notes, all obligations with respect to the Notes are Guaranteed on a
senior basis reflecting the subordination of the Indebtedness so Guaranteed
on terms substantially similar to, or more favorable to senior creditors
than, those contained in the Indenture;
(xi) the incurrence by the Company of Indebtedness (in addition to
Indebtedness permitted by any other clause of this paragraph) in an
aggregate principal amount (or accreted value, as applicable) at any time
outstanding not to exceed $8.0 million;
(xii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness in respect of bid, performance or advance payment bonds, and
appeal and surety bonds;
(xiii) the incurrence of Indebtedness by an Acquisition Subsidiary or
a Subsidiary of an Acquisition Subsidiary, provided that (a) any such
Indebtedness is without recourse to, and is not Guaranteed by, the Company
or any other Subsidiary of the Company (other than an Acquisition
Subsidiary or a Subsidiary of an Acquisition Subsidiary) without regard to
whether such recourse complies or would comply with Section 4.7 hereof, and
(b) no Default or Event of Default is in existence and continuing after
giving effect to such issuance or incurrence;
(xiv) the issuance of Capital Stock, including Disqualified Stock, by
a Subsidiary of an Acquisition Subsidiary, provided that (a) such
Disqualified Stock is without recourse to, and is not Guaranteed by, the
Company or any other Subsidiary of the Company (other than a Subsidiary of
an Acquisition Subsidiary) without regard to whether such recourse complies
or would comply with Section 4.7 hereof, and (b) no Default or Event of
Default is in existence and continuing after giving effect to such
issuance;
(xv) the incurrence by the Company of Indebtedness for the purpose of
effecting a Restricted Payment described in clause (7) of the second
paragraph of Section 4.7 hereof, provided that (a) the aggregate original
issue price of such Indebtedness at anytime outstanding does not exceed $1
million, (b) such Indebtedness pays no current interest and matures no
earlier than six months after
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the scheduled maturity date of the Notes, and (c) such Indebtedness is
subordinated to the Notes on terms substantially similar to, or more
favorable to senior creditors than, those contained in the Indenture; and
(xvi) the incurrence by the Company or any of its Subsidiaries of
interest, fees or other expenses on Indebtedness otherwise permitted under
this covenant, provided that such interest, fees or other expenses are
payable on a current basis no less frequently than semi-annually and are
paid when due or within any applicable customary grace period thereafter,
not to exceed thirty days.
For purposes of determining compliance with this covenant, (i) in the event that
an item of Indebtedness meets the criteria of more than one of the types of
Indebtedness permitted by this covenant, the Company in its sole discretion will
classify such item of Indebtedness and will only be required to include the
amount and type of each class of Indebtedness in the test specified in the first
paragraph of this covenant or in one of the clauses of the second paragraph of
this covenant; (ii) the amount of Indebtedness issued at a price which is less
than the principal amount thereof shall be equal to the amount of liability in
respect thereof determined in accordance with GAAP; and (iii) the amount of
Indebtedness represented by a Guarantee of a primary obligation of another
Person shall be deemed to be the lower of (x) an amount equal to the maximum
amount of the primary obligation (including without limitation all principal,
premiums (if any), interest, fees and all other amounts in respect thereof) in
respect of which such Guarantee is made and (y) the maximum amount for which
such guaranteeing Person may be liable pursuant to the terms of the applicable
Guarantee, which, in any case in which such Guarantee consists solely of the
granting of a Lien on any asset of such guaranteeing Person, shall be limited to
the fair market value of such asset.
Section 4.10. Asset Sales.
The Company shall not, and shall not permit any of its Subsidiaries to,
engage in an Asset Sale unless (i) the Company (or the Subsidiary, as the case
may be) receives consideration at the time of such Asset Sale at least equal to
the fair market value (evidenced by a resolution of the Board set forth in an
Officers' Certificate delivered to the Trustee, provided that such Officer's
Certificate shall be delivered only in the event of any Asset Sale involving
$5.0 million or more of consideration) of the assets or Capital Stock issued or
sold or otherwise disposed of and (ii) at least 80% of the consideration
therefor received by the Company or such Subsidiary is in the form of cash or
Cash Equivalents; provided that the amount of (x) any liabilities (as shown on
the Company's or such Subsidiary's most recent balance sheet) of the Company or
any of its Subsidiaries (other than contingent liabilities and liabilities that
are by their terms subordinated to the Notes or any Guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Subsidiary from further liability,
and (y) any notes or other obligations received by the Company or any such
Subsidiary from such transferee that are immediately converted by the Company or
such Subsidiary into cash (to the extent of the cash received), shall be deemed
to be cash for purposes of this provision, and provided, further, that (A) the
Company and its Subsidiaries will not be required to comply with clauses (i) and
(ii) of this paragraph in connection with any Asset Sale
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effected in order to comply with an FTC Order which is consummated within the
lesser of (a) 365 days of the date of such FTC Order, or (b) the time period
specified in such FTC Order and (B) any Acquisition Subsidiary and any
Subsidiary of an Acquisition Subsidiary will not be required to comply with
clause (ii) of this paragraph in connection with any Asset Sale.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or the applicable Subsidiary may apply such Net Proceeds, at its
option, (a) to permanently reduce outstanding Senior Indebtedness (and
correspondingly reduce commitments with respect thereto) or (b) to the
acquisition of an interest in another business, the making of a capital
expenditure or the acquisition of other long-term assets, in each case, in a
Permitted Line of Business. Pending the final application of any such Net
Proceeds, the Company or the applicable Subsidiary may temporarily reduce
Indebtedness under the Revolving Credit Facility or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds
from Asset Sales that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds."
Within 30 days after the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company shall make an offer to all Holders of Notes (an "Asset Sale
Offer") to purchase an aggregate principal amount of Notes equal to such Excess
Proceeds, at a Purchase Price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the Purchase Date. The Asset Sale Offer shall be
made in compliance with all applicable laws, including, without limitation, Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of an Asset Sale, and the
applicable procedures set forth in Article III hereof and shall include all
instructions and materials necessary to enable Holders to tender their Notes.
To the extent that the aggregate amount of Notes tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Company or the applicable
Subsidiary may use any remaining Excess Proceeds for general corporate purposes.
If the aggregate principal amount of Notes surrendered by Holders thereof
exceeds the Offer Amount, the Trustee shall select the particular Notes or
portions thereof to be purchased in accordance with Article III hereof. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
Section 4.11. 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, loan, advance or guarantee with any
Affiliate or with any Person (other than an Affiliate) 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
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(ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $2.0 million, a resolution of the
Board 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 disinterested members of
the Board and (b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess
of $5.0 million, an opinion as to the fairness to the Company of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing
experienced in the appraisal or similar review of similar types of
transactions;
provided that (w) any employment or consulting agreement entered into or any
employee benefit plan adopted by the Company or any of its Subsidiaries in the
ordinary course of business, (x) transactions between or among the Company
and/or its Wholly Owned Subsidiaries (other than Acquisition Subsidiaries and
Subsidiaries of Acquisition Subsidiaries) and transactions between or among an
Acquisition Subsidiary and/or its Subsidiaries, (y) Restricted Payments
(including the management fee payable to Castle Harlan, Inc. pursuant to the
Management Agreement) that are permitted by Section 4.7 hereof, and (z)
reasonable and customary payments and other benefits (including indemnification)
provided to directors for service on the Board of the Company or any of its
Subsidiaries, including the reimbursement or advancement of out-of-pocket
expenses and directors' and officers' liability insurance, in each case, shall
not be deemed Affiliate Transactions. For the purposes of determining if a
transaction is an Affiliate Transaction, Castle Harlan Partners II, L.P., Castle
Harlan, Inc. and their respective Affiliates shall be deemed to be an Affiliate
of the Company and each of its Subsidiaries.
Section 4.12. Liens.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired, or any income or profits therefrom or
assign or convey any right to receive income therefrom, except Permitted Liens.
Section 4.13. Continued Existence.
Subject to Article V hereof, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect (i) its corporate
existence in accordance with the organizational documents (as the same may be
amended from time to time) of the Company and (ii) the material rights (charter
and statutory), licenses and franchises of the Company, except to the extent
that the Board determines in good faith that the preservation of such right,
license or franchise is no longer necessary or desirable in the conduct of the
business of the Company and that the loss thereof is not disadvantageous in any
material respect to the Holders.
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Section 4.14. Insurance Matters.
The Company shall provide or cause to be provided, for itself and each of
its Subsidiaries, insurance (including appropriate self-insurance) against loss
or damage of the kinds that, in the reasonable, good faith opinion of the
Company, are adequate and appropriate for the conduct of the business of the
Company and its Subsidiaries in a prudent manner, with reputable insurers or
with the government of the United States of America or an agency or
instrumentality thereof, in such amounts, with such deductibles, and by such
methods as shall be either (i) consistent with past practices of the Company or
the applicable Subsidiary or (ii) customary, in the reasonable, good faith
opinion of the Company, for corporations similarly situated in the industry,
unless the failure to provide such insurance (together with all other such
failures) would not have a material adverse effect on the financial condition or
results of operations of the Company and its Subsidiaries, taken as a whole.
Section 4.15. Offer to Repurchase upon Change of Control.
Upon the occurrence of a Change of Control, each Holder of Notes shall have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes (a "Change of Control
Offer") at a Purchase Price in cash equal to 101% of the aggregate principal
amount thereof, together with accrued and unpaid interest and Liquidated
Damages, if any, thereon to the Purchase Date. The Change of Control Offer shall
be made in compliance with all applicable laws, including, without limitation,
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control, and the
applicable procedures set forth in Article III hereof and shall include all
instructions and materials necessary to enable Holders to tender their Notes.
Section 4.16. Limitations on Issuances and Sales of Capital Stock of
Subsidiaries.
The Company (i) shall not, and shall not permit any Subsidiary of the
Company to, transfer, convey, sell, lease or otherwise dispose of any Capital
Stock of any Subsidiary of the Company to any Person (other than the Company or
a Wholly Owned Subsidiary of the Company which is not an Acquisition Subsidiary
or a Subsidiary of an Acquisition Subsidiary), unless (a) such transfer,
conveyance, sale, lease or other disposition (unless made by an Acquisition
Subsidiary or a Subsidiary of an Acquisition Subsidiary) is of all the Capital
Stock of such Subsidiary and (b) the Net Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with
Section 4.10 hereof and (ii) shall not permit any Subsidiary of the Company
(other than a Subsidiary of an Acquisition Subsidiary) to issue any of its
Capital Stock (other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares or, in the case of a Foreign
Subsidiary, shares issued to foreign nationals pursuant to applicable law,
provided that such Foreign Subsidiary remains a Wholly Owned Subsidiary) to any
Person other than to the Company or a Wholly Owned Subsidiary of the Company
which is not an Acquisition Subsidiary or a Subsidiary of an Acquisition
Subsidiary.
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Section 4.17. Limitation on Future Subordinated Indebtedness.
The Company shall not incur any Indebtedness, other than the Notes, that is
subordinated in right of payment to any other Indebtedness of the Company unless
such Indebtedness, by its terms is pari passu with the Notes or subordinated to
the Notes pursuant to subordination provisions substantially similar to, or more
favorable to senior creditors than, those contained herein.
Section 4.18. Subsidiary Guarantees.
(a) The Company shall cause each of its Subsidiaries (other than an
Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary), not
later than fifteen (15) days after such Subsidiary of the Company becomes a
Significant Subsidiary (whether as a result of creation, acquisition,
additional investment, internal growth or otherwise), to cause a Subsidiary
Guarantee to be executed by two officers of such Subsidiary and deliver
such Subsidiary Guarantee and an Opinion of Counsel acceptable to the
Trustee (as set forth in paragraph (b) below) to the Trustee; provided,
however, that the Company shall cause any of its Subsidiaries which becomes
a Significant Subsidiary as a result of creation, acquisition or additional
investment to execute such Subsidiary Guarantee concurrently with such
creation, acquisition or additional investment, and provided, further, that
any Foreign Subsidiary shall only be required to execute a Subsidiary
Guarantee to the extent permitted under the laws of its jurisdiction of
organization.
(b) The Opinion of Counsel required by clause (a) above shall state
that the Subsidiary Guarantee has been duly authorized, executed and
delivered by such Subsidiary, that the obligations of such Subsidiary under
such Subsidiary Guarantee are enforceable against such Subsidiary in
accordance with the terms of such Subsidiary Guarantee and that delivery by
such Subsidiary of the Subsidiary Guarantee will not (i) result in any
violation of the provisions of the charter or bylaws of such Subsidiary,
(ii) to the best knowledge of such counsel, conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan or credit
agreement, or other agreement or instrument known to such counsel to which
such Subsidiary is a party, or (iii) to the best knowledge of such counsel,
result in any violation of the provisions of any federal or state statute,
or any order, rule or regulation of any federal or state court or
governmental agency or body having jurisdiction over such Subsidiary or any
of its properties or assets.
(c) Except as set forth in Articles IV and V hereof, nothing contained
in this Indenture or in any of the Notes shall prevent any consolidation or
merger of a Subsidiary Guarantor with or into the Company or another
Subsidiary Guarantor or shall prevent any sale or conveyance of the
property of a Subsidiary Guarantor as an entirety or substantially as an
entirety to the Company or another
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Subsidiary Guarantor. No Subsidiary Guarantor may consolidate with or merge
into (whether or not such Subsidiary Guarantor is the surviving Person),
another corporation, Person or entity (other than the Company or another
Subsidiary Guarantor) whether or not affiliated with such Subsidiary
Guarantor unless, subject to clause (d) below,
(i) the Person formed by or surviving any such consolidation or
merger (if other than such Subsidiary Guarantor) assumes all the
obligations of such Subsidiary Guarantor, in form and substance
reasonably satisfactory to the Trustee, under the Subsidiary Guarantee
of such Subsidiary Guarantor;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default exists; and
(iii) the Company would be permitted, by virtue of the Company's
pro forma Fixed Charge Coverage Ratio immediately after giving effect
to such transaction, to incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph of Section 4.9 hereof.
(d) In the event of a sale or other disposition of all or
substantially all of the assets of any Subsidiary Guarantor, by way of
merger, consolidation or otherwise, or a sale or other disposition
(including, without limitation, by foreclosure) of all of the Capital Stock
of any Subsidiary Guarantor, then such Subsidiary Guarantor shall be
automatically released and relieved of any obligations under its Subsidiary
Guarantee; provided that the Net Proceeds of such sale or other disposition
are applied in accordance with Section 4.10 hereof. Upon delivery by the
Company to the Trustee of an Officers' Certificate and an Opinion of
Counsel to the effect that such sale or other disposition was made by the
Company in accordance with the provisions of this Indenture, including
without limitation Section 4.10 hereof, the Trustee shall execute any
documents reasonably required in order to evidence the release of any
Subsidiary Guarantor from its obligations under its Subsidiary Guarantee.
(e) By its acceptance of Notes, each Holder, hereby confirms that it
is the intention of the Holders that a Subsidiary Guarantee of any
Subsidiary Guarantor not constitute a fraudulent transfer or conveyance for
purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar federal or state law to the
extent applicable to any Subsidiary Guarantee. To effectuate the foregoing
intention, the Trustee the Holders hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee
shall be limited to the maximum amount as will, after giving effect to such
maximum amount and all other contingent and fixed liabilities of such
Subsidiary Guarantor that are relevant
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under such laws, and after giving effect to any collections from, rights to
receive contribution from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the obligations of such other Subsidiary
Guarantor under its Subsidiary Guarantee, result in the obligations of such
Subsidiary Guarantor under its Subsidiary Guarantee not constituting a
fraudulent transfer or conveyance.
(f) All Subsidiary Guarantees shall be of no further force and effect
upon the occurrence of a Legal Defeasance or a Covenant Defeasance, subject
to reinstatement pursuant to Section 8.7 hereof under the circumstances
described therein.
Section 4.19. Business Activities.
The Company shall not, nor shall it permit any of its Subsidiaries to,
engage in any business other than a Permitted Line of Business.
Section 4.20. Payments for Consent.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of this
Indenture or the Notes unless such consideration is offered to be paid or is
paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
Section 4.21. Restrictions under Senior Indebtedness.
Prior to giving notice to Holders of Notes relating to a Change of Control
Offer or an Asset Sale Offer, but in any event within 90 days following a Change
of Control or the accumulation of Excess Proceeds in excess of $5.0 million, the
Company shall (i) repay, or otherwise make arrangements satisfactory to the
holders of all Senior Indebtedness (or their respective Senior Representatives)
for the repayment of, all Senior Indebtedness in full in cash or Cash
Equivalents or offer to repay all such Senior Indebtedness in full in cash or
Cash Equivalents and have repaid, or otherwise made arrangements satisfactory to
the holders of all Senior Indebtedness (or their respective Senior
Representatives) for the repayment of, all Senior Indebtedness in full in cash
or Cash Equivalents of any lender who accepts such offer; and/or (ii) obtain the
requisite consents under the Bank Credit Facility or under agreements relating
to other Senior Indebtedness to purchase Notes as required by this Indenture.
The Company shall not effect the purchase of Notes until all Senior Indebtedness
has been repaid in full in cash or Cash Equivalents and/or such requisite
consents have been obtained.
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ARTICLE V.
SUCCESSORS
Section 5.1. Merger, Consolidation, or Sale of Assets.
The Company shall not consolidate or merge with or into any other Person
(other than a Wholly Owned Subsidiary which is not an Acquisition Subsidiary or
a Subsidiary of an Acquisition Subsidiary), or permit any other Person to
consolidate or merge with or into the Company, nor will the Company sell, lease,
convey or otherwise dispose of all or substantially all of its assets unless:
(i) the Company shall be the continuing corporation or the entity
formed by or surviving any such consolidation or merger, or to which such
sale, lease, conveyance or other disposition shall have been made (the
"Surviving Entity"), is a corporation organized and existing under the laws
of the United States, any state thereof, or the District of Columbia;
(ii) the Surviving Entity assumes by supplemental indenture all of the
obligations of the Company under the Notes and this Indenture;
(iii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iv) immediately after giving effect to such transaction, the
Consolidated Net Worth of the Company or the Surviving Entity, as the case
may be, would be at least equal to the Consolidated Net Worth of the
Company immediately prior to such transaction; and
(v) immediately after giving effect to such transaction, the Company
or the Surviving Entity, as the case may be, could incur at least $1.00 of
additional Indebtedness pursuant to the first paragraph of Section 4.9
hereof.
The Company shall deliver to the Trustee prior to the consummation of the
proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such supplemental
indenture comply with this Indenture.
Section 5.2. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company in
accordance with Section 5.1 hereof, the Surviving Entity shall succeed to and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such Surviving Entity had been named
as the Company herein; provided, however, that the predecessor Company shall not
be relieved from the obligation to pay the principal, Purchase Price or
Redemption Price of or interest or Liquidated Damages, if any, on the Notes
except in the case of a sale of all of the Company's assets that meets the
requirements of Section 5.1 hereof.
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ARTICLE VI.
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.
An "Event of Default" occurs if:
(a) the Company defaults in the payment when due of interest or
Liquidated Damages, if any, on the Notes and such default continues for a
period of 30 days (whether or not prohibited by Article X hereof);
(b) the Company defaults in the payment when due of principal,
Redemption Price or Purchase Price of the Notes, whether at maturity, upon
redemption or repurchase or otherwise (whether or not prohibited by Article
X hereof);
(c) the Company fails to comply with any of the provisions of Section
3.9, 3.10, 4.15 or 5.1 hereof or fails to make an Asset Sale Offer when and
as required by the provisions of Section 4.10 hereof, as applicable;
(d) the Company fails to comply with any of the provisions of Section
4.7 or 4.9 hereof and such failure to comply continues for a period of 30
days after notice thereof from the Trustee or the Holders of at least 25%
in aggregate principal amount of the then outstanding Notes;
(e) the Company fails to comply with any other covenant,
representation, warranty or other agreement in this Indenture or the Notes
and such failure to comply continues for a period of 60 days after notice
thereof from the Trustee or the Holders of at least 25% in aggregate
principal amount of the then outstanding Notes;
(f) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries
or the payment of which is Guaranteed by the Company or any of such
Subsidiaries, whether such Indebtedness or Guarantee now exists, or is
created after the date of this Indenture, which default (a) is caused by a
failure to pay any amount due with respect to such Indebtedness at the
stated maturity thereof (a "Payment Default") or (b) results in the
acceleration of any such Indebtedness prior to its express maturity and, in
each case, the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been
a Payment Default or the maturity of which has been so accelerated,
aggregates $5.0 million or more;
(g) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the Company
or any
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of its Subsidiaries and such judgment or judgments are not paid, stayed or
discharged for a period of 60 days, provided that the aggregate of all such
judgments exceeds $5.0 million;
(h) the Company, any Significant Subsidiary of the Company or any
group of Subsidiaries of the Company that, taken together, would constitute
a Significant Subsidiary:
(i) commences a voluntary case under any Bankruptcy Law,
(ii) consents to the entry of an order for relief against it in
an involuntary case,
(iii) consents to the appointment of a custodian or receiver of
it or for all or substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors,
or
(v) generally is not paying its debts as they become due; or
(i) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief in an involuntary case against the Company, any
Significant Subsidiary of the Company or any group of Subsidiaries of
the Company that, taken together, would constitute a Significant
Subsidiary;
(ii) appoints a custodian or receiver of the Company, any
Significant Subsidiary of the Company or any group of Subsidiaries of
the Company that, taken together, would constitute a Significant
Subsidiary or for all or substantially all of the property of any of
the foregoing;
(iii) orders the liquidation of the Company, any of its
Significant Subsidiaries or any group of Subsidiaries of the Company
that, taken together, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive
days.
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Section 6.2. Acceleration.
If any Event of Default (other than an Event of Default specified in clause
(h) or (i) of Section 6.1 hereof with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of
at least 25% in principal amount of the then outstanding Notes by written notice
to the Company (and the Trustee, if such notice is given by such Holders) may
declare all the Notes to be due and payable immediately. Upon any such
declaration, the entire principal amount of, and accrued and unpaid interest and
Liquidated Damages, if any, on the Notes (i) shall become immediately due and
payable; or (ii) if there is any Designated Senior Indebtedness outstanding,
shall become due and payable upon the first to occur of (a) an acceleration
under such Designated Senior Indebtedness or (b) five days after receipt by the
Company and the Senior Representative for such Designated Senior Indebtedness of
such acceleration notice, unless all Events of Default specified in such
acceleration notice (other than any Event of Default in respect of non-payment
of principal, premium, or interest, if any, which has become due solely by
reason of such declaration of acceleration) shall have been cured.
Notwithstanding the foregoing, if an Event of Default specified in clause
(h) or (i) of Section 6.1 hereof occurs with respect to the Company or any
Significant Subsidiary or group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Notes shall be due and
payable immediately without further action or notice. The Holders of not less
than a majority in aggregate principal amount of the then outstanding Notes by
written notice to the Company and the Trustee may, on behalf of the Holders of
all of the Notes, rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if (i) the Company has paid
or deposited with the Trustee a sum sufficient to pay (a) all sums paid or
advanced by the Trustee under the Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, (b)
all overdue interest and Liquidated Damages, if any, on all Notes and (c) to the
extent that payment of such interest is lawful, interest upon overdue interest
and Liquidated Damages, if any, at the rate borne by the Notes; and (ii) all
Events of Default, other than the non-payment of principal of the Notes which
has become due solely by such declaration of acceleration, have been cured or
waived.
Section 6.4. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal, premium, if any, interest
or Liquidated Damages, if any, on the Notes or to enforce the performance of any
provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding, and any recovery or
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. A delay or omission by the
Trustee or any Holder in exercising any right or remedy accruing upon an Event
of Default shall not impair the right or remedy or constitute a waiver of
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or acquiescence in the Event of Default. All remedies are cumulative to the
extent permitted by law.
Section 6.4. Waiver of Past Defaults.
Holders of all of the aggregate principal amount of the then outstanding
Notes by notice to the Trustee may, on behalf of the Holders of all of the
Notes, waive an existing Default or Event of Default and its consequences
hereunder with regard to a continuing Default or Event of Default in the payment
of the principal, Redemption Price or Purchase Price of, or interest or
Liquidated Damages, if any, on the Notes. Holders of not less than 75% in
aggregate principal amount of the then outstanding Notes by notice to the
Trustee may, on behalf of the Holders of all of the Notes, waive an existing
Default or Event of Default and its consequences hereunder for all Defaults or
Events of Default arising from provisions of this Indenture which may only be
amended by Holders of not less than 75% in aggregate principal amount of the
then outstanding Notes. Holders of not less than a majority in aggregate
principal amount of the then outstanding Notes by notice to the Trustee may, on
behalf of the Holders of all of the Notes, waive an existing Default or Event of
Default and its consequences hereunder for all Defaults or Events of Default
arising from provisions of this Indenture which may only be amended by Holders
of not less than a majority in aggregate principal amount of the then
outstanding Notes. After a declaration of acceleration has been made, but before
a judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of the applicable percentage of aggregate principal amount
of Notes outstanding, by written notice to the Company and the Trustee, may
annul such declaration if (i) the Company has paid or deposited with the Trustee
a sum sufficient to pay (a) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (b) all overdue interest and Liquidated
Damages, if any, on all Notes, and (c) to the extent that payment of such
interest is lawful, interest upon overdue interest and Liquidated Damages, if
any, at the rate borne by the Notes; and (ii) all Events of Default, other than
the non-payment of principal of the Notes which has become due solely by such
declaration of acceleration, have been cured or waived. Upon any such waiver,
such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
Section 6.5. Control by Majority.
Holders of a majority in principal amount of the then outstanding Notes may
direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee or exercising any trust or power conferred
on it. However, the Trustee may refuse to follow any direction that conflicts
with applicable law or this Indenture that the Trustee reasonably determines may
be unduly prejudicial to the rights of other Holders of Notes or that may
subject the Trustee to personal liability and shall be entitled to the benefit
of Section 7.1(c)(iii) and (e) hereof. Notwithstanding any provision in this
Indenture to the contrary, the Trustee shall not be obligated to take any action
with respect to the provisions of Section 6.9
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hereof unless directed to do so pursuant to this Section 6.5 by the Holders of
at least 10% in principal amount of the then outstanding Notes.
Section 6.6. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder or Holders of Notes offer and, if requested, provide
to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
Section 6.7. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal of, or premium, if any,
interest or Liquidated Damages, if any, on the Note, on or after the respective
due dates therefor (including in connection with an offer to repurchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the written consent of such
Holder.
Section 6.8. Collection Suit by Trustee.
If an Event of Default specified in Section 6.1(a) or (b) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and Liquidated Damages, if any, and such further amounts as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expense, disbursements and advances of the Trustee, its
agents and counsel.
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Section 6.9. Event of Default to Avoid Premium.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions hereof, an equivalent premium shall also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the Notes. If an Event of Default occurs prior to the first date
on which the Notes are subject to redemption at the option of the Company as
provided in Section 3.7 hereof by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding the prohibition on the optional redemption of the Notes prior to such
first date, then the premium specified herein for an optional redemption of the
Notes on such first date shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the Notes.
Section 6.10. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents (including accountants,
experts or such other professionals as the Trustee deems necessary, advisable or
appropriate) and counsel and the Holders of the Notes allowed in any judicial
proceedings relative to the Company (or any other obligor upon the Notes), its
creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims, and any custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7 hereof. To
the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.7 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
Section 6.11. Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
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First: to the Trustee, its agents and attorneys for amounts due under
Section 7.7 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, Purchase Price, Redemption Price and Liquidated Damages, if
any, and interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for principal,
Purchase Price, Redemption Price and Liquidated Damages, if any, and
interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a special record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.11.
Section 6.12. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7
hereof, or a suit by Holders of more than 10% in principal amount of the then
outstanding Notes.
ARTICLE VII.
TRUSTEE
Section 7.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise thereof, as a prudent man
would exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the TIA and the Trustee need
perform only those duties that are specifically set forth in this Indenture
and no others, and no implied covenants or obligations shall be read into
this Indenture or the TIA against the Trustee; and
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(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, without investigation, as to the truth of the statements
and the correctness of the opinions expressed therein, upon any statements,
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform on their
face to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5 hereof.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to this Section 7.1.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, pursuant to the provisions of this Indenture, including,
without limitation, Section 6.5 hereof, unless such Holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense which might be incurred by it in compliance with such
request or direction.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.2. Rights of Trustee.
(a) The Trustee may conclusively rely and shall be protected in acting or
refraining from acting upon any document believed by it to be genuine and to
have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officer's Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel and
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Opinions of Counsel shall be full and complete authorization and protection from
liability in respect of any action taken, suffered or omitted by it hereunder in
good faith and in reliance thereon.
(c) The Trustee may act through its attorneys, accountants, experts and
such other professionals as the Trustee deems necessary, advisable or
appropriate and shall not be responsible for the misconduct or negligence of any
attorney, accountant, expert or other such professional appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficiently evidenced by
a written order signed by two Officers of the Company.
(f) The Trustee shall not be charged with knowledge of any Default or Event
of Default under Section 6.1 hereof (other than under Section 6.1(a) (subject to
the following sentence) or Section 6.1(b) hereof) unless either (i) a
Responsible Officer shall have actual knowledge thereof, or (ii) the Trustee
shall have received notice thereof in accordance with Section 11.2 hereof from
the Company or any Holder of the Notes. The Trustee shall not be charged with
knowledge of the Company's obligation to pay Liquidated Damages, or the
cessation of such obligation, unless the Trustee receives written notice thereof
from the Company or any Holder.
Section 7.3. Individual Rights Of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company or any Affiliate of the
Company with the same rights it would have if it were not Trustee. However, in
the event that the Trustee acquires any conflicting interest within the meaning
of the TIA it must eliminate such conflict within 90 days, apply (subject to the
consent of the Company) to the Commission for permission to continue as trustee
or resign. Any Agent may do the same with like rights and duties. The Trustee is
also subject to Sections 7.10 and 7.11 hereof.
Section 7.4. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture, or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
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Section 7.5. Notice of Defaults.
If a Default or Event of Default occurs and is continuing, the Trustee
shall mail to Holders of Notes a notice of the Default or Event of Default
within 90 days after it occurs. Except in the case of a Default in payment on
any Note (including the failure to make a mandatory repurchase pursuant hereto),
the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of the Holders of the Notes.
Section 7.6. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the Notes a brief report dated as of such reporting
date that complies with TIA ss. 313(a) (but if no event described in TIA ss.
313(a) has occurred within the twelve months preceding the reporting date, no
report need be transmitted). The Trustee also shall comply with TIA ss. 313(b).
The Trustee shall also transmit by mail all reports as required by TIA ss.
313(c).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the Commission and each stock
exchange on which the Notes are listed in accordance with TIA ss. 313(d). The
Company shall promptly notify the Trustee when the Notes are listed on any stock
exchange.
Section 7.7. Compensation, Reimbursement and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and the rendering by it of the
services required hereunder. The Trustee's compensation shall not be limited by
any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee promptly upon request for all reasonable disbursements,
advances and expenses incurred or made by or on behalf of it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's attorneys,
accountants, experts and such other professionals as the Trustee deems
necessary, advisable or appropriate.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture (including its
duties under Section 9.6 hereof), including the costs and expenses of enforcing
this Indenture or any Subsidiary Guarantee against the Company or a Subsidiary
Guarantor (including this Section 7.7) and defending itself against or
investigating any claim (whether asserted by the Company, any Subsidiary
Guarantor, any Holder or any other Person) or liability in connection with the
exercise or performance of any of its powers or duties hereunder, except to the
extent any such loss, liability or expense may be attributable to its negligence
or willful misconduct. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend any claim or threatened claim asserted against the Trustee, and the
Trustee shall cooperate in the defense. The
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Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.7 shall survive the
resignation or removal of the Trustee, the satisfaction and discharge of this
Indenture and the termination of this Indenture.
To secure the Company's payment obligations in this Section 7.7, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal, Redemption
Price or Purchase Price of or Liquidated Damages, if any, or interest on,
particular Notes. Such Lien shall survive the resignation or removal of the
Trustee, the satisfaction and discharge of this Indenture and the termination of
this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(g) or (h) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
Section 7.8. Replacement Of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian, receiver or public officer takes charge of the
Trustee or its property for the purpose of rehabilitation, conversation or
liquidation; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the date on which the successor Trustee takes
office, the Holders of a majority in principal amount of the then outstanding
Notes may appoint a successor Trustee to replace the successor Trustee appointed
by the Company.
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If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who has been
a bona fide holder of a Note or Notes for at least six months, fails to comply
with Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The Company shall mail a notice of its succession to Holder of the
Notes. The retiring Trustee shall promptly transfer all property held by it as
Trustee to the successor Trustee, provided all sums owing to the Trustee
hereunder have been paid and subject to the Lien provided for in Section 7.7
hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.8,
the Company's obligations under Section 7.7 hereof shall continue for the
benefit of the retiring Trustee.
Section 7.9. Successor Trustee by Merger, Etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation that
is eligible under Section 7.10 hereof, the successor corporation without any
further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof (including the District of Columbia) that is authorized
under such laws to exercise corporate trust power, that is subject to
supervision or examination by federal or state authorities and that has a
combined capital and surplus of at least $100 million as set forth in its most
recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA (beta) 310(a)(1), (2) and (5). The Trustee is subject to TIA (beta)
310(b).
Section 7.11. Preferential Collection of Claims against Company.
The Trustee is subject to TIA (beta) 311(a), excluding any creditor
relationship listed in TIA (beta) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (beta) 311(a) to the extent indicated therein.
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ARTICLE VIII.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board evidenced by a resolution set
forth in an Officers' Certificate, at any time, elect to have either Section 8.2
or 8.3 hereof be applied to all outstanding Notes upon compliance with the
conditions set forth below in this Article VIII.
Section 8.2. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.4 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to the "outstanding" only
for the purposes of Section 8.5 hereof and the other Sections of this Indenture
referred to in clauses (a) through (d) below, and to have satisfied all their
other obligations under such Notes and this Indenture (and the Trustee, on
demand of and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder:
(a) the rights of Holders of outstanding Notes to receive solely from
the trust fund described in Section 8.4 hereof, and as more fully set forth
in such Section, payments in respect of the principal or Redemption Price
of, and interest and Liquidated Damages, if any, on such Notes when such
payments are due,
(b) the Company's obligations with respect to such Notes under Article
II and Section 4.2 hereof,
(c) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and the Company's obligations in connection therewith, and
(d) this Article Eight.
Subject to compliance with this Article Eight, the Company may exercise its
option under this Section 8.2, notwithstanding the prior exercise of its option
under Section 8.3 hereof.
Section 8.3. Covenant Defeasance.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.4 hereof, be released from its
obligations under the covenants contained in Sections 3.9, 3.10, 4.5, 4.7
through 4.12 and 4.14 through 4.21 hereof, both inclusive, and Section 5.1(iv)
and (v)
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with respect to the outstanding Notes on and after the date the conditions set
forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes
shall thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document, and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.1 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon the Company's exercise under Section
8.1 hereof of the option applicable to this Section 8.3 hereof, subject to the
satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(c)
through 6.1(g) hereof shall not constitute Events of Default.
Section 8.4. Conditions to Legal or Covenant Defeasance.
The following are the conditions precedent to the application of either
Section 8.2 or 8.3 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in United States dollars,
U.S. Government Securities, or a combination thereof, in such amounts as
will be sufficient (without reinvestment), in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal or
Redemption Price of, and interest and Liquidated Damages, if any, on the
outstanding Notes on the stated date for payment thereof or on the
applicable Redemption Date, as the case may be, and the Company must
specify whether the Notes are being defeased to maturity or to a particular
Redemption Date;
(b) in the case of an election under Section 8.2 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of this Indenture, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
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(c) in the case of an election under Section 8.3 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of
the outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance
had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Section 6.1(g) or (h) hereof is concerned, at any
time in the period ending on the ninety-first day after the date of deposit
(which condition shall not be deemed satisfied until such ninety-first
day);
(e) 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 to which the Company or any of its Subsidiaries is
a party or by which the Company or any of its Subsidiaries is bound;
(f) the Company shall deliver to the Trustee an Opinion of Counsel to
the effect that after the ninety-first day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(g) the Company shall deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of Notes over the other creditors of the Company, or
with the intent of defeating, hindering, delaying or defrauding any
creditors of the Company or others; and
(h) the Company shall deliver to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that the all conditions precedent
to the Legal Defeasance or Covenant Defeasance have been complied with.
Section 8.5. Deposited Money and U.S. Government Securities to Be Held in
Trust; Other Miscellaneous Provision
Subject to Section 8.6 hereof, all money and U.S. Government Securities
(including the proceeds thereof) deposited with the Trustee (or other qualifying
trustee, collectively for purposes of this Section 8.5 only, the "Trustee")
pursuant to Section 8.4 hereof in respect of the outstanding Notes shall be held
in trust and applied by the Trustee, in accordance with the provisions of such
Notes and this Indenture, to the payment, either directly or through any Paying
Agent (other than the Company) as the Trustee may determine, to the Holders of
such Notes of all sums due and to become due thereon in respect of principal or
Redemption Price of,
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and Liquidated Damages, if any, interest on, the Notes, but such money need not
be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or U.S. Government
Securities deposited pursuant to Section 8.4 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article VIII to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or U.S. Government Securities held by it as provided in
Section 8.4 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.4(a) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.6. Repayment to the Company.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal, Redemption Price or
Purchase Price of, or Liquidated Damages, if any, or interest on any Note and
remaining unclaimed for two years after such amount has become due and payable
shall be paid to the Company on its request or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Note shall
thereafter look only to the Company for payment thereof as a general creditor,
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, at the expense of the Company, may cause to
be published once, in THE NEW YORK TIMES and THE WALL STREET JOURNAL (national
editions), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days after the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
Section 8.7. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States dollars
or U.S. Government Securities in accordance with Section 8.2 or 8.3 hereof, as
the case may be, by reason of any order of judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the obligations of the Company under this Indenture, and the Notes shall be
revived and reinstated as though no deposit had occurred pursuant to Section 8.2
or 8.3 hereof until such time as the Trustee or Paying Agent is permitted to
apply all such money in accordance with Section 8.2 or 8.3 hereof, as the case
may be; provided, however, that, if the Company makes any payment with respect
to any Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or Paying Agent.
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ARTICLE IX.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.1. Without Consent of Holders of Notes.
Notwithstanding Section 9.2 of this Indenture, the Company and the Trustee
may amend or supplement this Indenture or the Notes without the consent of any
Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for the assumption of the Company's obligations to the
Holders of the Notes in the case of a merger or consolidation pursuant to
Article V hereof;
(d) 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 Holder of the Notes; or
(e) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA.
Upon the request of the Company, accompanied by a resolution of the Board
(evidenced by an Officers' Certificate) authorizing the execution of any such
amended or supplemental indenture, and upon receipt by the Trustee of the
documents described in Section 7.2 hereof, the Trustee shall join with the
Company in the execution of any amended or supplemental Indenture authorized or
permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations that may be therein contained, but the Trustee shall
not be obligated to enter into such amended or supplemental Indenture that
affects its own rights, duties or immunities under this Indenture or otherwise.
Section 9.2. With Consent of Holders of Notes.
Except as provided below in this Section 9.2, the Company and the Trustee
may amend or supplement this Indenture (including Sections 3.9, 3.10, 4.10, and
4.15 and Article X hereof, and including the defined terms used therein) and the
Notes may be amended or supplemented with the consent of the Holders of at least
a majority in principal amount of the Notes then outstanding (including, without
limitation, consents obtained in connection with a tender offer or exchange
offer for the Notes), and, subject to Sections 6.2, 6.4 and 6.7 hereof, any
existing Default or Event of Default or compliance with any provision of this
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes).
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Without the consent of the Holders of at least 75% in principal amount of
the Notes then outstanding (including consents obtained in connection with a
purchase of, tender offer or exchange offer for, the Notes), no waiver or
amendment to this Indenture may make any change in the provisions of Article X
or Sections 3.9, 3.10, 4.10 or 4.15, including the defined terms used therein,
that adversely affects the rights of any Holder of Notes.
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal, Redemption Price or Purchase Price of or
change the fixed maturity of any Note or alter or waive any of the
provisions with respect to the redemption of the Notes (except as provided
above with respect to Sections 3.9, 3.10, 4.10 and 4.15 hereof);
(c) reduce the rate of or change the time for payment of interest or
Liquidated Damages, if any, on or with respect to any Note;
(d) waive a Default or Event of Default in the payment of principal,
Redemption Price or Purchase Price of, or interest or Liquidated Damages,
if any, on the Notes (except a rescission of acceleration of the Notes by
the Holders of at least a majority in aggregate principal amount of the
then outstanding Notes and a waiver of the payment default that resulted
from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal, Redemption Price or Purchase Price of, or interest
or Liquidated Damages, if any, on the Notes (except as provided above with
respect to Sections 3.9, 3.10, 4.10 and 4.15 hereof);
(g) waive a redemption or repurchase payment with respect to any Note
(except as provided above with respect to Sections 3.9, 3.10, 4.10 and 4.15
hereof); or
(h) make any change in the foregoing amendment and waiver provisions.
Upon the written request of the Company accompanied by a resolution of the
Board (evidenced by an Officers' Certificate) authorizing the execution of any
such amended or supplemental indenture, and upon the filing with the Trustee of
evidence satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of
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the documents described in Section 7.2 hereof, the Trustee shall join with the
Company in the execution of such amended or supplemental indenture unless such
amended or supplemental Indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may in
its discretion, but shall not be obligated to, enter into such amended or
supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.2 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.2 becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver.
Section 9.3. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be set
forth in a amended or supplemental indenture that complies with the TIA as then
in effect.
Section 9.4. Revocation And Effect Of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder of a Note is a continuing consent by the Holder of a Note and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder of a Note or subsequent Holder of a Note may
revoke the consent as to its Note if the Trustee receives written notice of
revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
Section 9.5. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.6. Trustee to Sign Amendments, Etc.
The Trustee shall sign any amended or supplemental indenture authorized
pursuant to this Article IX if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental
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Indenture until the Board approves such amendment or supplemental indenture. In
executing any amended or supplemental indenture, the Trustee shall be entitled
to receive, in addition to the documents required by Sections 11.4 and 11.5
hereof, and, subject to Section 7.1, shall be fully protected in relying upon,
an Officer's Certificate and an Opinion of Counsel stating that (i) the
execution of such amended or supplemental indenture is authorized or permitted
by this Indenture, (ii) no Event of Default shall occur as a result of the
execution of such Officer's Certificate or the delivery of such Opinion of
Counsel and (iii) the amended or supplemental indenture complies with the terms
of this Indenture.
ARTICLE X.
SUBORDINATION
Section 10.1. Notes Subordinated to Senior Indebtedness.
Notwithstanding the provisions of this Agreement, but subject to this
Article X, the Company covenants and agrees, and the Trustee and each Holder of
the Notes by his acceptance thereof likewise covenants and agrees, that all
payments on the Notes (including, without limitation, payments of the principal,
Redemption Price and Purchase Price of, and interest and Liquidated Damages (if
any) on, the Notes by the Company (including, without limitation, by any
purchase of Notes pursuant to Section 4.10 or 4.15 hereof) shall be subordinated
and subject in right of payment in accordance with the provisions of this
Article X to the prior payment in full in cash or Cash Equivalents of all
amounts payable under Senior Indebtedness of the Company.
Section 10.2. Priority and Payment Over of Proceeds in Certain Events.
(a) Subordination on Dissolution, Liquidation or Reorganization of the
Company. In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the Company or its assets, or any liquidation,
dissolution or other winding up of the Company, whether voluntary or
involuntary, or any assignment for the benefit of creditors or other marshaling
of assets or liabilities of the Company (except in connection with the
consolidation or merger of the Company or its liquidation or dissolution
following the sale, assignment, transfer, lease or other disposition of all or
substantially all of its assets in one or more related transactions, upon the
terms and conditions described under Article V hereof to the extent permitted
under the terms of outstanding Senior Indebtedness), all Senior Indebtedness due
and owing (including, in the case of Designated Senior Indebtedness, interest
and consignment fees accruing after the commencement of any such proceeding at
the rate specified in the instrument evidencing the applicable Designated Senior
Indebtedness, whether or not a claim therefor is allowed in such proceeding, to
the date of payment of such Designated Senior Indebtedness) must be paid in full
in cash or Cash Equivalents before any payment or distribution of any assets of
the Company of any kind or character is made on account of the Notes (including,
without limitation, the principal, Redemption Price and Purchase Price
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of, and interest and Liquidated Damages (if any) on, the Notes). Before any
payment may be made by the Company on account of the Notes (including, without
limitation, the principal, Redemption Price and Purchase Price of, and interest
and Liquidated Damages (if any) on, the Notes), and upon any such dissolution or
winding up or liquidation or reorganization, any payment or distribution of
assets or securities of the Company of any kind or character, whether in cash,
property or securities, to which the Holders or the Trustee on their behalf
would be entitled, except for the provisions of this Article X, shall be made by
the Company or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making such payment or distribution, directly to the
holders of the Senior Indebtedness of the Company or any Senior Representatives
thereof to the extent necessary to pay all such Senior Indebtedness in full in
cash or Cash Equivalents after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness.
(b) Subordination on Default in Senior Indebtedness. During the continuance
of any default in the payment of any principal of, gold consignment repurchase
obligation or reimbursement obligation under, or premium, if any, or interest or
consignment fee on, any Senior Indebtedness (a "Senior Payment Default"), no
payment or distribution of any assets of the Company of any kind or character
may be made on account of the Notes (including, without limitation, on account
of the principal, Redemption Price and Purchase Price of, and interest and
Liquidated Damages (if any) on the Notes unless and until such Senior Payment
Default has been cured, waived or has ceased to exist or such Senior
Indebtedness shall have been discharged or paid in full in cash or Cash
Equivalents or the right under this Indenture to prevent any such payment has
been waived by or on behalf of the holders of such Senior Indebtedness.
During the continuance of any event (other than a Senior Payment Default),
the occurrence of which entitles one or more Persons to accelerate the maturity
of any Designated Senior Indebtedness (a "Senior Covenant Default"), and the
receipt by the Trustee from the Senior Representative for such Designated Senior
Indebtedness of a written notice of such Senior Covenant Default, no payment or
distribution of any assets of the Company of any kind or character may be made
by the Company on account of Notes for the period specified below (a "Payment
Blockage Period").
A Payment Blockage Period shall commence upon the receipt by the Trustee of
notice from a Senior Representative for Designated Senior Indebtedness of a
Senior Covenant Default and shall end (subject to any blockage of payment that
may be in effect in respect of a Senior Payment Default or insolvency) on the
earliest of (i) 179 days after the receipt of such notice, provided such
Designated Senior Indebtedness shall not theretofore have been accelerated and
no Senior Payment Default shall be in effect; (ii) the date on which such Senior
Covenant Default is cured, waived or ceases to exist or such Designated Senior
Indebtedness is discharged or paid in full in cash or Cash Equivalents; or (iii)
the date on which such Payment Blockage Period shall have been terminated by
written notice to the Company and the Trustee from the Senior Representative
initiating such Payment Blockage Period or the holders of at least a majority in
principal amount of such issue of Designated Senior Indebtedness, after which
the Company shall promptly resume making any and all required payments in
respect of the Notes, including any missed payments. In no event will a Payment
Blockage Period extend beyond 179 days from the date of the receipt by the
Trustee of the notice initiating such Payment Blockage Period. Any number of
notices of a Senior Covenant Default may be given during a Payment Blockage
Period; provided, that no such notice shall extend such Payment Blockage Period,
only one
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Payment Blockage Period may be commenced within any 360-day period and there
shall be at least 181 consecutive days in each period of 360 consecutive days
when no Payment Blockage Period is in effect. No Senior Covenant Default with
respect to Designated Senior Indebtedness that existed or was continuing on the
date of the commencement of any Payment Blockage Period and that was known to
the holders of or the Senior Representative for such Designated Senior
Indebtedness will be, or can be, made the basis for the commencement of a second
Payment Blockage Period, whether or not within a period of 360 consecutive days,
unless such Senior Covenant Default has been cured or waived for a period of not
less than 90 consecutive days. The Company shall deliver a notice to the Trustee
promptly after the date on which any Senior Covenant Default is cured or waived
or ceases to exist or on which the Designated Senior Indebtedness related
thereto is discharged or paid in full in cash or Cash Equivalents.
(c) Rights and Obligations of Holders of Notes and Trustee. In the event
that, notwithstanding the foregoing provisions prohibiting such payment or
distribution, the Trustee or any Holder shall have received any payment on
account of the Notes (including, without limitation, the principal, Redemption
Price or Purchase Price of, or interest or Liquidated Damages (if any) on, the
Notes) (other than as permitted by subsections (a) and (b) of this Section 10.2)
at a time when such payment is prohibited by this Section 10.2 and before the
Senior Indebtedness is paid in full in cash or Cash Equivalents, then and in
such event (subject to the provisions of Section 10.8) such payment or
distribution shall be received and held in trust for the holders of Senior
Indebtedness and shall be paid over or delivered to the Senior Representative of
Designated Senior Indebtedness in the case of Designated Senior Indebtedness and
to the holders of the Senior Indebtedness in the case of Senior Indebtedness
which is not Designated Senior Indebtedness, in each case remaining unpaid at
their written direction to the extent necessary to pay such Senior Indebtedness
in full in cash or Cash Equivalents in accordance with its terms after giving
effect to any concurrent payment or distribution to the holders of such Senior
Indebtedness.
Nothing contained in this Article X will limit the right of the Trustee or
the Holders of Notes to take any action to accelerate the maturity of the Notes
pursuant to Section 6.2 or to pursue any rights or remedies hereunder against
the Company; provided that, to the extent provided in this Article X, all Senior
Indebtedness of the Company then or thereafter due or declared to be due shall
first be paid in full in cash before the Holders or the Trustee are entitled to
receive any payment from the Company on account of the Notes (including, without
limitation, the principal, Redemption Price or Purchase Price of, or interest or
Liquidated Damages (if any) on, the Notes).
Upon any payment or distribution of assets or Notes referred to in this
Article X, the Trustee and the Holders shall be entitled to rely upon any order
or decree of a court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, and upon a
certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making any such payment or distribution, delivered to the
Trustee for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of Senior Indebtedness and other Indebtedness of
the Company, the amount thereof or payable thereon, the
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amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article X.
Section 10.3. Payments May Be Made Prior to Dissolution.
Nothing contained in this Article X or elsewhere in this Indenture shall
prevent (i) the Company, except under the conditions described in Section 10.2,
from making payments at any time for the purpose of making such payments of
principal, Redemption Price or Purchase Price of, or interest or Liquidated
Damages (if any) on, the Notes, or from depositing with the Trustee any monies
for such payments or (ii) the application by the Trustee of any monies deposited
with it for the purpose of making such payments of principal, Redemption Price
or Purchase Price of, or interest or Liquidated Damages (if any) on, the Notes,
to the Holders entitled thereto unless at least three Business Days prior to the
date upon which such payment would otherwise (except for the prohibitions
contained in Section 10.2) become due and payable, the Trustee shall have
received the written notice provided for in Section 10.2(b) (or there shall have
been an acceleration of the Notes prior to such application) or in Section
10.8).
Section 10.4. Rights of Holders of Senior Indebtedness Not to Be Impaired.
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 in good faith by any such
holder, or by any noncompliance by the Company, with the terms and provisions
and covenants herein regardless of any knowledge thereof any such holder may
have or otherwise be charged with.
The provisions of this Article X are tended to be for the benefit of, and
shall be enforceable directly by, the holders of Senior Indebtedness.
Section 10.5. Authorization to Trustee to Take Action to Effectuate
Subordination.
Each Holder of Notes by his acceptance thereof authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate, as between the holders of Senior Indebtedness and the Holders, the
subordination as provided in this Article X and appoints the Trustee his
attorney-in-fact for any and all such purposes. Whenever a distribution is to be
made or a notice given to holders of Senior Indebtedness, the distribution or
notice may be made to the representatives and agents of such holders of Senior
Indebtedness as such agents or representatives are identified by such holders in
writing to the Trustee.
Each Holder of Notes by his acceptance thereof authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate, as between the Holders and the holders of Indebtedness that is
subordinate to the Notes, the subordination provisions of all Indebtedness
subordinate to the Notes, and appoints the Trustee his attorney-in-fact for any
and all such purposes. Whenever a distribution is to be made or a notice given
to holders of Indebtedness that is subordinate to the Notes, the distribution or
notice may be made to the representatives and agents of such holders of
Indebtedness that is subordinate to the Notes as such agents and representatives
are identified by such holders in writing to the Trustee.
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Section 10.6. Subrogation.
Subject to the payment in full of all amounts payable under or in respect
of Senior Indebtedness, the Holders shall be subrogated to the rights of the
holders of such Senior Indebtedness to receive payments or distributions of
assets of the Company made on such Senior Indebtedness until the Notes shall be
paid in full in cash; and for the purposes of such subrogation, no payments or
distributions to holders of such Senior Indebtedness of any cash, property or
securities to which Holders of the Notes would be entitled except for the
provisions of this Article X, and no payment pursuant to the provisions of this
Article X to holders of such Senior Indebtedness by the Holders, shall, as
between the Company, its creditors other than holders of such Senior
Indebtedness and the Holders, be deemed to be a payment by the Company to or on
account of such Senior Indebtedness, it being understood that the provisions of
this Article X are solely for the purpose of defining the relative rights of the
holders of such Senior Indebtedness, on the one hand, and the Holders, on the
other hand.
If any payment or distribution to which the Holders would otherwise have
been entitled but for the provisions of this Article X shall have been applied,
pursuant to the provisions of this Article X, to the payment of all amounts
payable under the Senior Indebtedness, then and in such case, the Holders shall
be entitled to receive from the holders of such Senior Indebtedness at the time
outstanding any payments or distributions received by such holders of Senior
Indebtedness in excess of the amount sufficient to pay all amounts payable under
or in respect of such Senior Indebtedness in full.
Section 10.7. Obligations of Company Unconditional.
Nothing contained in this Article X or elsewhere in this Indenture or in
any Note is intended to or shall impair, as between the Company and the Holders,
the obligations of the Company, which are absolute and unconditional to pay to
the Holders the principal, Redemption Price or Purchase Price of, or interest or
Liquidated Damages (if any) on, the Notes as and when the same shall become due
and payable in accordance with their terms, or is intended to or shall affect
the relative rights of the Holders and creditors of the Company other than the
holders of the Senior Indebtedness, nor shall anything herein or therein 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 X of the holders of such Senior Indebtedness in respect of
cash, property or Notes of the Company received upon the exercise of any such
remedy.
The failure to make a payment on account of principal, Redemption Price or
Purchase Price of, or interest or Liquidated Damages (if any) on, the Notes by
reason of any provision of this Article X shall not be construed as preventing
the occurrence of an Event of Default under Section 6.1.
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Section 10.8. The Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice.
The Trustee or Paying Agent shall not at any time be charged with the
knowledge of the existence of any facts which would prohibit the making of any
payment to or by the Trustee or Paying Agent, unless and until the Trustee or
Paying Agent shall have received written notice thereof from the Company or one
or more holders of Senior Indebtedness or from any trustee or agent therefor;
and, prior to the receipt of any such written notice, the Trustee or Paying
Agent shall be entitled to assume conclusively that no such facts exist. Unless
at least three Business Days prior to the date on which by the terms of this
Indenture any monies are to be deposited by the Company with the Trustee or any
Paying Agent (whether or not in trust) for any purpose (including, without
limitation, the payment of the principal, Redemption Price or Purchase Price of,
or interest or Liquidated Damages (if any) on, any Note), the Trustee or Paying
Agent shall have received with respect to such monies the notice provided for in
the preceding sentence, the Trustee or Paying Agent shall have full power and
authority to receive such monies and to apply the same to the purpose for which
they were received, and shall not be affected by any notice to the contrary
which may be received by it on or after such date, except for an acceleration of
the Notes prior to such application. The foregoing shall not apply to the Paying
Agent if the Company is acting as Paying Agent. Nothing contained in this
Section 10.8 shall limit the right of the holders of Senior Indebtedness to
recover payments as contemplated by Section 10.2. The Trustee shall be entitled
to rely on the delivery to it of a written notice by a person representing
himself or itself to be a holder of such Senior Indebtedness (or a trustee on
behalf of, or other agent of, such holder) to establish that such notice has
been given by a holder of such Senior Indebtedness or a trustee or agent on
behalf of any such holder. Nothing in this Article X shall apply to amounts due
the Trustee pursuant to Section 7.7 herein.
Section 10.9. Right of Trustee to Hold Senior Indebtedness.
The Trustee and any agent for the holders of Senior Indebtedness shall be
entitled to all of the rights set forth in this Article X in respect of any
Senior Indebtedness at any time held by it to the same extent as any other
holder of such Senior Indebtedness, and nothing in this Indenture shall be
construed to deprive the Trustee or any agent for the holders of Senior
Indebtedness of any of its rights as such holder.
Section 10.10. No Implied Covenants by or Obligations of the Trustee.
With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article X, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Article X against the Trustee. The Trustee shall not be deemed to have
any fiduciary duty to the holders of the Senior Indebtedness.
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ARTICLE XI.
MISCELLANEOUS
Section 11.1. Trust Indenture Act Controls.
If any provision hereof limits, qualifies or conflicts with a provision of
the TIA or another provision that would be required or deemed under such Act to
be part of and govern this Indenture if this Indenture were subject thereto, the
latter provision shall control. If any provision of this Indenture modifies or
excludes any provision of the TIA that may be so modified or excluded, the
latter provision shall be deemed to apply to this Indenture as so modified or to
be excluded, as the case may be.
Section 11.2. Notices.
Any notice or communication by the Company or the Trustee to others is duly
given if in writing and delivered in Person or mailed by first class mail
(registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company:
Scholastic Brands, Inc.
7211 Circle S Road
Austin, Texas 78745-6603
Attention: Jeffrey H. Brennan
Fax: (512) 443-5213
With a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Janet C. Walden
Fax: (212) 593-5955
If to the Trustee:
Marine Midland Bank
Attention: Corporate Trust Administration
140 Broadway, 12th Floor
New York, New York 10005-1180
Fax: (212) 658-6425
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
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All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA (beta) 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
Section 11.3. Communication by Holders of Notes with Other Holders of
Notes.
Holders may communicate pursuant to TIA (beta) 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA (beta)
312(c).
Section 11.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company and/or any Subsidiary
Guarantor to the Trustee to take any action under this Indenture, the Company
and/or any Subsidiary Guarantor shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 11.5 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 11.5 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
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Section 11.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA (beta) 314(a)(4)) shall comply with the provisions of TIA (beta)
314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
Section 11.6. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 11.7. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Notes or this Indenture, or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
Section 11.8. Governing Law; Submission to Jurisdiction; Waiver of Jury
Trial.
THIS INDENTURE, THE SUBSIDIARY GUARANTEES AND THE NOTES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING
SECTION 5-1401 OF THE GENERAL OBLIGATION LAW, BUT OTHERWISE WITHOUT REGARD TO
CONFLICT OF LAW RULES. THE COMPANY AND EACH SUBSIDIARY GUARANTOR HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN
THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN
THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN
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RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
INDENTURE, THE SUBSIDIARY GUARANTEES AND THE NOTES, AND IRREVOCABLY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY,
JURISDICTION OF THE AFORESAID COURTS. THE COMPANY AND EACH SUBSIDIARY GUARANTOR
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT THAT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN
SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY HOLDER OF THE NOTES TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE COMPANY OR ANY SUBSIDIARY GUARANTOR IN ANY OTHER
JURISDICTION.
Section 11.9. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 11.10. Successors.
All agreements of the Company in this Indenture and the Notes shall bind
their successors. All agreements of the Trustee in this Indenture shall bind its
successors.
Section 11.11. Severability.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 11.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
Section 11.13. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture, which have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
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Section 11.14. Qualification of Indenture.
The Company shall qualify this Indenture under the TIA in accordance with
the terms and conditions of the Registration Rights Agreement and shall pay all
reasonable costs and expenses (including attorneys' fees for the Company, the
Trustee and the Holders of the Notes) incurred in connection therewith,
including, but not limited to, costs and expenses of qualification of the
Indenture and the Notes and printing this Indenture and the Notes. The Trustee
shall be entitled to receive from the Company any such Officers' Certificates,
Opinions of Counsel or other documentation as it may reasonably request in
connection with any such qualification of this Indenture under the TIA.
[Signatures on following page]
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SIGNATURES
SCHOLASTIC BRANDS, INC.
By: /s/ David B. Pittaway
--------------------------
Name: David B. Pittaway
Title: President
By: /s/ William J. Lovejoy
--------------------------
Name: William J. Lovejoy
Title: Secretary
MARINE MIDLAND BANK,
As TRUSTEE
By: /s/ Frank J. Godino
-------------------------
Name: Frank J. Godino
Title: Assistant Vice President
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EXHIBIT A
FORM OF NOTE
(Face of Note)
SCHOLASTIC BRANDS, INC.
11% SENIOR SUBORDINATED NOTE DUE 2007
[THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A
DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS NOT EXCHANGEABLE FOR
NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS
NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND
NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF
THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY
BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.](1)
[THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
- - ----------
(1) To be included only if the Note is issued in global form.
A-1
<PAGE>
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR
(B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE
NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL
NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT (A) TO
THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED
INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE COMPANY AND MARINE MIDLAND BANK, AS TRUSTEE (OR
A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM
SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED
STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH
CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY
OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS
PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE COMPANY AND MARINE MIDLAND BANK, AS TRUSTEE (OR A
SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.](2)
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(2) To be included on the Senior Subordinated Notes and omitted from the New
Senior Subordinated Notes.
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<PAGE>
SCHOLASTIC BRANDS, INC.
11% SENIOR SUBORDINATED NOTE DUE 2007
CUSIP No. ______________
No. ____________________ $______________
Interest Payment Dates: January 15 and July 15
Record Dates: January 1 and July 1
SCHOLASTIC BRANDS, INC., a Delaware corporation (the "Company," which term
includes any successor corporation under the indenture hereinafter referred to),
for value received promises to pay to _______________________________ or
registered assigns, the principal sum of _________________________________
Dollars on January 15, 2007.
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 set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Note shall
not be entitled to any benefits under the Indenture referred to on the reverse
hereof or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
under its corporate seal.
[SEAL] Dated:
SCHOLASTIC BRANDS, INC.
By:_________________________
Name:
Title:
By:__________________________
Name:
Title:
This is one of the Notes referred to in
the within-mentioned Indenture:
MARINE MIDLAND BANK,
as Trustee
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<PAGE>
By:______________________________
Name:
Title:
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<PAGE>
(Back of Note)
11% Senior Subordinated Notes due 2007
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Interest. The Company promises to pay interest on the principal amount
of this Note at the rate of 11% per annum from the date of original issuance
until maturity and shall pay the Liquidated Damages payable pursuant to Section
5 of the Registration Rights Agreement referred to below. The Company will pay
interest and Liquidated Damages semi-annually on January 15 and July 15 of each
year, or if any such day is not a Business Day, on the next succeeding Business
Day (each an "Interest Payment Date"). Interest on the Note will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of issuance; provided that if there is no existing Default
in the payment of interest, and if this Note is authenticated between a record
date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be July 15, 1997.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue payments of the principal,
Purchase Price and Redemption Price of this Note from time to time on demand at
a rate that is 1% per annum in excess of the rate then in effect; it shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages, if
any, (without regard to any applicable grace periods) hereon from time to time
on demand at the same rate to the extent lawful. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Notes (except
defaulted interest) and Liquidated Damages, if any, to the Persons who are
registered Holders of Notes at the close of business on the January 1 or July 1
next preceding the Interest Payment Date, even if such Notes are canceled after
such record date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest. Any such
installment of interest or Liquidated Damages, if any, not punctually paid or
duly provided for shall forthwith cease to be payable to the registered Holders
on such Interest Payment Date, and may be paid to the registered Holders at the
close of business on a special interest payment date to be fixed by the Trustee
for the payment of such defaulted interest, notice whereof shall be given to the
registered Holders not less than 10 days prior to such special interest payment
date, or may be paid at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Notes may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in the Indenture. The Notes will be payable as to principal,
Redemption Price, Purchase Price, interest and Liquidated Damages, if any, at
the office or agency of the Company maintained for such purpose within or
without the City and State of New York, or, at the option of the Company,
payment of interest and Liquidated Damages may be made by check mailed to the
Holders at their addresses set forth in the register of Holders, provided that
payment by wire transfer of immediately available funds will be required with
respect to principal, Redemption Price and Purchase Price of, and interest and
Liquidated Damages (if any) on, all Global Notes and all other Notes the Holders
of which shall have provided wire transfer instructions to the Trustee or the
Paying Agent. Such payment
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<PAGE>
shall be in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, Marine Midland Bank, the Trustee
under the Indenture, will act as Paying Agent and Registrar. The Company may
change any Paying Agent or Registrar without notice to any Holder. The Company
may act in any such capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as of
December 16, 1996 (the "Indenture") between the Company and the Trustee. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code (beta)(beta) 77aaa-77bbbb). The Notes are subject to all such terms,
and Holders are referred to the Indenture and such Act for a statement of such
terms. The Notes are general obligations of the Company limited to $90 million
in aggregate principal amount.
5. Optional Redemption. The Company may redeem any or all of the Notes at
any time on or after January 15, 2002, upon not less than 30 nor more than 60
days' prior notice in amounts of $1,000 or an integral multiple thereof at the
Redemption Prices (expressed as a percentage of the principal amount) set forth
below, if redeemed during the 12-month period beginning January 15 of the years
indicated below:
Year Redemption Price
---- ----------------
2002................................................ 105.500%
2003................................................ 103.667%
2004................................................ 101.833%
2005 and thereafter................................. 100.000%
in each case together with accrued and unpaid interest and Liquidated Damages,
if any, to the Redemption Date.
If less than all the Notes are to be redeemed, the Trustee will select the
particular Notes or portions thereof to be redeemed by lot, pro rata or by any
other method the Trustee shall deem fair and reasonable.
6. Special Redemption. In the event the Company completes one or more
Public Equity Offerings on or before January 15, 2000, the Company, in its
discretion, may use the net cash proceeds from any such Public Equity Offering
to redeem up to 33-1/3% of the original principal amount of the Notes (a
"Special Redemption") at a Redemption Price of 111% of the principal amount,
together with accrued and unpaid interest and Liquidated Damages (if any), to
the date of redemption, provided, however, that at least 66-2/3% of the original
principal amount of the Notes will remain outstanding immediately after each
such redemption; and provided, further, that each such redemption shall occur
within 90 days after the date of the closing of the applicable Public Equity
Offering.
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If less than all the Notes are to be redeemed, the Trustee will select
the particular Notes or portions thereof to be redeemed by lot, pro rata or by
any other method the Trustee shall deem fair and reasonable.
7. Mandatory Redemption. Except as set forth in Paragraph 9 below with
respect to repurchases of Notes in certain events, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.
8. Notice of Redemption. Subject to the provisions of the Indenture, a
notice of redemption will be mailed at least 30 days but not more than 60 days
before the Redemption Date to each Holder whose Notes are to be redeemed at its
registered address. Notes in denominations larger than $1,000 may be redeemed in
part but only in whole multiples of $1,000, unless all of the Notes held by a
Holder are to be redeemed. On and after the redemption date interest ceases to
accrue on Notes or portions thereof called for redemption.
9. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Company shall be required to
make an offer (a "Change of Control Offer") to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of each Holder's Notes at a Purchase
Price equal to 101% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of repurchase, in
accordance with the procedures set forth in the Indenture. Within 30 days
following any Change of Control, the Company, shall mail a notice to each Holder
setting forth the procedures governing the Change of Control Offer as required
by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sale, within
30 days after each date on which the aggregate amount of Excess Proceeds exceeds
$5.0 million, the Company shall commence an offer to all Holders of Notes (as
"Asset Sale Offer") pursuant to Section 3.10 of the Indenture to repurchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at a Purchase Price equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase, in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate principal amount of Notes tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Company (or such
Subsidiary) may use such balance for general corporate purposes. If the
aggregate principal amount of Notes tendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes or portions
thereof to be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by the Trustee so that only Notes in denominations of $1,000,
or integral multiples thereof, are purchased). Holders of Notes will receive an
Asset Sale Offer from the Company prior to any related purchase date and may
elect to have such Notes purchased by completing the form entitled "Option of
Holder to Elect Purchase" below.
10. Subordination. The Notes are subordinated to the prior payment in full
cash or Cash Equivalents of all Senior Indebtedness which includes, among other
things, the principal, Redemption Price and Purchase Price of, and interest and
Liquidated Damages (if any) on, any Indebtedness of the Company (including
without limitation, the purchase of any Notes pursuant to Section 4.10 or 4.15
of the Indenture), whether outstanding on the date of the Indenture or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the
A-7
<PAGE>
instrument creating or evidencing, or the agreement governing,
such Indebtedness or pursuant to which such Indebtedness is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Notes. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Notes may be paid. The Company agrees, and
each Holder by accepting a Note agrees, to the subordination and authorizes the
Trustee to give it effect.
11. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date and
the corresponding Interest Payment Date.
12. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
13. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture and the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder of a Note, the Indenture and the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, or to
comply with the requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act.
14. Defaults and Remedies. Events of Default include: (i) default for 30
days in the payment when due of interest or Liquidated Damages, if any, on the
Notes; (ii) default in payment when due of principal, Redemption Price or
Purchase Price of the Notes when the same becomes due and payable at maturity,
upon redemption, repurchase or otherwise; (iii) failure by the Company to comply
with Section 3.9, 3.10, 4.15 or 5.1 of the Indenture, or fails to make an Asset
Sale Offer when and as required by Section 4.10 of the Indenture; (iv) failure
by the Company to comply with Sections 4.7 or 4.9 of the Indenture for 30 days
after notice to the Company by the Trustee or the Holders of at least 25% of the
aggregate principal amount of the Notes outstanding; (v) failure by the Company
for 60 days after notice to the Company to comply with certain other agreements
in the Indenture or the Notes by the Trustee or the Holders of at least 25% of
the aggregate principal amount of the Notes outstanding; (vi) default under
certain other agreements relating to Indebtedness of the Company which default
(a) is caused by a failure to pay any amount due at the stated maturity thereof
(a "Payment Default") or (b) results
A-8
<PAGE>
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$5.0 million or more; (vii) certain final judgments for the payment of money
that remain undischarged for a period of 60 days, provided that the aggregate of
all such undischarged judgments exceeds $5.0 million; and (viii) certain events
of bankruptcy or insolvency with respect to the Company any Significant
Subsidiary of the Company or any group of Subsidiaries of the Company that,
taken together, would constitute a Significant Subsidiary. If any Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately. Upon any such declaration, the entire principal
amount of, and accrued and unpaid interest and Liquidated Damages, if any, on
the Notes (i) shall become immediately due and payable; or (ii) if there is any
Designated Senior Indebtedness outstanding, shall become due and payable upon
the first to occur of (a) an acceleration under such Designated Senior
Indebtedness or (b) five days after receipt by the Company and the Senior
Representative for such Designated Senior Indebtedness of such acceleration
notice, subject to certain exceptions. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to payment on any Note) if it determines that
withholding notice is in their interest. The Holders of not less than a majority
in aggregate principal amount of the Notes then outstanding by notice to the
Trustee may on behalf of the Holders of all of the Notes waive any existing
Default or Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of the principal,
Redemption Price or Purchase Price of, or interest, or Liquidated Damages, if
any, on, the Notes (which may be waived only by Holders of all of the Notes then
outstanding) or a default in respect of certain other covenants or provisions of
the Indenture (which may be waived only by Holders of not less than 75% of the
Notes then outstanding). The Company is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and the Company is
required upon becoming aware of any Default or Event of Default, to deliver to
the Trustee a statement specifying such Default or Event of Default.
15. Trustee Dealings with Company. Subject to certain limitations, the
Trustee under the Indenture, in its individual or any other capacity, may become
owner or pledgee of Notes and may otherwise deal with the Company or its
Affiliates, as if it were not Trustee.
16. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator or stockholder of the Company, as such, shall
have any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
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<PAGE>
17. Authentication. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
18. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
19. Discharge Prior to Maturity. If the Company deposits with the Trustee
or Paying Agent cash or U.S. Government Securities sufficient to pay the
principal or Redemption Price of, and interest and Liquidated Damages, if any,
on, the Notes to maturity or a specified Redemption Date and satisfies certain
conditions specified in the Indenture, the Company will be discharged from the
Indenture, except for certain Sections thereof.
20. Governing Law. The Indenture and Subsidiary Guarantees and this Note
shall be governed by and construed in accordance with the laws of the State of
New York, including Section 5-1401 of the General Obligation Law, but otherwise
without regard to conflict of law rules. Each of the Company and each Subsidiary
Guarantor hereby irrevocably submits to the jurisdiction of any New York state
court sitting in the Borough of Manhattan in the City of New York or any Federal
court sitting in the Borough of Manhattan in the City of New York in respect of
any suit, action or proceeding arising out of or relating to the Indenture and
the Notes, and irrevocably accept for itself and in respect of its property,
generally and unconditionally, jurisdiction of the aforesaid courts. Each of the
Company and each Subsidiary Guarantor irrevocably waives, to the fullest extent
that it may effectively do so under applicable law, trial by jury and any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding brought in any such court and any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. Nothing herein shall affect the right of the Trustee or any
Holder of the Notes to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against the Company or any
Subsidiary Guarantor in any other jurisdiction.
21. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the correctness or accuracy of such numbers either as printed on the Notes
or as contained in any notice of redemption or repurchase and reliance may be
placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Request may be made to:
Scholastic Brands, Inc.
7211 Circle S Road
Austin, Texas 78745-6603
Attention: Secretary
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<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Date:___________________
Your Signature:____________________________
(Sign exactly as your name appears on the
face of this Note)
Signature Guarantee:____________________________________________________________
(Participant in recognized signature guarantee medallion program)
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to elect to have all or any portion of this Note
purchased by the Company pursuant to Section 4.10 ("Asset Sale Offer") or
Section 4.15 ("Change of Control Offer") of the Indenture, check the applicable
boxes:
|_| Asset Sale Offer: |_| Change of Control Offer:
in whole |_| in whole |_|
in part |_| in part |_|
Amount to be Amount to be
purchased: $ purchased: $______
Dated:_____________________ Signature:_________________________________
(Sign exactly as your name
appears on the other side of this
Note)
Signature
Guarantee:______________________________________________________________________
(Participant in recognized signature guarantee medallion program)
Social Security Number or
Taxpayer Identification Number:_________________________________________________
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<PAGE>
EXHIBIT B(1)
FORM OF CERTIFICATE
__________________,_____
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10005-1187
Attention: Corporate Trust Administration
Re: Scholastic Brands, Inc. (the "Company") 11% Senior Subordinated Notes
due 2007 (the "Notes")
Dear Sirs:
This letter relates to U.S. $________________ principal amount at
maturity of Notes represented by a certificate (the "Legended Certificate")
which bears a legend outlining restrictions upon transfer of such Legended
Certificate. Pursuant to Section 2.1 of the Indenture (the "Indenture") dated as
of December 16, 1996 relating to the Notes, we hereby certify that we are (or we
will hold such securities on behalf of) a person outside the United States to
whom the Notes could be transferred in accordance with Rule 904 of Regulation S
promulgated under the U.S. Securities Act of 1933, as amended.
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 letter have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:___________________________
Authorized Signature
B(1)-1
<PAGE>
EXHIBIT B(2)
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES
__________________,_____
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10005-1187
Attention: Corporate Trust Administration
Re: Scholastic Brands, Inc. (the "Company") 11% Senior Subordinated Notes
due 2007 (the "Notes")
Dear Sirs:
This Certificate relates to $_______ principal amount of Notes held in * __
book-entry or * __ certificated form by _______________________ (the
"Transferor").
The Transferor:*
|_| has requested the Trustee by written order to deliver in exchange for
its beneficial interest in the Global Note held by the Depositary a Note or
Notes in certificated, registered form of authorized denominations in an
aggregate principal amount equal to its beneficial interest in such Global Note
(or the portion thereof indicated above); or
|_| has requested the Trustee by written order to exchange or register the
transfer of a Note or Notes. In connection with such request and in respect of
each such Note, the Transferor does hereby certify that Transferor is familiar
with the Indenture relating to the above captioned Notes and as provided in
Section 2.6 of such Indenture, the transfer of this Note does not require
registration under the Securities Act (as defined below) because:(*)
|_| Such Note is being acquired for the Transferor's own account, without
transfer.
- - ----------
(*) Check applicable box
B(2)-1
<PAGE>
|_| Such Note is being transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act")) in reliance on Rule 144A.
|_| Such Note is being transferred to an "Accredited Investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) in accordance with
Regulation D under the Securities Act.
|_| Such Note is being transferred pursuant to an exemption from
registration in accordance with Regulation S under the Securities Act.
|_| Such Note is being transferred in accordance with Rule 144 under the
Securities Act, or pursuant to an effective registration statement under the
Securities Act.
|_| Such Note is being transferred in reliance on and in compliance with an
exemption from the registration requirements of the Securities Act, other than
Rule 144A, 144 or Rule 904 under the Securities Act. An Opinion of Counsel to
the effect that such transfer does not require registration under the Securities
Act accompanies this Certificate.
Very truly yours,
_______________________________
[INSERT NAME OF TRANSFEROR]
By:____________________________
Name:
Title
Date:__________
B(2)-2
<PAGE>
EXHIBIT C
SUBSIDIARY GUARANTEE
This Subsidiary Guarantee, dated as of ___________, _____, made by
______________, a ____________ (the "Guarantor"), is made pursuant to the
provisions of the Indenture dated as of December 16, 1996, between Scholastic
Brands, Inc. and Marine Midland Bank, as trustee, (the "Indenture") in favor of
the Holders of Notes and the Trustee. Capitalized terms used herein have the
same meanings given in the Indenture unless otherwise indicated.
Section 1. Subsidiary Guarantee. The Guarantor, jointly and severally with
any other Subsidiary Guarantor now existing or which may execute a Subsidiary
Guarantee in the future, hereby unconditionally guarantees to each Holder of a
Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of the
Indenture, the Notes or the obligations of the Company under the Indenture or
the Notes, that: (a) the principal, Redemption Price and Purchase Price of, and
interest and Liquidated Damages, if any, on the Notes shall be promptly paid in
full when due, whether at maturity, by acceleration, redemption, repurchase or
otherwise, and (to the extent permitted by law) interest on the overdue
principal, Redemption Price and Purchase Price of, and interest and Liquidated
Damages, if any, on the Notes, and all other obligations of the Company to the
Holders or the Trustee under the Indenture or the Notes shall be promptly paid
in full or performed, all in accordance with the terms of the Indenture and the
Notes; and (b) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, that same shall be promptly paid in full
when due or performed in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise. Failing payment when
due of any amount so guaranteed for whatever reason, the Guarantor shall be
obligated to pay the same immediately, whether or not such failure to pay has
become an Event of Default which could cause acceleration pursuant to Section
6.2 of the Indenture. The Guarantor agrees that this is a guarantee of payment
and not a guarantee of collection.
The Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Notes or the Indenture, the absence of any action to enforce the same, any
waiver or consent by the Trustee or any Holder of the Notes with respect to any
provisions thereof, the recovery of any judgment against the Company or any
Subsidiary Guarantor, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor. The Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Company or any Subsidiary Guarantor, any right to require a proceeding
first against the Company or any Subsidiary Guarantor, protest, notice and all
demands whatsoever and covenants that, except as set forth herein, this
Subsidiary Guarantee shall not be discharged except by complete performance of
the obligations contained in the Notes and the Indenture.
If any Holder of Notes or the Trustee is required by any court or otherwise
to return to the Company or any Subsidiary Guarantor, or any Custodian, Trustee,
liquidator or other similar official acting in relation to either the Company or
any Subsidiary Guarantor, any amount paid
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<PAGE>
by either to the Trustee or such Holder, this Subsidiary Guarantee, to the
extent theretofore discharged, shall be reinstated in full force and effect.
The Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders of Notes in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed hereby.
The Guarantor further agrees that, as between the Guarantor, on the one hand,
and the Holders and the Trustee, on the other hand, (x) the maturity of the
Obligations guaranteed hereby may be accelerated as provided in Article VI of
the Indenture for the purposes of this Subsidiary Guarantee, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect of
the Obligations guaranteed hereby and (y) in the event of any declaration of
acceleration of such Obligations as provided in Section 6.2 of the Indenture,
such Obligations (whether or not due and payable) shall forthwith become due and
payable by the Guarantor for the purpose of this Subsidiary Guarantee. The
Guarantor shall have the right to seek contribution from any non-paying
Subsidiary Guarantor so long as the exercise of such right does not impair the
rights of the Holders or the Trustee under this Subsidiary Guarantee.
Section 2. Subordination of Guarantee. This Subsidiary Guarantee shall be
unsecured and subordinated to the prior payment in full in cash or Cash
Equivalents of all Senior Debt of the Guarantor (including the Guarantor's
guarantee of the Bank Credit Facility), and the amounts for which the Guarantor
will be liable under the guarantees issued from time to time with respect to
other Senior Indebtedness of the Company. The Obligations of the Guarantor under
this Subsidiary Guarantee shall be junior and subordinated to the Guarantees of
such Guarantor which constitute Senior Debt of the Guarantor and all other
Senior Debt of the Guarantor on the same terms and in the same manner as the
Notes are junior and subordinated to Senior Indebtedness of the Company as set
forth in the Indenture; provided, however, that the Trustee and the Holders
shall have the right to receive and/or retain payments by the Guarantor only at
such times as they may receive and/or retain payments in respect of the Notes
pursuant to this Indenture.
For the purposes of the foregoing "Senior Debt" shall mean Indebtedness of
the Guarantor that, if incurred by the Company, would constitute Senior
Indebtedness.
Section 3. Limitation on Liability of the Subsidiary Guarantor. The
Guarantor, the Trustee, and by its acceptance of Notes, each Holder, hereby
confirms that it is the intention of all such parties that this Subsidiary
Guarantee not constitute a fraudulent transfer or conveyance for purposes of
Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar federal or state law to the extent applicable to any
Subsidiary Guarantee. To effectuate the foregoing intention, the Trustee, the
Holders and the Guarantor hereby irrevocably agree that the obligations of the
Guarantor hereunder shall be limited to the maximum amount as will, after giving
effect to such maximum amount and all other contingent and fixed liabilities of
the Guarantor that are relevant under such laws, and after giving effect to any
collections from, rights to receive contribution from or payments made by or on
behalf of any other Subsidiary Guarantor in respect of the obligations of such
other Subsidiary Guarantor under its Subsidiary Guarantee, result in the
obligations of the Guarantor hereunder not constituting a fraudulent transfer or
conveyance.
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<PAGE>
This is a continuing Subsidiary Guarantee and shall remain in full force
and effect and shall be binding upon the Guarantor and its respective successors
and assigns to the extent set forth herein and in the Indenture until full and
final payment of all of the Company's Obligations under the Notes and the
Indenture and shall inure to the benefit of the successors and assigns of the
Trustee and the Holders of Notes and, in the event of any transfer or assignment
of rights by any Holder of Notes or the Trustee, the rights and privileges
herein conferred upon that party shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof and
of the Indenture.
Section 4. Governing Law. This Subsidiary Guarantee shall be governed by
and construed in accordance with the laws of the State of New York, including
Section 5-1401 of the General Obligation Law, but otherwise without regard to
conflict of law rules. The Guarantor hereby irrevocably submits to the
jurisdiction of any New York state court sitting in the Borough of Manhattan in
the City of New York or any Federal court sitting in the Borough of Manhattan in
the City of New York in respect of any suit, action or proceeding arising out of
or relating to the Indenture and the Notes, and irrevocably accept for itself
and in respect of its property, generally and unconditionally, jurisdiction of
the aforesaid courts. The Guarantor irrevocably waives, to the fullest extent
that it may effectively do so under applicable law, trial by jury and any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding brought in any such court and any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. Nothing herein shall affect the right of the Trustee or any
Holder of the Notes to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against the Guarantor in any
other jurisdiction.
[SUBSIDIARY GUARANTOR]
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
ACCEPTED BY:
MARINE MIDLAND BANK,
as Trustee
By:______________________________
Name:
Title:
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<PAGE>
EXHIBIT D
FORM OF CERTIFICATE TO BE
DELIVERED IN CONNECTION WITH
TRANSFERS TO NON QIB ACCREDITED INVESTORS
______________,____
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10005-1187
Attention: Corporate Trust Administration
Re: Scholastic Brands, Inc. (the "Company") 11% Senior
Subordinated Notes due 2007 (the "Notes")
Dear Sirs:
In connection with our proposed purchase of 11% Senior Subordinated
Notes due 2007 (the "Notes") of the Company, we confirm that:
1. We understand that any subsequent transfer of the Notes is subject
to certain restrictions and conditions set forth in the Indenture dated as
of December 16, 1996 relating to the Notes (the "Indenture") and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Notes except in compliance with such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities
Act").
2. We understand that the Notes have not been registered under the
Securities Act or any other applicable securities law, and that the Notes
may not be offered, sold or otherwise transferred except as permitted in
the following sentence. We agree, on our own behalf and on behalf of any
accounts for which we are acting as hereinafter stated, that if we should
offer, sell, transfer, pledge, hypothecate or otherwise dispose of any
Notes within three years after the original issuance of the Notes, we will
do so only (A) to the Company or any Subsidiary thereof, (B) inside the
United States to a "qualified institutional buyer" in compliance with Rule
144A under the Securities Act, (C) inside the United States to an
institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes to you a signed letter substantially in the form of
this letter, (D) outside the United States to a foreign person in
compliance with Rule 904
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<PAGE>
of Regulation S under the Securities Act, (E) pursuant to an exemption from
registration provided by Rule 144 under the Securities Act (if available)
or in accordance with another exemption from the registration requirements
of the Securities Act, or (F) pursuant to a registration statement which
has been declared effective under the Securities Act, and we further agree
to provide to any person purchasing any of the Notes from us a notice
advising such purchaser that resales of the Notes are restricted as stated
herein and in the Indenture.
3. We understand that, on any proposed transfer of any Notes prior to
the later of the original issue date of the Securities and the last date
the Notes were held by an affiliate of the Company pursuant to paragraphs
2(C), 2(D) and 2(E) above, we will be required to furnish to you and the
Company such certifications, legal opinions and other information as you
and the Company may reasonably require to confirm that the proposed
transfer complies with the foregoing restrictions. We further understand
that the Notes purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) and 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 acquiring the Notes for
investment purposes and not with a view to, or offer of sale in connection
with, any distribution in violation of the Securities Act, and we are each
able to bear the economic risk of our or its investment.
5. We are acquiring the Notes purchased by us for our own account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
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.
Very truly yours,
(Name of Transferee)
By:___________________________________
Authorized Signature
<PAGE>
EXHIBIT E
FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS
PURSUANT TO REGULATION S
_________________,_____
Marine Midland Bank
Attention: Corporate Trust Administration
140 Broadway, 12th Floor
New York, New York 10005-1180
Re: Scholastic Brands, Inc. (the "Company") 11% Senior
Subordinated Notes due 2007 (the "Notes")
Dear Sirs:
In connection with our proposed sale of $_____________ aggregate
principal amount at maturity of the Notes, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the Securities
Act of 1933, as amended, and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the United
States;
(2) 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;
(3) no directed selling efforts have been made by us 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 U.S. Securities Act of 1933.
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<PAGE>
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 letter have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:___________________________
Authorized Signature
E-2
<PAGE>
Exhibit 4.3
==============================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of December 16, 1996
by and among
SCHOLASTIC BRANDS, INC.
AND
LEHMAN BROTHERS INC.
AND
BT SECURITIES CORPORATION
==============================================================================
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of December 16, 1996 by and among Scholastic Brands, Inc., a
Delaware corporation (the "Company"), and Lehman Brothers Inc. and BT Securities
Corporation (the "Initial Purchasers"), which have, severally and jointly,
agreed to purchase the Company's 11% Senior Subordinated Notes due 2007 (the
"Senior Subordinated Notes") pursuant to the Purchase Agreement (as defined
below).
This Agreement is made pursuant to the Purchase Agreement, dated
December 10, 1996 (the "Purchase Agreement"), by and between the Company and the
Initial Purchasers. In order to induce the Initial Purchasers to purchase the
Senior Subordinated Notes, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution and delivery of this Agreement
is a condition to the obligations of the Initial Purchasers set forth in Section
2 of the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions. As used in this Agreement, the following capitalized
terms shall have the following meanings:
Broker-Dealer: Any broker or dealer registered under the
Exchange Act.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Consummate: A Registered Exchange Offer shall be deemed
"Consummated" for purposes of this Agreement upon the occurrence of (i)
the filing and effectiveness under the Securities Act of the Exchange
Offer Registration Statement relating to the New Senior Subordinated Notes
to be issued in the Exchange Offer, (ii) the maintenance of such
Registration Statement continuously effective and the keeping of the
Exchange Offer open for a period not less than the minimum period required
pursuant to Section 3(b) hereof, and (iii) the delivery by the Company to
the Registrar under the Indenture of New Senior Subordinated Notes in the
same aggregate principal amount as the aggregate principal amount of
Senior Subordinated Notes that were tendered by Holders thereof pursuant
to the Exchange Offer.
Damages Payment Date: Each Interest Payment Date and, with
respect to any Note being repuchased by the Company pursuant
to Section 410 or 415 of the Indenture, the related Purchase
Date.
Effectiveness Target Date: As defined in Section 5.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Company under the
Securities Act of the New Senior Subordinated Notes pursuant to a
Registration Statement pursuant to which the Company offers the Holders of
all outstanding Transfer Restricted Securities the opportunity to exchange
all such outstanding Transfer Restricted Securities held by such Holders
for New Senior Subordinated Notes in an aggregate principal amount equal
to the aggregate principal amount of the Transfer Restricted Securities
tendered in such exchange offer by such Holders.
<PAGE>
Exchange Offer Registration Statement: The Registration
Statement relating to the Exchange Offer, including the Prospectus which
forms a part thereof.
Exempt Resales: The transactions in which the Initial
Purchaser proposes to sell the Senior Subordinated Notes to certain
"qualified institutional buyers," as such term is defined in Rule 144A
under the Securities Act, and to certain institutional "accredited
investors," as such term is defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act ("Accredited Institutions").
Holders: As defined in Section 2(b) hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated as of December 16, 1996, among
the Company and Marine Midland Bank, as trustee (the "Trustee"), pursuant
to which the Notes are to be issued, as such Indenture is amended or
supplemented from time to time in accordance with the terms thereof.
Initial Purchasers: As defined in the preamble hereto.
Interest Payment Date: As defined in the Notes.
NASD: National Association of Securities Dealers, Inc.
New Senior Subordinated Notes: The Company's 11% Senior
Subordinated Notes due 2007 to be issued pursuant to the Indenture in the
Exchange Offer.
Notes: The Senior Subordinated Notes and the New Senior
Subordinated Notes.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political
subdivision thereof.
Prospectus: The prospectus included in a Registration
Statement, as amended or supplemented by any prospectus supplement and by
all other amendments thereto, including post-effective amendments, and all
material incorporated by reference into such Prospectus.
Purchase Date: As defined in the Indenture.
Record Holder: With respect to any Damages Payment Date
relating to Notes, each Person who is a Holder of Notes on the interest
record date with respect to the Interest Payment Date on which such
Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the
Company relating to (a) an offering of New Senior Subordinated Notes
pursuant to an Exchange Offer or (b) the registration for resale of
Transfer Restricted Securities pursuant to the Shelf Registration
Statement, which is filed pursuant to the provisions of this Agreement, in
each case, including
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<PAGE>
the Prospectus included therein, all amendments and supplements thereto
(including post-effective amendments) and all exhibits and material
incorporated by reference therein.
Securities Act: The Securities Act of 1933, as amended.
Shelf Filing Deadline: As defined in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Senior Subordinated Note,
until the earliest to occur of (a) the date on which such Senior
Subordinated Note is exchanged in the Exchange Offer and entitled to be
resold to the public by the Holder thereof without complying with the
prospectus delivery requirements of the Securities Act, (b) the date on
which such Senior Subordinated Note has been effectively registered under
the Securities Act and disposed of in accordance with a Shelf Registration
Statement and (c) the date on which such Senior Subordinated Note is
distributed to the public pursuant to Rule 144 under the Securities Act or
by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by
the Exchange Offer Registration Statement (including delivery of the
Prospectus contained therein).
Underwritten Registration or Underwritten Offering: A
registration in which securities of the Company are sold to one or more
investment banking firms, acting as underwriters, for reoffering to the
public.
2. Securities Subject to This Agreement.
(a) Transfer Restricted Securities. The securities entitled to
the benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is
deemed to be a holder of Transfer Restricted Securities (each, a "Holder")
whenever such Person owns Transfer Restricted Securities.
3. Registered Exchange Offer.
(a) Unless the Exchange Offer shall not be permissible under
applicable law, or Commission policy (after the procedures set forth in
Section 6(a) below have been complied with), the Company shall (i) cause
to be filed with the Commission as soon as practicable after the Closing
Date, but in no event later than 45 days after the Closing Date, a
Registration Statement under the Securities Act relating to the New Senior
Subordinated Notes and the Exchange Offer, (ii) use their best efforts to
cause such Registration Statement to become effective at the earliest
possible time, but in no event later than 120 days after the Closing Date,
(iii) in connection with the foregoing, file (A) all pre-effective
amendments to such Registration Statement as may be necessary in order to
cause such Registration Statement to become effective, (B) if applicable,
a Prospectus pursuant to Rule 430A under the Securities Act and (C)
subject to the proviso in Section 6(c)(xii), cause all necessary filings
in connection with the
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<PAGE>
registration and qualification of the New Senior Subordinated Notes to be
made under the Blue Sky laws of such jurisdictions as are necessary to
permit the Exchange Offer to be Consummated, and (iv) upon the
effectiveness of such Registration Statement, commence the Exchange Offer.
The Exchange Offer shall be on the appropriate form permitting
registration of the New Senior Subordinated Notes to be offered in
exchange for the Transfer Restricted Securities and to permit resales of
New Senior Subordinated Notes held by Broker-Dealers as contemplated by
Section 3(c) below.
(b) The Company shall cause the Exchange Offer Registration
Statement to be effective continuously and shall keep the Exchange Offer
open for a period of not less than the minimum period required under
applicable federal and state securities laws to Consummate the Exchange
Offer; provided, however, that in no event shall such period be less than
20 business days. The Company shall cause the Exchange Offer to comply
with all applicable federal and state securities laws. No securities other
than the New Senior Subordinated Notes shall be registered in the Exchange
Offer Registration Statement. The Company shall use its best efforts to
cause the Exchange Offer to be Consummated on the earliest practicable
date after the Exchange Offer Registration Statement has become effective,
but in no event later than 30 days thereafter.
(c) The Company shall indicate in a "Plan of Distribution"
section contained in the Prospectus contained in the Exchange Offer
Registration Statement that any Broker-Dealer who holds Senior
Subordinated Notes that are Transfer Restricted Securities and that were
acquired for its own account as a result of market-making activities or
other trading activities (other than Transfer Restricted Securities
acquired directly from the Company or an affiliate of the Company), may
exchange such Senior Subordinated Notes pursuant to the Exchange Offer;
however, such Broker-Dealer 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 resales of the New Senior Subordinated Notes received by such
Broker-Dealer in the Exchange Offer, which prospectus delivery requirement
may be satisfied by the delivery by such Broker-Dealer of the Prospectus
contained in the Exchange Offer Registration Statement. Such "Plan of
Distribution" section shall also contain all other information with
respect to such resales by Broker-Dealers that the Commission may require
in order to permit such resales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the amount
of New Senior Subordinated Notes held by any such Broker-Dealer except to
the extent required by the Commission as a result of a change in policy
announced after the date of this Agreement.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for resales of New Senior Subordinated Notes
acquired by Broker-Dealers for their own accounts as a result of market-making
activities or other trading activities, and to ensure that it conforms with the
requirements of this Agreement, the Securities Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of
one year from the date on which the Exchange Offer Registration Statement is
declared effective.
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<PAGE>
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon request at any time, subject to
Section 6(c)(i) hereof, during such one-year period in order to facilitate such
resales.
4. Shelf Registration.
(a) Shelf Registration. If (i) the Company is not required to
file an Exchange Offer Registration Statement or to consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable
law or Commission policy (after the procedures set forth in Section 6(a)
below have been complied with) or (ii) if any Holder of Transfer
Restricted Securities that is a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) or an "accredited investor"
(as defined in Rule 501 (A)(1), (2), (3) or (7) under the Securities Act)
shall notify the Company within 20 business days after the Exchange Offer
is Consummated (A) that such Holder is prohibited by applicable law or
Commission policy from participating in the Exchange Offer or (B) that
such Holder may not resell the New Senior Subordinated Notes acquired by
it in the Exchange Offer to the public without delivering a prospectus and
that the Prospectus contained in the Exchange Offer Registration Statement
is not appropriate or available for such resales by such Holder or (C)
that such Holder is a Broker-Dealer and holds Senior Subordinated Notes
acquired directly from the Company or one of its affiliates, then the
Company shall use its best efforts to:
(x) cause to be filed a shelf registration statement
pursuant to Rule 415 under the Securities Act, which may be an
amendment to the Exchange Offer Registration Statement (in either
event, the "Shelf Registration Statement") on or prior to the
earliest to occur of (1) the 30th day after the date on which the
Company determines that it is not required to file the Exchange
Offer Registration Statement or (2) the 30th day after the date on
which the Company receives notice from a Holder of Transfer
Restricted Securities as contemplated by clause (ii) above (such
earliest date being the "Shelf Filing Deadline"), which Shelf
Registration Statement shall provide for resales of all Transfer
Restricted Securities the Holders of which shall have provided the
information required pursuant to Section 4(b) hereof, and
(y) cause such Shelf Registration Statement to be
declared effective by the Commission on or before the 60th day after
the obligation to file the Shelf Registration Statement arises.
The Company shall use its best efforts to keep such Shelf Registration
Statement continuously effective, supplemented and amended as required by
the provisions of Sections 6(b) and (c) hereof to the extent necessary to
ensure that it is available for resales of Notes by the Holders of
Transfer Restricted Securities entitled to the benefit of this Section
4(a), and to ensure that it conforms with the requirements of this
Agreement, the Securities Act and the policies, rules and regulations of
the Commission as announced from time to time, for a period of at least
three years (as extended pursuant to Section 6(c)(i)) following the
Closing Date or such shorter period that will terminate when all Transfer
Restricted Securities covered by the Shelf Registration Statement have
been sold pursuant to the Shelf Registration Statement.
-5-
<PAGE>
(b) Provision by Holders of Certain Information in Connection
with the Shelf Registration Statement. No Holder of Transfer Restricted
Securities may include any of its Transfer Restricted Securities in any
Shelf Registration Statement pursuant to this Agreement unless and until
such Holder furnishes to the Company in writing, within 15 business days
after receipt of a request therefor, such information as the Company may
reasonably request for use in connection with any Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. No
Holder of Transfer Restricted Securities shall be entitled to liquidated
damages pursuant to Section 5 hereof unless and until such Holder shall
have used its best efforts to provide all such reasonably requested
information. Each Holder as to which any Shelf Registration Statement is
being effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
5. Liquidated Damages.
If (a) any of the Registration Statements required by this Agreement
is not filed with the Commission on or prior to the date specified for such
filing in this Agreement, (b) any of such Registration Statements has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), (c) the
Exchange Offer has not been Consummated within 30 business days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (d) subject to the provisions of Section 6(c)(i) below, any
Registration Statement required by this Agreement is filed and declared
effective but shall thereafter cease to be effective or fail to be usable for
its intended purpose (otherwise than as permitted hereunder) (each such event
referred to in clauses (a) through (d), a "Registration Default"), the Company
agrees to pay liquidated damages to each Holder of Transfer Restricted
Securities with respect to the first 90-day period immediately following the
occurrence of such Registration Default, in an amount equal to $.05 per week per
$1,000 principal amount of Transfer Restricted Securities held by such Holder
for each week or portion thereof that the Registration Default continues. The
amount of the liquidated damages payable to any Holder of Transfer Restricted
Securities shall increase by an additional $.05 per week per $1,000 in principal
amount of Transfer Restricted Securities held by such Holder with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum amount of liquidated damages of $.50 per week per $ 1,000
principal amount of Transfer Restricted Securities. Except as provided in
Section 4(b), all accrued liquidated damages shall be paid to Record Holders by
the Company by wire transfer of immediately available funds or by federal funds
check on each Damages Payment Date, as provided in the Indenture. Following the
cure of all Registration Defaults relating to any particular Transfer Restricted
Securities, the accrual of liquidated damages with respect to such Transfer
Restricted Securities will cease.
All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such Transfer Restricted
Security shall have been satisfied in full.
6. Registration Procedures.
(a) Exchange Offer Registration Statement. In connection with
the Exchange Offer, the Company shall comply with all of the provisions of
Section 6(c) below, shall use its
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best efforts to effect such exchange to permit the sale of Transfer
Restricted Securities being sold in accordance with the intended method or
methods of distribution thereof, and shall comply with all of the
following provisions:
(i) If in the reasonable opinion of counsel to the
Company there is a question as to whether the Exchange Offer is
permitted by applicable law, the Company hereby agrees to seek a
no-action letter or other favorable decision from the Commission
allowing the Company to Consummate an Exchange Offer for such Senior
Subordinated Notes. The Company hereby agrees to pursue the issuance
of such a decision to the Commission staff level but shall not be
required to take commercially unreasonable action to effect a change
of Commission policy. The Company hereby agrees, however, to (A)
participate in telephonic conferences with the Commission, (B)
deliver to the Commission staff an analysis prepared by counsel to
the Company setting forth the legal bases, if any, upon which such
counsel has concluded that such an Exchange Offer should be
permitted and (C) diligently pursue a resolution (which need not be
favorable) by the Commission staff of such submission.
(ii) As a condition to its participation in the Exchange
Offer pursuant to the terms of this Agreement, each Holder of
Transfer Restricted Securities shall furnish, upon the request of
the Company, prior to the date on which the Exchange Offer is
Consummated, a written representation to the Company (which may be
contained in the letter of transmittal contemplated by the Exchange
Offer Registration Statement) to the effect that (A) it is not an
affiliate of the Company (B) it is not engaged in, and does not
intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the New Senior
Subordinated Notes to be issued in the Exchange Offer and (C) it is
acquiring the New Senior Subordinated Notes in its ordinary course
of business. In addition, all such Holders of Transfer Restricted
Securities shall otherwise cooperate in the Company's preparations
for the Exchange Offer. Each Holder hereby acknowledges and agrees
that any Broker-Dealer and any such Holder using the Exchange Offer
to participate in a distribution of the securities to be acquired in
the Exchange Offer (1) could not under Commission policy as in
effect on the date of this Agreement rely on the position of the
Commission enunciated in Morgan Stanley and Co., Inc. (available
June 5, 1991) and Exxon Capital Holdings Corporation (available May
13, 1988), as interpreted in the Commission's letter to Shearman &
Sterling dated July 2, 1993, and similar no-action letters
(including any no-action letter obtained pursuant to clause (i)
above), and (2) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a
secondary resale transaction and that such a secondary resale
transaction should be covered by an effective registration statement
containing the selling security holder information required by Item
507 or 508, as applicable, of Regulation S-K if the resales are of
New Senior Subordinated Notes obtained by such Holder in exchange
for Senior Subordinated Notes acquired by such Holder directly from
the Company or an affiliate thereof.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company shall provide a supplemental
letter to the Commission (A) stating that the Company is registering
the Exchange Offer in reliance on the position of the Commission
enunciated in Exxon Capital Holdings Corporation (available May 13,
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<PAGE>
1988), Morgan Stanley and Co., Inc. (available June 5, 1991) and, if
applicable, any no-action letter obtained pursuant to clause (i)
above and (B) including a representation that the Company has
entered into any arrangement or understanding with any Person to
distribute the New Senior Subordinated Notes to be received in the
Exchange Offer and that, to the best of the Company's information
and belief, each Holder participating in the Exchange Offer is
acquiring the New Senior Subordinated Notes in its ordinary course
of business and has no arrangement or understanding with any Person
to participate in the distribution of the New Senior Subordinated
Notes received in the Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions
of Section 6(c) below and shall use its best efforts to effect such
registration to permit the sale of the Transfer Restricted Securities
being sold in accordance with the intended method or methods of
distribution thereof, and pursuant thereto the Company will as
expeditiously as possible prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate
form under the Securities Act, which form shall be available for the sale
of the Transfer Restricted Securities in accordance with the intended
method or methods of distribution thereof.
(c) General Provisions. In connection with any Registration
Statement and any Prospectus required by this Agreement to permit the sale
or resale of Transfer Restricted Securities (including, without
limitation, any Registration Statement and the related Prospectus required
to permit resales of Notes by Broker-Dealers), the Company shall:
(i) use its best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this
Agreement, as applicable; upon the occurrence of any event that
would cause any such Registration Statement or the Prospectus
contained therein (A) to contain a material misstatement or omission
or (B) not to be effective and usable for resale of Transfer
Restricted Securities during the period required by this Agreement,
the Company shall file promptly an appropriate amendment to such
Registration Statement, in the case of clause (A), correcting any
such misstatement or omission, and, in the case of either clause (A)
or (B), use its best efforts to cause such amendment to be declared
effective and such Registration Statement and the related Prospectus
to become usable for their intended purpose(s) as soon as
practicable thereafter. Notwithstanding the foregoing, if the Board
of Directors of the Company determines in good faith that it is in
the best interests of the Company not to disclose the existence of
or facts surrounding any proposed or pending material corporate
transaction involving the Company, the Company may allow the Shelf
Registration Statement or the Exchange Offer Registration Statement
to fail to be effective and usable as a result of such nondisclosure
for up to 90 days during the three year period of effectiveness
required by Section 4 hereof, but in no event for any period in
excess of 45 consecutive days, provided, that in the event the
Exchange Offer is Consummated, the Company shall not allow the
Exchange Offer Registration Statement to fail to be effective and
usable for a period in excess of 30 days during the one year period
of effectiveness required by Section 3 hereof,
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<PAGE>
(ii) prepare and file with the Commission such
amendments and post-effective amendments to the Registration
Statement as may be necessary to keep the Registration Statement
effective for the applicable period set forth in Section 3 or 4
hereof, as applicable, or such shorter period as will terminate when
all Transfer Restricted Securities covered by such Registration
Statement have been sold; cause the Prospectus to be supplemented by
any required Prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 under the Securities Act, and to comply
fully with the applicable provisions of Rules 424 and 430A under the
Securities Act in a timely manner; and comply with the provisions of
the Securities Act with respect to the disposition of all securities
covered by such Registration Statement during the applicable period
in accordance with the intended method or methods of distribution by
the sellers thereof set forth in such Registration Statement or
supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling
Holders promptly and, if requested by such Persons, to confirm such
advice in writing, (A) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with
respect to any Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) of any
request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for
additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Securities Act or of the suspension
by any state securities commission of the qualification of the
Transfer Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the existence of any fact or the
happening of any event that makes any statement of a material fact
made in the Registration Statement, the Prospectus, any amendment or
supplement thereto, or any document incorporated by reference
therein untrue, or that requires the making of any additions to or
changes in the Registration Statement or the Prospectus in order to
make the statements therein not misleading, including, without
limitation, under circumstances described in Section 6(c)(i) above.
If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an
order suspending the qualification or exemption from qualification
of the Transfer Restricted Securities under state securities or Blue
Sky laws, the Company shall use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time;
(iv) furnish to each of the selling Holders and each of
the underwriter(s), if any, before filing with the Commission,
copies of any Registration Statement or any Prospectus included
therein or any amendments or supplements to any such Registration
Statement or Prospectus (excluding any documents incorporated by
reference), which documents will be subject to the review of such
Holders and underwriter(s), if any, for a period of at least five
business days, and the Company will not file any such Registration
Statement or Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (excluding any documents
incorporated by reference) to which a selling Holder of Transfer
Restricted Securities covered by such Registration Statement or the
underwriter(s), if any, shall reasonably object within five business
days after the receipt thereof. A selling Holder or underwriter, if
any, shall be deemed to have
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<PAGE>
reasonably objected to such filing if such Registration Statement,
amendment, Prospectus or supplement, as applicable, as proposed to
be filed, contains a material misstatement or omission;
(v) promptly after the filing of any document that is to
be incorporated by reference into a Registration Statement or
Prospectus, provide copies of such document to the selling Holders
and to the underwriter(s), if any, make the Company's
representatives available for discussion of such document and other
customary due diligence matters, and include such information in
such document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) if (A) a Shelf Registration Statement is filed
pursuant to this Agreement or (B) a Prospectus contained in an
Exchange Offer Registration Statement filed pursuant to this
Agreement is required to be delivered under the Securities Act by
any participating Broker-Dealer who seeks to sell New Senior
Subordinated Notes, make available at reasonable times for
inspection by the selling Holders, any underwriter participating in
any disposition pursuant to such Registration Statement, and any
attorney or accountant retained by such selling Holders,
Broker-Dealers or any of the underwriter(s), all financial and other
records, pertinent corporate documents and properties of the Company
and cause the Company's officers, directors, managers and employees
to supply all information reasonably requested by any such Holder,
Broker-Dealers, underwriter, or their respective attorneys,
accountants or other agents in connection with such Registration
Statement subsequent to the filing thereof and prior to its
effectiveness, provided that the Company may require any such
selling Holder to enter into a confidentiality agreement in
appropriate form with respect to information provided pursuant to
this clause (vi) or any other provision of this Agreement;
(vii) if requested by any selling Holders or the
underwriter(s), if any, promptly incorporate in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders and
underwriter(s), if any, may reasonably request to have included
therein, including, without limitation, information relating to the
"Plan of Distribution" of the Transfer Restricted Securities,
information with respect to the principal amount of Transfer
Restricted Securities being sold to such underwriter(s), the
purchase price being paid therefor and any other terms of the
offering of the Transfer Restricted Securities to be sold in such
offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after
the Company is notified of the matters to be incorporated in such
Prospectus supplement or post-effective amendment;
(viii) use its reasonable best efforts to cause the
Transfer Restricted Securities covered by the Registration Statement
to be rated with the appropriate rating agencies, if so requested by
the Holders of a majority in aggregate principal amount of Notes
covered thereby or the underwriter(s), if any;
(ix) furnish to each selling Holder and each of the
underwriter(s), if any, without charge, at least one copy of the
Registration Statement, as first filed with the
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<PAGE>
Commission, and of each amendment thereto, including all documents
incorporated by reference therein and all exhibits (including
exhibits incorporated therein by reference);
(x) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment
or supplement thereto as such Persons reasonably may request; the
Company hereby consents to the use of the Prospectus and any
amendment or supplement thereto by each of the selling Holders and
each of the underwriter(s), if any, in connection with the offering
and the sale of the Transfer Restricted Securities covered by the
Prospectus or any amendment or supplement thereto;
(xi) enter into such agreements (including an
underwriting agreement), and make such representations and
warranties, and take all such other actions in connection therewith
in order to expedite or facilitate the disposition of the Transfer
Restricted Securities pursuant to any Registration Statement
contemplated by this Agreement, all to such extent as may be
reasonably requested by any Holder of Transfer Restricted Securities
or underwriter in connection with any sale or resale pursuant to any
Registration Statement contemplated by this Agreement; and if the
registration is an Underwritten Registration, the Company shall:
(A) upon request, furnish to each selling Holder
and each underwriter in such substance and scope as they may
request and as are customarily made by issuers to
underwriters in primary underwritten offerings, upon the
closing date of such underwritten offering:
(1) a certificate, dated as of such closing
date, signed by (y) the Chairman of the Board or the
President and (z) the Chief Financial Officer of the
Company confirming, as of the date thereof, the
matters set forth in paragraph (f) of Section 7 of the
Purchase Agreement and such other matters as such
parties may reasonably request;
(2) an opinion, dated as of such closing date,
of counsel for the Company covering, to the extent
applicable, the matters covered by the opinion of
Schulte Roth & Zabel LLP delivered pursuant to
paragraph (h) of Section 7 of the Purchase Agreement
and such other matters as such parties may reasonably
request, and in any event including a statement to the
effect that such counsel has participated in
conferences with officers and other representatives of
the Company, and representatives of the independent
public accountants for the Company in connection with
the preparation of such Registration Statement and the
related Prospectus and have considered the matters
required to be stated therein and the statements
contained therein, although such counsel has not
undertaken to investigate or independently verify, and
does not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained
in such Registration Statement or Prospectus; on the
basis of the foregoing, no
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<PAGE>
facts came to such counsel's attention that caused
such counsel to believe that the applicable
Registration Statement, at the time such Registration
Statement or any post-effective amendment thereto
became effective, contained an untrue statement of a
material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, or that the
Prospectus contained in such Registration Statement as
of its date contained an untrue statement of a
material fact or omitted to state a material fact
necessary in order to make the statements therein, in
light of the circumstances under which they were made,
not misleading (except in each case as to the
financial statements, notes and schedules and other
financial or accounting data included in or omitted
from any Registration Statement contemplated by this
Agreement or the related Prospectus as to which no
belief need be expressed); and
(3) a customary comfort letter addressed to
the underwriters, dated as of such closing date, from
the Company's independent accountants, in the
customary form and covering matters of the type
customarily covered in comfort letters by underwriters
in connection with primary underwritten offerings, and
affirming the matters set forth in the comfort letters
delivered pursuant to paragraph (j) of Section 7 of
the Purchase Agreement, without exception;
(B) set forth in full or incorporate by reference
in the underwriting agreement, if any, the indemnification
provisions and procedures of Section 8 hereof with respect
to all parties to be indemnified pursuant to said Section;
and
(C) deliver such other documents and certificates
as may be reasonably requested by such parties to evidence
compliance with clause (A) above and with any customary
conditions contained in the underwriting agreement entered
into by the Company pursuant to this clause (xi), if any.
If at any time the representations and warranties of the
Company contemplated in clause (A)(1) above cease to be true and
correct, the Company shall so advise the Initial Purchasers and the
underwriter(s), if any, and each selling Holder promptly and, if
requested by such Persons, shall confirm such advice in writing;
(xii) prior to any public offering of Transfer
Restricted Securities, cooperate with the selling Holders, the
underwriter(s), if any, and their respective counsel in connection
with the registration and qualification of the Transfer Restricted
Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or underwriter(s) may
reasonably request and do any and all other acts or things necessary
or advisable to enable the disposition in such jurisdictions of the
Transfer Restricted Securities covered by the Shelf Registration
Statement; provided, however, that the Company shall not be required
to register or qualify as a foreign corporation where they are not
now so qualified or to take any action that would subject them to
the service of
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<PAGE>
process in suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any
jurisdiction where they are not now so subject;
(xiii) shall issue, upon the request of any Holder of
Senior Subordinated Notes covered by the Shelf Registration
Statement, New Senior Subordinated Notes, having an aggregate
principal amount equal to the aggregate principal amount of Senior
Subordinated Notes surrendered to the Company by such Holder in
exchange therefor or being sold by such Holder; such New Senior
Subordinated Notes to be registered in the name of such Holder or in
the name of the purchaser(s) of such Notes, as the case may be; in
return, the Senior Subordinated Notes held by such Holder shall be
surrendered to the Company for cancellation;
(xiv) cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities
to be sold and not bearing any restrictive legends; and enable such
Transfer Restricted Securities to be in such denominations and
registered in such names as the Holders or the underwriter(s), if
any, may request at least two business days prior to any sale of
Transfer Restricted Securities made by such underwriter(s);
(xv) use its reasonable best efforts to cause the
Transfer Restricted Securities covered by the Registration Statement
to be registered for sale under the securities or Blue Sky laws of
such jurisdictions as may be necessary to enable the seller or
sellers thereof or the underwriter(s), if any, to consummate the
disposition of such Transfer Restricted Securities, subject to the
proviso contained in clause (xii) above;
(xvi) subject to Section 6(c)(i), if any fact or event
contemplated by clause (c)(iii)(D) above shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of
Transfer Restricted Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading;
(xvii) provide a CUSIP number for all Transfer
Restricted Securities not later than the effective date of the
Registration Statement and provide the Trustee under the Indenture
with certificates for the Transfer Restricted Securities which are
in a form eligible for deposit with The Depository Trust Company;
(xviii) cooperate and assist in any filings required to
be made with the NASD and in the performance of any due diligence
investigation by any underwriter(including any "qualified
independent underwriter") that is required to be retained in
accordance with the rules and regulations of the NASD, and use its
reasonable best efforts to cause such Registration Statement to
become effective and approved by such governmental agencies or
authorities as may be necessary to enable the Holders selling
Transfer Restricted Securities to consummate the disposition of such
Transfer Restricted Securities;
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<PAGE>
(xix) otherwise use its reasonable best efforts to
comply with all applicable rules and regulations of the Commission,
and make generally available to its security holders, as soon as
practicable, a consolidated earnings statement meeting the
requirements of Rule 158 (which need not be audited) for the
twelve-month period (A) commencing at the end of any fiscal quarter
in which Transfer Restricted Securities are sold to underwriters in
a firm or best efforts Underwritten Offering or (B) if not sold to
underwriters in such an offering, beginning with the first month of
the Company's first fiscal quarter commencing after the effective
date of the Registration Statement;
(xx) cause the Indenture to be qualified under the TIA
not later than the effective date of the first Registration
Statement required by this Agreement, and, in connection therewith,
cooperate with the Trustee and the Holders of Notes to effect such
changes to the Indenture as may be required for such Indenture to be
so qualified in accordance with the terms of the TIA; and execute,
and use its reasonable best efforts to cause the Trustee to execute,
all documents that may be required to effect such changes and all
other forms and documents required to be filed with the Commission
to enable such Indenture to be so qualified in a timely manner;
(xxi) cause all Transfer Restricted Securities covered
by the Registration Statement to be listed on each securities
exchange on which similar securities issued by the Company are then
listed if requested by the Holders of a majority in aggregate
principal amount of Senior Subordinated Notes or the managing
underwriter(s), if any; and
(xxii) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of
Section 13 and Section 15 of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted
Security that, upon receipt of any notice from the Company of the
existence of any fact of the kind described in Section 6(c)(iii)(D)
hereof, such Holder will forthwith discontinue disposition of Transfer
Restricted Securities pursuant to the applicable Registration Statement
until such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(xvi) hereof, or until it is
advised in writing (the "Advice") by the Company that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus.
If so directed by the Company, each Holder will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies then
in such Holder's possession, of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of such
notice. In the event the Company shall give any such notice, the time
period regarding the effectiveness of such Registration Statement set
forth in Section 3 or 4 hereof, as applicable, shall be extended by the
number of days during the period from and including the date of the giving
of such notice pursuant to Section 6(c)(iii)(D) hereof to and including
the date when each selling Holder covered by such Registration Statement
shall have received the copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(xvi) hereof or shall have received the
Advice.
7. Registration Expenses.
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(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses (including
filings made by any Purchaser or Holder with the NASD (and, if applicable,
the fees and expenses of any "qualified independent underwriter" and its
counsel that may be required by the rules and regulations of the NASD));
(ii) all fees and expenses of compliance with federal securities and state
Blue Sky or securities laws; (iii) all expenses of printing (including
printing certificates for the New Senior Subordinated Notes to be issued
in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of
counsel for the Company and, subject to Section 7(b) below, the Holders of
Transfer Restricted Securities; (v) all application and filing fees in
connection with listing Notes on a national securities exchange or
automated quotation system pursuant to the requirements hereof, and (vi)
all fees and disbursements of independent certified public accountants of
the Company (including the expenses of any special audit and comfort
letters required by or incident to such performance).
The Company will, in any event, bear their internal expenses
(including, without limitation, all salaries and expenses of their
officers and employees performing legal or accounting duties), the
expenses of any annual audit and the fees and expenses of any Person,
including special experts, retained by the Company. The Company shall not
be required to pay the costs and expenses of any Holder relating to
underwriters' discounts and commissions or brokerage fees relating to the
Transfer Restricted Securities to be sold by such Holder.
(b) In connection with any Registration Statement required by
this Agreement (including, without limitation, the Exchange Offer
Registration Statement and the Shelf Registration Statement), the Company
will reimburse the Initial Purchasers and the Holders of Transfer
Restricted Securities being tendered in the Exchange Offer and/or resold
pursuant to the "Plan of Distribution" contained in the Exchange Offer
Registration Statement or registered pursuant to the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not
more than one counsel, who shall be Willkie Farr & Gallagher or such other
counsel as may be chosen by the Holders of a majority in principal amount
of the Transfer Restricted Securities for whose benefit such Registration
Statement is being prepared.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless (i) each
Holder and (ii) each person, if any, who controls (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) any
Holder (any of the persons referred to in this clause (ii) being referred
to as a "controlling person") and (iii) the respective officers,
directors, partners, employees, representatives and agents of any Holder
or any controlling person (any person referred to in clause (i), (ii), or
(iii) may hereinafter be referred to as an "Indemnified Holder"), from and
against any loss, claim, damage or liability, joint or several, or any
action in respect thereof to which such Indemnified Holder may become
subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i)
any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or Prospectus or in any amendment
or supplement thereto, (ii) the
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<PAGE>
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or (iii) any act or failure to act or any alleged act or
failure to act by any Indemnified Holder in connection with, or relating
in any manner to, the Notes or the offering contemplated by the applicable
Registration Statement or Prospectus or any amendment or supplement
thereto, and which is included as part of or referred to in any loss,
claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (provided that the Company shall not
be liable under this clause (iii) to the extent that it is determined in a
final judgment by a court of competent jurisdiction that such loss, claim,
damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Indemnified
Holder through its negligence or willful misconduct) and shall reimburse
each Indemnified Holder promptly upon demand for any legal or other
expenses reasonably incurred by such Indemnified Holder in connection with
investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company shall not be liable in any such case
to the extent that any such loss, claim, damage, liability or action
arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Registration
Statement or Prospectus or in any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company through the Holders by or on behalf of any Holder (or its related
Indemnified Holder) specifically for inclusion therein; and provided
further, however, that the Company shall not be required to indemnify any
such Indemnified Holder if such untrue statement or omission or alleged
untrue statement or omission was contained or made in any preliminary
prospectus and corrected in the Prospectus or amendment or supplement
thereto and the Prospectus does not contain any other untrue statement or
omission or alleged untrue statement or omission of a material fact that
was the subject matter of the related proceeding and any such loss,
liability, claim, damage or expense suffered or incurred by the
Indemnified Holder resulted from any action, claim or suit by any Person
who purchased Notes which are the subject thereof from such Indemnified
Holder and it is established in the related proceeding that such
Indemnified Holder failed to deliver or provide a copy of the Prospectus
(as amended or supplemented) to such Person with or prior to the
confirmation of the sale of such Notes sold to such Person if required by
applicable law, unless such failure to deliver or provide a copy of the
Prospectus (as amended or supplemented) was a result of noncompliance by
the Company with Section 4 of this Agreement. The foregoing indemnity
agreement is in addition to any liability which the Company may otherwise
have to any Indemnified Holder.
(b) Each Holder, severally and not jointly, shall indemnify
and hold harmless each of the Company, its directors, its officers and
each person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof,
to which the Company or any such director, officer or controlling person
may become subject, under the Securities Act or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or the Prospectus, or in any
amendment or supplement thereto or (ii) the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but in each case
only to the extent that the untrue statement or alleged untrue statement
or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through the
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<PAGE>
Holders by or on behalf of any Holder or its related Indemnified Holder
specifically for inclusion therein, and shall reimburse the Company or
director, officer or controlling person, as the case may be, for any legal
or other expenses reasonably incurred by the Company or director, officer
or controlling person, as the case may be, in connection with
investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred. The
foregoing indemnity agreement is in addition to any liability which any
Holder may otherwise have to the Company or any such director, officer or
controlling person. In no event shall the liability of any selling Holder
hereunder be greater in amount than the dollar amount of the proceeds
received by such Holder upon the sale of Transfer Restricted Securities
giving rise to such indemnification obligation.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under this Section 8, notify the
indemnifying party in writing of the claim or the commencement of that
action; provided, however, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have under this
Section 8 except to the extent it has been materially prejudiced by such
failure and, provided further, that the failure to notify the indemnifying
party pursuant to this Section 8 shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this
Section 8. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying
party to the indemnified party of its election to assume the defense of
such claim or action, the indemnifying party shall not be liable to the
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided,
however, that any indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense
thereof but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the employment thereof has been
specifically authorized by the indemnifying party in writing, (ii) such
indemnified party shall have been advised by such counsel that there may
be one or more legal defenses available to it which are different from or
additional to those available to the indemnifying party and in the
reasonable judgment of such counsel it is advisable for such indemnified
party to employ separate counsel or (iii) the indemnifying party has
failed to reasonably and promptly assume the defense of such action and
employ counsel reasonably satisfactory to the indemnified party, in which
case, if such indemnified party notifies the indemnifying party in writing
that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to
assume the defense of such action on behalf of such indemnified party, it
being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar
or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys (in addition to
no more than one local counsel) at any time for all such indemnified
parties, which firm shall be designated in writing by the Holders, if the
indemnified parties under this Section 8 consist of any Holder or any of
their related Indemnified Holders, or by the Company if the indemnified
parties under this Section 8 consist of the Company, or any of the
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<PAGE>
Company's directors, officers or controlling persons. No indemnifying
party shall be liable for any settlement of any such action effected
without its written consent (which consent shall not be unreasonably
withheld), but if settled with its written consent or if there be a final
judgment of the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and
against any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a) or 8(b) in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate
to reflect the relative benefits received by the Company on the one hand
and any Holder on the other from such Holder's sale of Transfer Restricted
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect the relative fault of the Company on the one hand and such Holder
on the other with respect to the statements or omissions which resulted in
such loss, claim, damage or liability, or action in respect thereof, as
well as any other relevant equitable considerations. The relative fault of
the Company on the one hand and of such Holder on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
Company on the one hand, or such Holder, on the other hand, the intent of
the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company
and each Holder of Transfer Restricted Securities agree that it would not
be just and equitable if contributions pursuant to this Section 8(d) were
to be determined by pro rata allocation (even if the Holders were treated
as one entity for such purpose) or by any other method of allocation which
does not take into account the equitable considerations referred to
herein. The amount paid or payable by an indemnified party as a result of
the loss, claim, damage or liability, or action in respect thereof,
referred to above in this Section 8(d) shall be deemed to include, for
purposes of this Section 8(d), any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 8(d), none of the Holders (or any of their related Indemnified
Holders) shall be required to contribute any amount in excess of the
amount by which the total discount received by such Holder with respect to
the Notes exceeds the amount of any damages which such Holder has
otherwise paid or become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11 of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Holders' obligations
to contribute as provided in this Section 8(d) are several in proportion
to the respective principal amount of Notes held by each of the Holders
hereunder and not joint.
9. Rule 144A.
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available upon
request to any Holder or beneficial owner of
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<PAGE>
Transfer Restricted Securities in connection with any sale thereof and any
prospective purchaser of such Transfer Restricted Securities from such Holder or
beneficial owner, the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Transfer Restricted Securities
pursuant to Rule 144A.
10. Participation in Underwritten Registrations.
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
11. Selection of Underwriters.
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
12. Miscellaneous.
(a) Remedies. The Company agrees that monetary damages
(including the liquidated damages contemplated hereby) would not be
adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Agreement otherwise than with respect to
Registration Defaults and hereby agrees to waive the defense in any action
for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or
after the date of this Agreement enter into any agreement with respect to
its securities that is inconsistent with the rights granted to the Holders
in this Agreement or otherwise conflicts with the provisions hereof.
Except as disclosed in the Offering Memorandum (as defined in the Purchase
Agreement), the Company has not previously entered into any agreement
granting any registration rights with respect to their securities to any
Person. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any agreement in effect on the
date hereof.
(c) Adjustments Affecting the Notes. The Company will not take
any action, or permit any change to occur, with respect to the Notes that
would materially and adversely affect the ability of the Holders to
Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
or departures from the provisions hereof may not be given unless the
Company has obtained the written consent of
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<PAGE>
Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities. Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the
Exchange Offer and that does not affect directly or indirectly the rights
of other Holders whose securities are not being tendered pursuant to such
Exchange Offer may be given by the Holders of a majority of the
outstanding principal amount of Transfer Restricted Securities being
tendered or registered.
(e) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery,
first-class mail (registered or certified, return receipt requested),
telex, telecopier, or air courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company:
Scholastic Brands, Inc.
7211 Circle S Road
Austin, Texas 78745-6603
Attention: Jeffrey H. Brennan
Fax: (512) 443-5213
With a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Janet C. Walden
Fax: (212) 593-5955
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt acknowledged, if telecopied; and on
the next business day, if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities;
provided, however, that this Agreement shall not inure to the benefit of
or be binding upon a successor or assign of a Holder unless and to the
extent such successor or assign acquired Transfer Restricted Securities
from such Holder.
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<PAGE>
(g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
regard to the conflict of law rules thereof.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity,
legality and enforceability of any such provision in every other respect
and of the remaining provisions contained herein shall not be affected or
impaired thereby.
(k) Entire Agreement. This Agreement is intended by the
parties as a expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein with respect to the registration rights
granted by the Company with respect to the Transfer Restricted Securities.
This Agreement supersedes all prior agreements and understandings between
the parties with respect to such subject matter.
(signature page follows)
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<PAGE>
IN WITNESS OF, the parties have executed this Agreement as of the
date first written above.
SCHOLASTIC BRANDS, INC.
By: /s/ David B. Pittaway
-----------------------------------
Name: David B. Pittaway
Title: President
LEHMAN BROTHERS INC.
By: /s/ Michael A. Goldberg
-----------------------------------
Name: Michael A. Goldberg
Title: Vice President
BT SECURITIES CORPORATION
By: /s/ Richard W. Thaler
-----------------------------------
Name: Richard W. Thaler
Title: Managing Director
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<PAGE>
Exhibit 10.1
REVOLVING CREDIT, TERM LOAN AND
GOLD CONSIGNMENT AGREEMENT
DATED as of December 16, 1996
by and among
SCHOLASTIC BRANDS, INC.
The BANKS listed on Schedule 1 hereto, and
THE FIRST NATIONAL BANK OF BOSTON, and
RHODE ISLAND HOSPITAL TRUST NATIONAL BANK, as Agents for the Banks
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS AND RULES OF INTERPRETATION. ..............................1
1.1. Definitions. ...............................................1
1.2. Rules of Interpretation. ...................................30
2. THE DOLLAR FACILITY - REVOLVING CREDIT LOANS. .........................31
2.1. Commitment to Lend. ........................................31
2.2. Commitment Fee. ............................................31
2.3. Reduction of Total Revolver Commitment. ....................31
2.4. The Revolving Credit Notes. ................................32
2.5. Interest on Revolving Credit Loans. ........................32
2.6. Requests for Revolving Credit Loans; Conversion Options. ...32
2.7. Funds for Revolving Credit Loans. ..........................32
2.8. Maturity. ..................................................32
2.9. Optional Repayments of Revolving Credit Loans. .............33
3. THE DOLLAR FACILITY - THE TERM LOAN. ..................................33
3.1. Commitment to Lend. ........................................33
3.2. The Term Notes. ............................................33
3.3. Schedule of Installment Payments of Principal of Term Loan. 33
3.4. Optional Prepayment of Term Loan. ..........................34
3.5. Interest on Term Loan. .....................................34
3.6. Mandatory Prepayments of the Term Loan. ....................34
3.6.1. Excess Cash Flow Prepayment. ....................34
3.6.2. Asset Disposition Prepayment. ...................35
3.6.3. New Issuance Prepayment. ........................35
4. THE DOLLAR FACILITY - LETTERS OF CREDIT. ..............................35
4.1. Letter of Credit Commitments.................................35
4.1.1. Commitment to Issue Letters of Credit. ..........35
4.1.2. Letter of Credit Applications. ..................36
4.1.3. Terms of Letters of Credit. .....................36
4.1.4. Reimbursement Obligations of Dollar Banks. ......37
4.1.5. Participations of Dollar Banks. .................37
4.2. Reimbursement Obligation of the Borrower. ..................37
4.3. Letter of Credit Payments. .................................38
4.4. Obligations Absolute. ......................................38
4.5. Reliance by Issuer. ........................................39
4.6. Letter of Credit Fees. .....................................39
5. THE GOLD FACILITY - CONSIGNMENTS . ....................................40
5.1. Commitment To Make Consignments; Title To Consigned
Precious Metal. ............................................40
5.2. Consignment Fees; Gold Fronting Fees. ......................42
5.2.1. Consignment Fees. ...............................42
5.2.2. Gold Fronting Fees. .............................42
5.2.3. Payment of Fees. ................................43
<PAGE>
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5.3. Requests For Consignments. .................................43
5.4. Payment on Account of Repurchase or Redelivery of
Consigned Precious Metal. ..................................44
5.5. Conversion Options. ........................................47
5.6. Repurchase at Maturity. ....................................48
5.7. True Consignment. ..........................................48
6. THE GOLD FACILITY - THE GOLD LOANS......................................48
6.1. Commitment to Lend. ........................................48
6.2. The Gold Notes. ............................................49
6.3. Interest on Gold Loans. ....................................50
6.4. Requests for Gold Loans; Conversion Options. ...............50
6.5. Funds for Gold Loans. ......................................50
6.6. Repayment of Gold Loans at Maturity. .......................50
6.7. Optional Repayments. .......................................50
7. CERTAIN COMMON PROVISIONS RELATING......................................50
TO THE GOLD FACILITY. .....................................................50
7.1. Commitment Fee. ............................................50
7.2. Reduction of Total Gold Commitment and Gold Fronting
Commitment. ................................................50
8. CERTAIN GENERAL PROVISIONS. ...........................................51
8.1. Interest on Loans. .........................................51
8.2. Borrowing Base and Consignment Limitations. ................51
8.3. Requests for Loans. ........................................52
8.4. Conversion Options. ........................................53
8.4.1. Conversion to Different Type of Loan. ...........53
8.4.2. Continuation of Type of Loan. ...................53
8.4.3. Eurodollar Rate Loans. ..........................54
8.5. Funds for Loans. ...........................................54
8.5.1. Funding Procedures. .............................54
8.5.2. Advances by Applicable Agent. ...................55
8.6. Settlements; Failure to Make Funds Available. ..............55
8.7. Optional Repayments of Loans. ..............................57
8.8. Repayments of Loans and Repurchases of Consigned Precious
Metals Prior to Event of Default.............................58
8.9. Repayments of Loans and Repurchases of Consigned Precious
Metals and Distribution of Collateral Proceeds After
Event of Default. ..........................................59
8.10. Closing Fee. ..............................................60
8.11. Agents' Fee. ..............................................60
8.12. Funds for Payments. .......................................60
8.12.1. Payments to Agents. ............................60
8.12.2. No Offset, etc. ................................61
8.12.3. Withholding Forms. .............................61
8.12.4. Exclusions. ....................................62
8.13. Computations. .............................................62
<PAGE>
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8.14. Inability to Determine Eurodollar Rate or Consignment
Fixed Rate. ...............................................63
8.15. Illegality of Eurodollar Rate Loans or Consignment Fixed
Rate Amounts. .............................................63
8.16. Additional Costs, etc. ....................................64
8.17. Capital Adequacy. .........................................66
8.18. Certificate. ..............................................66
8.19. Indemnity. ................................................67
8.20. Interest After Default. ...................................68
8.21. Performance Adjustments. ..................................69
8.22. Replacement of Banks. .....................................70
9. COLLATERAL SECURITY AND GUARANTIES. ...................................70
9.1. Security of Borrower and Capital Stock of the Borrower. ....70
9.2. Guaranties and Security of Subsidiaries. ...................70
10. REPRESENTATIONS AND WARRANTIES. ......................................71
10.1. Corporate Authority. ......................................71
10.1.1. Incorporation; Good Standing. ..................71
10.1.2. Authorization. .................................71
10.1.3. Enforceability. ................................71
10.2. Governmental Approvals. ...................................72
10.3. Title to Properties; Leases. ..............................72
10.4. Financial Statements and Projections. .....................72
10.4.1. Financial Statements. ..........................72
10.4.2. Projections. ...................................73
10.5. No Material Changes, etc.; Solvency. ......................73
10.5.1. No Material Changes, etc. ......................73
10.5.2. Solvency. ......................................74
10.6. Franchises, Patents, Copyrights, etc. .....................74
10.7. Litigation. ...............................................74
10.8. No Materially Adverse Contracts, etc. .....................74
10.9. Compliance with Other Instruments, Laws, etc. .............74
10.10. Tax Status. ..............................................75
10.11. No Event of Default. .....................................75
10.12. Holding Company and Investment Company Acts. .............75
10.13. Absence of Financing Statements, etc. ....................75
10.14. Perfection of Security Interest. .........................75
10.15. Certain Transactions. ....................................76
10.16. Employee Benefit Plans. ..................................76
10.16.1. In General. ...................................76
10.16.2. Terminability of Welfare Plans. ...............76
10.16.3. Guaranteed Pension Plans. .....................77
10.16.4. Multiemployer Plans. ..........................77
10.17. Regulations U and X. .....................................77
10.18. Environmental Compliance. ................................78
10.19. Subsidiaries, etc. .......................................80
<PAGE>
-iv-
10.20. Bank Accounts. ...........................................80
10.21. Acquisition Documents. ...................................80
11. AFFIRMATIVE COVENANTS OF THE BORROWER. ...............................80
11.1. Punctual Payment. .........................................80
11.2. Maintenance of Office. ....................................80
11.3. Records and Accounts. .....................................81
11.4. Financial Statements, Certificates and Information. .......81
11.5. Notices. ..................................................83
11.5.1. Defaults. ......................................83
11.5.2. Environmental Events. ..........................83
11.5.3. Notification of Claim against Collateral. ......84
11.5.4. Notice of Litigation and Judgments. ............84
11.6. Corporate Existence; Maintenance of Properties. ...........84
11.7. Insurance. ................................................85
11.8. Taxes. ....................................................86
11.9. Inspection of Properties and Books, etc. ..................86
11.9.1. General. .......................................86
11.9.2. Collateral Reports. ............................87
11.9.3. Appraisals. ....................................87
11.9.4. Communications with Accountants. ...............87
11.9.5. Environmental Assessments. .....................88
11.10. Compliance with Laws, Contracts, Licenses, and Permits. ..88
11.11. Employee Benefit Plans. ..................................89
11.12. Use of Proceeds. .........................................89
11.13. Additional Mortgaged Property. ...........................89
11.14. Bank Accounts. ...........................................89
11.15. Inventory Restrictions. ..................................90
11.16. Further Assurances. ......................................90
12. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. ..........................91
12.1. Restrictions on Indebtedness. .............................91
12.2. Restrictions on Liens. ....................................94
12.3. Restrictions on Investments. ..............................95
12.4. Distributions. ............................................97
12.5. Merger, Consolidation and Disposition of Assets. ..........98
12.5.1. Mergers and Acquisitions. ......................98
12.5.2. Disposition of Assets. .........................98
12.6. Sale and Leaseback. .......................................99
12.7. Compliance with Environmental Laws. .......................99
12.8. Indenture and Subordinated Notes. .........................99
12.9. Employee Benefit Plans. ...................................100
12.10. Bank Accounts. ...........................................100
12.11. Consignment Transactions. ................................101
12.12. Transactions with Affiliates. ............................101
12.13. Subsidiaries. ............................................101
12.14. Limitations on Mexican Subsidiary. .......................101
<PAGE>
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13. FINANCIAL COVENANTS OF THE BORROWER. .................................102
13.1. Senior Funded Debt to EBITDA. .............................102
13.2. Consolidated EBITDA. ......................................102
13.3. Capital Expenditures. .....................................102
13.4. Interest Coverage. ........................................103
14. CLOSING CONDITIONS. ..................................................103
14.1. Loan Documents, etc. ......................................103
14.2. Certified Copies of Charter Documents. ....................103
14.3. Corporate Action. .........................................104
14.4. Incumbency Certificate. ...................................104
14.5. Validity of Liens. ........................................104
14.6. Perfection Certificate and UCC Search Results. ............104
14.7. Certificates of Insurance. ................................104
14.8. FNBB Concentration Accounts; Agency Account Agreements. ...105
14.9. Borrowing Base Report; Consigned Precious Metal Report;
Monthly Inventory Report....................................105
14.10. Accounts Receivable Aging Report. ........................105
14.11. Opinions of Counsel. .....................................105
14.12. Payment of Fees. .........................................105
14.13. Payoff Letters. ..........................................105
14.14. Consummation of Equity Investment and Subordinated Note
Issuance. ................................................106
14.15. Financial Statements. ....................................106
14.16. Survey and Taxes; Appraisal. .............................106
14.17. Title Insurance. .........................................106
14.18. Environmental Reports. ...................................106
14.19. Landlord Consents. .......................................107
14.20. Closing of Acquisitions. .................................107
14.21. Consolidated EBITDA. .....................................107
14.22. Governmental Regulation. .................................107
14.23. Proceedings and Documents. ...............................108
15. CONDITIONS TO ALL BORROWINGS. ........................................108
15.1. Representations True; No Event of Default. ................108
15.2. Borrowing Base Report; Consigned Precious Metal Report. ...108
16. EVENTS OF DEFAULT; ACCELERATION; ETC. ................................109
16.1. Events of Default and Acceleration. .......................109
16.2. Termination of Commitments. ...............................112
16.3. Remedies. .................................................112
17. SETOFF. ..............................................................112
18. THE AGENTS. ..........................................................113
18.1. Authorization. ............................................113
18.2. Employees and Agents. .....................................114
18.3. No Liability. .............................................114
18.4. No Representations. .......................................114
18.5. Payments. .................................................115
<PAGE>
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18.5.1. Payments to Agents. ............................115
18.5.2. Distribution by Agents. ........................115
18.5.3. Delinquent Banks. ..............................116
18.5.4 Payments Under Confirmation of Swap Agreement. ..116
18.6. Holders of Notes. .........................................117
18.7. Indemnity. ................................................117
18.8. Agents as Banks. ..........................................117
18.9. Resignation. ..............................................117
18.10. Notification of Defaults and Events of Default. ...........118
18.11. Duties in the Case of Enforcement. ........................118
19. EXPENSES. ............................................................118
20. INDEMNIFICATION. .....................................................119
21. SURVIVAL OF COVENANTS, ETC. ..........................................120
22. ASSIGNMENT AND PARTICIPATION. ........................................121
22.1. Conditions to Assignment by Banks. ........................121
22.2. Certain Representations and Warranties; Limitations;
Covenants. ................................................121
22.3. Register. .................................................123
22.4. New Notes. ................................................123
22.5. Participations. ...........................................124
22.6. Disclosure. ...............................................124
22.7. Assignee or Participant Affiliated with the Borrower. .....124
22.8. Miscellaneous Assignment Provisions. ......................125
22.9. Assignment by Borrower. ...................................125
23. NOTICES, ETC. ........................................................125
24. GOVERNING LAW. .......................................................126
25. HEADINGS. ............................................................127
26. COUNTERPARTS. ........................................................127
27. ENTIRE AGREEMENT, ETC. ...............................................127
28. WAIVER OF JURY TRIAL. ................................................127
29. CONSENTS, AMENDMENTS, WAIVERS, ETC. ..................................128
30. SEVERABILITY. ........................................................128
31. CONFIDENTIALITY. .....................................................129
<PAGE>
EXHIBITS AND SCHEDULES
Exhibit A Form of Agency Account Agreement
Exhibit B Form of Borrowing Base Report
Exhibit C Form of Cash Collateral Agreement
Exhibit D Form of Consigned Precious Metal Report
Exhibit E Form of Revolving Credit Note
Exhibit F Form of Term Note
Exhibit G Form of Consignment Request
Exhibit H Form of Gold Note
Exhibit I Form of Loan Request
Exhibit J Form of Compliance Certificate
Exhibit K Form of Supplement to Schedule 2
Exhibit L Form of Assignment and Acceptance
Schedule 1 Banks, Commitments, Commitment Percentages, Gold
Commitments, Gold Commitment Percentages
Schedule 2 Borrower Permitted Inventory Locations
Schedule 3 Consolidated EBITDA for Prior Periods
Schedule 4 Mortgaged Properties
Schedule 10.3 Titles to Properties; Leases
Schedule 10.6 Franchises, Patents, Copyrights, etc.
Schedule 10.7 Litigation
Schedule 10.16 ERISA Matters
Schedule 10.18 Environmental Compliance
Schedule 10.19 Subsidiaries
Schedule 10.20 Bank Accounts
Schedule 12.1 Existing Indebtedness
Schedule 12.2 Existing Liens
Schedule 12.3 Existing Investments
<PAGE>
REVOLVING CREDIT, TERM LOAN AND
GOLD CONSIGNMENT AGREEMENT
This REVOLVING CREDIT, TERM LOAN AND GOLD CONSIGNMENT AGREEMENT is made as
of December 16, 1996, by and among (a) SCHOLASTIC BRANDS, INC., a Delaware
corporation having its principal place of business at 7211 Circle S Road,
Austin, Texas 78745 (the "Borrower"); (b) THE FIRST NATIONAL BANK OF BOSTON, a
national banking association, RHODE ISLAND HOSPITAL TRUST NATIONAL BANK, a
national banking association and the other lending institutions listed on
Schedule 1; and (c) THE FIRST NATIONAL BANK OF BOSTON and RHODE ISLAND HOSPITAL
TRUST NATIONAL BANK as agents for themselves and such other lending
institutions.
1. DEFINITIONS AND RULES OF INTERPRETATION.
1.1. Definitions. The following terms shall have the meanings set forth in
this ss.1 or elsewhere in the provisions of this Credit Agreement referred to
below:
Accounts Receivable. All rights of the Borrower or any of its Subsidiaries
to payment for goods sold, leased or otherwise marketed in the ordinary course
of business and all rights of the Borrower or any of its Subsidiaries to payment
for services rendered in the ordinary course of business and all sums of money
or other proceeds due thereon pursuant to transactions with account debtors,
except for that portion of the sum of money or other proceeds due thereon that
relate to sales, use or property taxes in conjunction with such transactions,
recorded on books of account in accordance with generally accepted accounting
principles.
Acquisition Documents. (a) The Asset Purchase Agreement dated as of May 20,
1996 among the Borrower and the CJC Sellers, as amended by Amendment No. 1
thereto dated November 20, 1996, (b) the Amended and Restated Asset Purchase
Agreement dated as of November 20, 1996 among the Borrower, the Balfour Sellers
and certain other parties, and (c) all other agreements and documents required
to be entered into or delivered pursuant to any of the foregoing documents or in
connection with the Acquisitions, each in the form delivered to the Agents on or
prior to the Closing Date.
Acquisitions. The acquisition by the Borrower from the CJC Sellers and the
Balfour Sellers, respectively, of the assets and business of the Class Ring
division of CJC Holdings, Inc. and the assets and business of L G. Balfour Inc.
pursuant to the Acquisition Documents.
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Affiliate. Any Person that would be considered to be an affiliate of the
Borrower under Rule 144(a) of the Rules and Regulations of the Securities and
Exchange Commission, as in effect on the date hereof, if the Borrower were
issuing securities. Notwithstanding the foregoing, the Agents (in their
capacities as agents and in their individual capacities as Banks) shall not be
Affiliates of the Borrower and no individual shall be an Affiliate solely by
reason of his or her being a director, officer or employee of Castle Harlan,
Inc., the Borrower or any of its Subsidiaries.
Agency Account Agreement. Any Agency Account Agreement in the form of
Exhibit A attached hereto (or a form otherwise approved by the Dollar Agent in
its sole discretion) entered into by the Borrower, the Dollar Agent and a
depository institution reasonably satisfactory to the Agents.
Agents. For the Dollar Facility, FNBB; for the Gold Facility, RIHT.
Agents' Special Counsel. Bingham, Dana & Gould LLP or such other counsel as
may be approved by the Agents.
Applicable Agent. With respect to the Dollar Facility, the Revolving Credit
Loans, the Letters of Credit, the Term Loan or the Dollar Banks, the Dollar
Agent; with respect to the Gold Facility, the Consignments, the Gold Loans or
the Gold Banks, the Gold Agent.
Applicable Banks. With respect to the Dollar Facility, the Revolving Credit
Loans, the Letters of Credit, the Term Loan or the Dollar Agent, the Dollar
Banks; with respect to the Gold Facility, the Consignments, the Gold Loans or
the Gold Agent, the Gold Banks.
Asset Disposition Prepayment. See ss.3.6.2.
Assignment and Acceptance. See ss.22.1.
Balance Sheet Date. August 31, 1996.
Balfour Sellers. Town & Country Corporation and L.G. Balfour Company, Inc.
Banks. Collectively, the Dollar Banks and the Gold Banks.
Base Rate. The higher of (i) the annual rate of interest announced from
time to time by FNBB at its head office in Boston, Massachusetts, as its "base
rate" and (ii) one-half of one percent (1/2%) above the Federal Funds Effective
Rate. For the purposes of this definition, "Federal Funds Effective Rate" shall
mean for any day, the rate per annum equal to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next
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preceding Business Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for such day on such transactions received by FNBB from three funds
brokers of recognized standing selected by FNBB.
Base Rate Applicable Margin. At all times (a) from the Closing Date through
the first Performance Adjustment Date (i) with respect to Revolving Credit Loans
or Gold Loans which are Base Rate Loans, one and one quarter percent (1-1/4%)
and (ii) with respect to any portion of the Term Loan which is a Base Rate Loan,
one and three quarters percent (1-3/4%), and (b) after the first Performance
Adjustment Date, the percentage determined by reference to the provisions of
ss.8.21.
Base Rate Loans. Revolving Credit Loans, Gold Loans and all or any portion
of the Term Loan bearing interest calculated by reference to the Base Rate.
Borrower. As defined in the preamble hereto.
Borrower Permitted Inventory Locations. The manufacturing facilities and
distribution centers of the Borrower located in the United States of America and
listed on Schedule 2 hereto, as such Schedule 2 may be supplemented from time to
time in accordance with the provisions ofss.11.4(i).
Borrower's Precious Metal. Precious Metal owned by the Borrower and which
qualifies as Eligible Inventory, excluding Consigned Precious Metal and Precious
Metal otherwise held by the Borrower on consignment other than pursuant to the
Gold Facility.
Borrowing Base. At the relevant time of reference thereto, an amount
determined by the Dollar Agent by reference to the most recent Borrowing Base
Report delivered to the Banks and the Agents pursuant toss.11.4(f), which is
equal to the sum of, without duplication:
(a) 90% of the Fair Market Value of the Precious Metal content of
Eligible Inventory held by the Borrower at Borrower Permitted Inventory
Locations, plus
(b) 70% of the Fair Market Value of the Precious Metal content of
Eligible Inventory held by, or in transit to or from, Specified Refiners
(net of any amounts advanced by such Specified Refiners to the Borrower and
included in Eligible Inventory held by the Borrower at Borrower Permitted
Inventory Locations), plus
(c) 80% of the Fair Market Value of Silver and Platinum contained in
Eligible Inventory and held by the Borrower at Borrower Permitted Inventory
Locations, plus
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(d) 50% of the net book value (determined on a first-in first-out
basis at lower of cost or market) of non-precious metals contained in
Eligible Inventory and held by the Borrower at Borrower Permitted Inventory
Locations, plus
(e) 30% of the net book value (determined on a first-in first-out
basis at lower of cost or market) of the value of precious and
semi-precious stones contained in Eligible Inventory and held by the
Borrower at Borrower Permitted Inventory Locations, plus
(f) 30% of the net book value (determined on a first-in first-out
basis at lower of cost or market) of Eligible Inventory consisting of raw
material paper products or graphics inventory (excluding work-in-process
and finished goods inventory) and held by the Borrower at Borrower
Permitted Inventory Locations, plus
(g) the lesser of (i) 40% of the Fair Market Value of the Precious
Metal content of Eligible Inventory constituting samples held in the
ordinary course of business by sales representatives or at retail locations
and (ii) $1,000,000; plus
(h) 80% of Eligible Accounts Receivable for which invoices have been
issued and are payable.
Borrowing Base Report. A Borrowing Base Report signed by the chief
financial officer or treasurer of the Borrower and in substantially the form of
Exhibit B hereto.
Business Day. Any day on which banking institutions in Boston,
Massachusetts and Providence, Rhode Island, are open for the transaction of
banking business and, in the case of Eurodollar Rate Loans, also a day which is
a Eurodollar Business Day.
Capital Assets. Fixed and/or capital assets, both tangible (such as land,
buildings, fixtures, samples, tools and die, software, software development,
machinery and equipment) and intangible (such as software, patents, copyrights,
trademarks, franchises and good will); provided that Capital Assets shall not
include any item customarily charged directly to expense or depreciated over a
useful life of twelve (12) months or less in accordance with generally accepted
accounting principles.
Capital Expenditures. Amounts paid or indebtedness incurred by the Borrower
or any of its Subsidiaries in connection with the purchase or lease by the
Borrower or any of its Subsidiaries of Capital Assets that would be required to
be capitalized and shown on the balance sheet of such Person in accordance with
generally accepted accounting principles; provided, that the term Capital
Expenditures shall not include (a) expenditures made in connection with the
replacement, substitution or restoration
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of assets to the extent financed (i) 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, and (b) the purchase price of equipment that
replaces, or 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 sale price of such equipment, or the credit granted by the seller of such
equipment for the equipment being traded in at such time.
Capitalized Leases. Leases under which the Borrower or any of its
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in accordance with generally accepted accounting
principles.
Cash Collateral Agreement. The Cash Collateral Agreement to be entered into
on or prior to the Closing Date between the Borrower and the Collateral Agent
pursuant toss.4.2 andss.8.8(c) hereof, such Cash Collateral Agreement to be in
the form of Exhibit C attached hereto.
CERCLA. See ss.10.18.
CH Management Fees. Amounts due by the Borrower to Castle Harlan, Inc. for
management services.
CJC Business. The class ring business of CJC Holdings, Inc.
CJC Sellers. CJC Holdings, Inc. and CJC North America, Inc.
Closing Date. The first date on which the conditions set forth inss.14 have
been satisfied and any Revolving Credit Loans are to be made, the Term Loan is
to be made, any Gold Loans are to be made, any Consignments are to be made or
any Letter of Credit is to be issued hereunder.
Code. The Internal Revenue Code of 1986.
Collateral. All of the property, rights and interests of the Borrower and
its Subsidiaries that are or are intended to be subject to the security
interests and mortgages created by the Security Documents.
Collateral Agent. FNBB, in its capacity as collateral agent for the benefit
of Banks and the Agents under and with respect to the Security Documents.
Commitment. With respect to each Dollar Bank, the amount set forth on Part
1 of Schedule 1 hereto as the amount of such Dollar Bank's commitment to make
Revolving Credit Loans to, and to participate in the issuance, extension and
renewal of Letters of Credit for the account of, the Borrower, as the same may
be reduced
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from time to time; or if such commitment is terminated pursuant to
the provisions hereof, zero.
Commitment Percentage. With respect to each Dollar Bank, the percentage set
forth on Part 1 of Schedule 1 hereto as such Dollar Bank's percentage of the
aggregate Commitments of all of the Dollar Banks.
Confirmation of Swap Agreement. The Confirmation of Swap Agreement dated or
to be dated on or prior to the Closing Date, between the Borrower and the Gold
Agent and in form and substance satisfactory to each of the Banks, the Agents
and the Borrower, pursuant to which the Borrower and the Gold Agent have made
certain arrangements in order to fix the price of Consigned Precious Metal
following an Event of Default.
Consigned Precious Metal. Precious Metal (a) located at Borrower Permitted
Inventory Locations or at Specified Refiners, (b) Delivered to the Borrower or
subject to a Purchase and Consignment and, in each case, consigned by the Gold
Agent (on behalf of the Gold Banks) to the Borrower pursuant to the terms of
this Credit Agreement and (c) for which the Gold Banks have not received payment
or which has not been Redelivered to the Gold Agent.
Consigned Precious Metal Report. A Consigned Precious Metal Report signed
by the chief financial officer or treasurer of the Borrower and in substantially
the form of Exhibit D hereto.
Consignment. A Delivery or Purchase and Consignment of Precious Metal by
the Gold Agent (on behalf of the Gold Banks) to the Borrower pursuant to the
terms of this Credit Agreement.
Consignment Advance Rate Percentage. Ninety five percent (95%).
Consignment Base Rate. A rate determined by RIHT from time to time in its
sole discretion plus the Eurodollar Applicable Margin from time to time
applicable to Gold Loans, which rate may be changed by RIHT following seven (7)
days' prior written notice to the Borrower and the other Gold Banks.
Consignment Base Rate Amounts. Consigned Precious Metal which is accruing a
Consignment Fee and Gold Fronting Fee calculated by reference to the Consignment
Base Rate.
Consignment Conversion Request. A notice given by the Borrower to the Gold
Agent of the Borrower's election to convert or continue Consigned Precious
Metals in accordance withss.5.5.
Consignment Dollar Cap. As defined in the definition of Consignment Limit.
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Consignment Fees. Consignment fees on Consigned Precious Metal at the rates
set forth in ss.5.2.2.
Consignment Fixed Rate. With respect to any Interest Period, the amount
equal to (a) the greater of (i) the Eurodollar Rate for such Interest Period
minus the average of rates quoted to RIHT as the London Interbank Bullion Rates
as displayed on Reuter's gold loan screen or, if Reuter's gold loan screen is
not available, as set by RIHT, for Precious Metal forwards for such period (the
"Contango Rate"), and (ii) zero (0), plus (b) the Eurodollar Applicable Margin
from time to time applicable to Gold Loans.
Consignment Fixed Rate Amounts. Consigned Precious Metal which is accruing
a Consignment Fee and Gold Fronting Fee calculated by reference to the
Consignment Fixed Rate.
Consignment Limit. The lesser of (a) 26,000 troy ounces of Precious Metal
(the "Consignment Ounce Cap") or (b) Consigned Precious Metal having a Fair
Market Value equal to $10,000,000.00 minus the aggregate outstanding amount of
Gold Loans, after giving effect to all amounts requested (the "Consignment
Dollar Cap").
Consignment Ounce Cap. As defined in the definition of Consignment Limit.
Consignment Participation. See ss.5.4(b).
Consignment Premium. See ss.5.1(f).
Consignment Request. See ss.5.3.
Consolidated or consolidated. With reference to any term defined herein,
shall mean that term as applied to the accounts of the Borrower and its
Subsidiaries, consolidated in accordance with generally accepted accounting
principles.
Consolidated Adjusted EBITDA. With respect to the Borrower and its
Subsidiaries and any particular fiscal period, Consolidated EBITDA for such
period adjusted to include all extraordinary cash items of income or loss
(whether or not reflected in Consolidated EBITDA) and exclude all extraordinary
non-cash items of income or loss (whether or not reflected in Consolidated
EBITDA). Consolidated Adjusted EBITDA shall not, however, include extraordinary
items of income to the extent such items are duplicative of Net Proceeds in
connection with asset dispositions under ss.3.6.2.
Consolidated EBITDA. With respect to the Borrower and its Subsidiaries and
any particular fiscal period, the consolidated earnings (or loss) from
operations of the Borrower and its Subsidiaries for such period determined in
accordance with generally accepted accounting principles, after eliminating
therefrom all extraordinary
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nonrecurring items of income (including gains on the sale of assets and earnings
from the sale of discontinued business lines), and after all expenses
(including, without limitation, all CH Management Fees only to the extent paid
in cash) and other proper charges but before payment or provision for (a) any
income taxes, Consolidated Total Interest Expense or Consignment Fees or Gold
Fronting Fees for such period, (b) depreciation for such period, (c)
amortization for such period, (d) all other noncash charges for such period, (e)
to the extent deducted from consolidated earnings from operations, the aggregate
of all amounts paid (not to exceed $1,250,000 for all such amounts paid during
the 1997 fiscal year, $650,000 for all such amounts paid during the 1998 fiscal
year, $250,000 for all such amounts paid during the 1999 fiscal year and $0
during any fiscal year thereafter and not, in any event, to exceed $1,642,000 in
the aggregate for all such amounts) during such period relating to the
consolidation of the businesses in connection with the Acquisitions to form the
Borrower and its Subsidiaries, (f) the aggregate amount of all noncash
extraordinary losses (not to exceed $1,000,000 in the aggregate for all such
noncash extraordinary losses during any fiscal year) during such period, (g) the
aggregate amount of any reductions to consolidated earnings from operations
during such period attributable to any write-up of the Borrower's current assets
consisting of inventory in connection with the Acquisitions, and (h) a portion
of all extraordinary nonrecurring losses during such period relating to the
Acquisitions not to exceed $500,000 in the aggregate for all such amounts during
all fiscal periods and not to exceed in any such period the aggregate amount of
any extraordinary nonrecurring items of cash income during such period, if any,
all determined in accordance with generally accepted accounting principles. Each
of the parties hereto agrees that the amount of Consolidated EBITDA for
specified periods prior to the Closing Date shall be as set forth on Schedule 3
hereto for all purposes under this Credit Agreement.
Consolidated Excess Cash Flow. With respect to the Borrower and its
Subsidiaries and any particular fiscal period, an amount equal to (a)
Consolidated Adjusted EBITDA for such period less (b) the sum of (without
duplication) (i) all taxes (including interest and penalties) paid in cash
during such period (without duplication of any such amounts paid in prior
periods), plus (ii) the amount of Capital Expenditures made during such period
to the extent permitted to be made hereby, plus (iii) any payments of the
principal of the Term Loan made during such period other than payments made
pursuant to ss.3.6.1 hereof, plus (iv) any mandatory payments of principal with
respect to any Indebtedness of the Borrower and its Subsidiaries pursuant to any
other agreement or instrument to which any of the Borrower or its Subsidiaries
is a party relating to the borrowing of money or in respect of Capitalized
Leases, plus (v) Consolidated Total Interest Expense (excluding any accrued and
unpaid dividends on the Borrower's Series A Preferred Stock (or, as the case may
be, any accrued and unpaid dividends or interest with respect to any Permitted
Preferred Stock Replacement) during such period), plus (vi) to the extent not
deducted from Consolidated Adjusted EBITDA, (A) the amount of CH Management Fees
paid during such period, plus (B) the aggregate of all amounts paid (not to
exceed $5,368,000 for all such amounts paid during the 1997 fiscal year,
$940,000 for all
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such amounts paid during the 1998 fiscal year, $665,000 for all such amounts
paid during the 1999 fiscal year or $0 for all other fiscal years and not, in
any event, to exceed $5,473,000 in the aggregate for all such amounts) during
such period relating to the consolidation of the businesses in connection with
the Acquisitions to form the Borrower and its Subsidiaries, plus (C) the amount
of deferred compensation and post retirement medical benefits paid in cash
during such period relating to obligations existing as of the Closing Date, not
to exceed in the aggregate in any fiscal year $300,000 for all such deferred
compensation and $700,000 for all such post retirement medical benefits, plus
(vii) dividends on the Borrower's Series A Preferred Stock (or, as the case may
be, dividends or interest with respect to any Permitted Preferred Stock
Replacement) paid during such period.
Consolidated Senior Funded Debt. With respect to any fiscal period, an
amount equal to the Consolidated Total Funded Debt for such period minus the
average aggregate principal amount of the Subordinated Notes outstanding during
such period.
Consolidated Total Funded Debt. With respect to any fiscal period, an
amount equal to the average aggregate principal amount outstanding during such
period in respect of all Indebtedness of the Borrower and its Subsidiaries
pursuant to any agreement or instrument to which any of the Borrower or its
Subsidiaries is a party relating to the borrowing of money or the obtaining of
credit (including, without limitation, Obligations under this Credit Agreement
and all Indebtedness in respect of the Subordinated Notes) or in respect of
Capitalized Leases.
Consolidated Total Interest Expense. For any period, the aggregate amount
of interest required to be paid or accrued by the Borrower and its Subsidiaries
during such period in accordance with generally accepted accounting principles,
whether such interest was or is required to be reflected as an item of expense
or capitalized, including amortization of debt discount and premium and payments
consisting of interest in respect of Capitalized Leases and including commitment
fees, agency fees, facility fees, Consignment Fees, Gold Fronting Fees,
Consignment Premiums, balance deficiency fees and similar fees or expenses in
connection with the borrowing of money, Precious Metal or, Hedging Agreements,
and including all dividends accrued (together with all such dividends paid
during such period, but only to the extent such dividends were not accrued
during any prior period) on the Borrower's Series A Preferred Stock (or, as the
case may be, all accrued or (to the extent not accrued during any prior period)
paid dividends or interest with respect to any Permitted Preferred Stock
Replacement) during such period (without duplication of amounts from prior
periods). For purposes of determining, at any time of reference, the
Consolidated Total Interest Expense for periods prior to the Closing Date,
Consolidated Total Interest Expense shall be calculated by annualizing the
amount of Consolidated Total Interest Expense actually required to be paid or
accrued by the Borrower and its Subsidiaries during the period elapsed since the
Closing Date at such
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time of reference, but Consolidated Total Interest Expense shall otherwise be
calculated in a manner consistent with this definition.
Contango Rate. As defined in the definition of Consignment Fixed Rate.
Conversion Request. A notice given by the Borrower to the Dollar Agent with
respect to Dollar Facility Loans and to the Gold Agent with respect to Gold
Loans, of the Borrower's election to convert or continue a Dollar Facility Loan
or, as the case may be, a Gold Loan, in each case in accordance withss.ss.2.6,
3.5, 6.4 and 8.4.
Copyright Memorandum. The Memorandum of Grant of Security Interest in
Copyrights, dated or to be dated on or prior to the Closing Date, made by the
Borrower in favor of the Collateral Agent and in form and substance satisfactory
to the Banks, the Collateral Agent and the Agents.
Credit Agreement. This Revolving Credit, Term Loan and Gold Consignment
Agreement, including the Schedules and Exhibits hereto.
Default. See ss.16.1.
Delinquent Bank. See ss.18.5.3.
Deliver(ed) or Delivery. Either actual shipment, creating the right in the
Borrower to demand actual shipment through a writing, instrument or a statement
of account, or the Gold Agent's crediting Precious Metal to the account of the
Borrower with one or more third parties when no physical movement thereof is
contemplated by the parties.
Depository Bank. Any depository institution which receives deposits
directly or indirectly of amounts from the Borrower and its Subsidiaries.
Distribution. The declaration or payment of any dividend on or in respect
of any shares of any class of capital stock of the Borrower, other than
dividends payable solely in shares of common stock of the Borrower; the
purchase, redemption, or other retirement of any shares of any class of capital
stock of the Borrower, directly or indirectly through a Subsidiary of the
Borrower or otherwise; the return of capital by the Borrower to its shareholders
as such; or any other distribution on or in respect of any shares of any class
of capital stock of the Borrower.
Dollar Agent. FNBB, acting as agent for the Dollar Banks.
Dollar Agent's Head Office. The Dollar Agent's head office located at 100
Federal Street, Boston, Massachusetts 02110, or at such other location as the
Dollar Agent may designate from time to time.
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Dollar Banks. FNBB and the other lending institutions listed on Part 1 of
Schedule 1 hereto and any other Person who becomes an assignee of any rights and
obligations of a Dollar Bank pursuant to ss.22.
Dollar Facility. The Dollar Banks' commitments to make Dollar Facility
Loans and the Dollar Agent's agreement to issue, extend and renew Letters of
Credit.
Dollar Facility Loans. The Revolving Credit Loans and the Term Loan.
Dollars or $. Dollars in lawful currency of the United States of America.
Domestic Lending Office. Initially, the office of each Bank designated as
such in Schedule 1 hereto; thereafter, such other office of such Bank, if any,
located within the United States that will be making or maintaining Base Rate
Loans.
Drawdown Date. The date on which any Loan is made or is to be made, and the
date on which any Loan is converted or continued in accordance withss.ss.2.6,
3.5, 6.4 or 8.4.
Eligible Assignee. Any of (i) a commercial bank or finance company
organized under the laws of the United States, or any State thereof or the
District of Columbia, and having total assets in excess of $1,000,000,000; (ii)
a savings and loan association or savings bank organized under the laws of the
United States, or any State thereof or the District of Columbia, and having a
net worth of at least $100,000,000, calculated in accordance with generally
accepted accounting principles; (iii) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having total assets in excess of $1,000,000,000, provided that such
bank is acting through a branch or agency located in the country in which it is
organized or another country which is also a member of the OECD; (iv) the
central bank of any country which is a member of the OECD; and (v) if, but only
if, any Event of Default has occurred and is continuing, any other bank,
insurance company, commercial finance company or other financial institution or
other Person approved by the Agents, such approval not to be unreasonably
withheld.
Eligible Accounts Receivable. The aggregate of the unpaid portions of
Accounts Receivable of the Borrower and its Subsidiaries (other than the Mexican
Subsidiary) which are parties to the Guaranty (net of any credits, rebates,
offsets, holdbacks or other adjustments payable to third parties that are
adjustments to such Accounts Receivable but without deducting therefrom any
commissions payable to sales representatives) (a) that the Borrower reasonably
and in good faith determine to be collectible; (b) that are with account debtors
that (i) are not Affiliates of the Borrower, (ii) purchased the goods or
services giving rise to the relevant Account Receivable in an arm's length
transaction, (iii) are not insolvent or involved in any case or proceeding,
whether voluntary or involuntary, under any bankruptcy, reorganization,
arrangement, insolvency, adjustment of debt, dissolution, liquidation
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or similar law of any jurisdiction and (iv) are, in the Agents' reasonable
judgment, creditworthy; (c) that are in payment of obligations that have been
fully performed and are not subject to dispute or any other similar claims that
would reduce the cash amount payable therefor; (d) that are not subject to any
pledge, security interest or other lien or encumbrance other than those created
by the Loan Documents and other than any Permitted Liens pursuant to
ss.ss.12.2(b) and (e) hereof which are subordinate and junior to the interest of
the Collateral Agent therein; (e) in which the Collateral Agent has a valid and
perfected first priority security interest; (f) that are not Overdue
Receivables; (g) that are not due from an account debtor located in Indiana,
Minnesota or New Jersey unless the Borrower (i) has received a certificate of
authority to do business and is in good standing in such state or (ii) has filed
a notice of business activities report with the appropriate office or agency of
such state for the current year; (h) that are not due from any single account
debtor if more than (i) with respect to Accounts Receivable owing by independent
sales representatives of the division of the Borrower previously constituting
the "Scholastic Division" of the Balfour Sellers, fifty percent (50%) of the
aggregate amount of all Accounts Receivable owing from such account debtor would
otherwise not be Eligible Accounts Receivable, (ii) with respect to Accounts
Receivable of the Borrower generated in connection with the division of the
Borrower previously constituting the "Specialty Division" of the Balfour
Sellers, twenty percent (20%) of the aggregate amount of all Accounts Receivable
owing from such account debtor would otherwise not be Eligible Accounts
Receivable, and (iii) with respect to Accounts Receivable owing by any Specified
Account Debtors thirty-five percent (35%) of the aggregate amount of all
Accounts Receivable owing from such Specified Account Debtor would otherwise not
be Eligible Accounts Receivable; (i) that are payable in Dollars; (j) that are
not payable from an office outside of the United States; and (k) that are not
secured by a letter of credit unless the Collateral Agent has a prior, perfected
security interest in such letter of credit.
Eligible Inventory. With respect to the Borrower, inventory owned by the
Borrower or consigned pursuant to this Credit Agreement; provided that Eligible
Inventory shall not include any inventory (a) held on consignment (other than
inventory consigned pursuant to the Gold Facility), or not otherwise owned by
the Borrower, or of a type no longer sold by the Borrower, (b) which is damaged
or not immediately saleable or subject to any legal encumbrance other than
Permitted Liens, (c) which is not in the possession of the Borrower or a
Specified Refiner (except for (i) samples held in the ordinary course of
business by sales representatives or at retail locations solely to the extent
includable in the Borrowing Base pursuant to clause (g) of the definition of
Borrowing Base and (ii) Precious Metal in transit between the Borrower and a
Specified Refiner), (d) which is held by the Borrower on property leased by the
Borrower, unless the Agents have received a waiver from the lessor of such
leased property and, if any, sublessor thereof in form and substance
satisfactory to the Agents, (e) as to which appropriate Uniform Commercial Code
financing statements showing the Borrower as debtor and the Collateral Agent as
secured party have not been filed in the proper filing office or offices in
order to perfect the
<PAGE>
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Collateral Agent's security interest therein, (f) which has been shipped to a
customer of the Borrower regardless of whether such shipment is on a consignment
basis, or (g) which the Agents reasonably deem to be obsolete or not marketable.
Notwithstanding the requirements of this definition, the Agents may in their
discretion, but shall not be obligated to, include as Eligible Inventory
inventory held in the ordinary course of business by Specified Refiners or
samples inventory held by sales representatives or at retail locations
notwithstanding that one or more of the eligibility criteria set forth in this
definition may not be met.
Employee Benefit Plan. Any employee benefit plan within the meaning
ofss.3(3) of ERISA maintained or contributed to by the Borrower, other than a
Guaranteed Pension Plan or a Multiemployer Plan.
Environmental Laws. See ss.10.18(a).
Environmental Reports. See ss.10.18.
EPA. See ss.10.18(b).
ERISA. The Employee Retirement Income Security Act of 1974.
ERISA Affiliate. Any Person which is treated as a single employer with the
Borrower under ss.414 of the Code.
ERISA Reportable Event. A reportable event with respect to a Guaranteed
Pension Plan within the meaning ofss.4043 of ERISA and the regulations
promulgated thereunder as to which the requirement of notice has not been
waived.
Eurocurrency Reserve Rate. For any day with respect to a Eurodollar Rate
Loan or Consignment Fixed Rate Amount, the maximum rate (expressed as a decimal)
at which any lender subject thereto would be required to maintain reserves under
Regulation D of the Board of Governors of the Federal Reserve System (or any
successor or similar regulations relating to such reserve requirements) against
"Eurocurrency Liabilities" (as that term is used in Regulation D), if such
liabilities were outstanding. The Eurocurrency Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in the Eurocurrency
Reserve Rate.
Eurodollar Applicable Margin. At all times (a) from the Closing Date
through the first Performance Adjustment Date (i) with respect to Revolving
Credit Loans or Gold Loans which are Eurodollar Rate Loans, three percent (3%)
and (ii) with respect to any portion of the Term Loan which is a Eurodollar Rate
Loan, three and one-half percent (3-1/2%), and (b) after the first Performance
Adjustment Date, the percentage determined by reference to the provisions
ofss.8.21.
Eurodollar Business Day. Any day on which commercial banks are open for
international business (including dealings in Dollar deposits) in London or such
other
<PAGE>
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eurodollar interbank market as may be selected (a) with respect to Dollar
Facility Loans which are also Eurodollar Rate Loans, by the Dollar Agent, in its
sole discretion acting in good faith or (b) with respect to Gold Loans which are
also Eurodollar Rate Loans or with respect to Consignment Fixed Rate Amounts, by
the Gold Agent, in its sole discretion acting in good faith.
Eurodollar Lending Office. Initially, the office of each Bank designated as
such in Schedule 1 hereto; thereafter, such other office of such Bank, if any,
that shall be making or maintaining Eurodollar Rate Loans.
Eurodollar Rate. For any Interest Period with respect to a Eurodollar Rate
Loan or for purposes of determining the Consignment Fixed Rate, the rate of
interest equal to (a) the rate of interest for the Applicable Agent (rounded
upwards to the nearest 1/16 of one percent) of the rate at which such Applicable
Agent's Eurodollar Lending Office is offered Dollar deposits two Eurodollar
Business Days prior to the beginning of such Interest Period in the interbank
eurodollar market where the eurodollar and foreign currency and exchange
operations of such Eurodollar Lending Office are customarily conducted, for
delivery on the first day of such Interest Period for the number of days
comprised therein and in an amount comparable to the amount of the Eurodollar
Rate Loan or Consignment Fixed Rate Amount of the Applicable Agent to which such
Interest Period applies, divided by (b) a number equal to 1.00 minus the
Eurocurrency Reserve Rate, if applicable.
Eurodollar Rate Loans. Revolving Credit Loans, Gold Loans and all or any
portion of the Term Loan bearing interest calculated by reference to the
Eurodollar Rate.
Event of Default. See ss.16.1.
Excess Cash Flow Prepayment. See ss.3.6.1.
Extension of Credit. The making of any Loan or Consignment or the issuance,
extension or renewal of any Letter of Credit.
Fair Market Value. On any day, with respect to the calculation of the
Dollar value of Precious Metal, Platinum or Silver (a) with respect to Precious
Metal or Platinum, the Dollar per ounce Second London Fixing for Gold or, as the
case may be, Platinum, for such day, and (b) with respect to Silver, the Dollar
per ounce London Fixing for Silver for such day, in each case times the number
of ounces of Precious Metal, Platinum or, as the case may be, Silver, for which
such Dollar value is being calculated. If no such price is available for a
particular day, the Fair Market Value for such day shall be the price for the
immediately preceding day for which such price is available. In the event that
the London Bullion Brokers shall discontinue or alter its usual practice of
quoting a price in Dollars for gold, the Fair Market Value for such day shall be
RIHT's Spot Value for that day.
<PAGE>
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Fee Letter. See ss.8.10.
FNBB. The First National Bank of Boston, a national banking association, in
its individual capacity.
FNBB Concentration Accounts. See ss.11.14(a).
generally accepted accounting principles. (i) When used in ss.13, whether
directly or indirectly through reference to a capitalized term used therein,
means (A) principles that are consistent with the principles promulgated or
adopted by the Financial Accounting Standards Board and its predecessors, in
effect for the fiscal year ended on the Balance Sheet Date, and (B) to the
extent consistent with such principles, the accounting practice of the CJC
Sellers or the Balfour Sellers (with respect to the business acquired from the
Balfour Sellers) reflected in their financial statements for the year ended on
the Balance Sheet Date, and (ii) when used in general, other than as provided
above, means principles that are (A) consistent with the principles promulgated
or adopted by the Financial Accounting Standards Board and its predecessors, as
in effect from time to time, and (B) consistently applied with past financial
statements of the Borrower adopting the same principles, provided that in each
case referred to in this definition of "generally accepted accounting
principles" a certified public accountant would, insofar as the use of such
accounting principles is pertinent, be in a position to deliver an unqualified
opinion (other than a qualification regarding changes in generally accepted
accounting principles) as to financial statements in which such principles have
been properly applied.
Gold Agent. RIHT, acting as agent for the Gold Banks.
Gold Agent's Head Office. The Gold Agent's head office located at One
Hospital Trust Plaza, Providence, Rhode Island 02903, or at such other location
as the Gold Agent may designate from time to time.
Gold Banks. RIHT and any other lending institution listed on Part 2 of
Schedule 1 hereto and any other Person who becomes an assignee of any rights and
obligations of a Gold Bank pursuant toss.22.
Gold Commitment. With respect to each Gold Bank, the Dollar amount set
forth on Part 2 of Schedule 1 hereto as the amount of such Gold Bank's
commitment to make Consignment Participations in the Consignments of Precious
Metal made by the Gold Agent or to make Gold Loans, as the same may be reduced
from time to time; or, if such commitment is terminated pursuant to the
provisions hereof, zero.
Gold Commitment Percentage. With respect to each Gold Bank, the percentage
set forth on Part 2 of Schedule 1 hereto as such Gold Bank's percentage of the
aggregate Gold Commitments of all of the Gold Banks.
<PAGE>
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Gold Drawdown Date. The date on which any Delivery or any Purchase and
Consignment is made or is to be made.
Gold Facility. The Gold Agent's commitment to make Consignments and the
Gold Banks' commitments to make Consignment Participations therein and to make
Gold Loans.
Gold Fronting Fees. Gold fronting fees payable to the Gold Agent on
Consigned Precious Metal at the rates set forth in ss.5.2.2.
Gold Fronting Commitment. The Gold Agent's commitment to make Consignments
of Precious Metal to the Borrower in an aggregate amount not to exceed the
Consignment Limit, as the same may be reduced from time to time or terminated
pursuant to the provisions hereof.
Gold Loans. Revolving credit loans made or to be made by the Gold Banks to
the Borrower pursuant to ss.6.1.
Gold Maturity Date. December 16, 2001.
Gold Note Record. A Record with respect to a Gold Note.
Gold Notes. See ss.6.2.
Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning ofss.3(2) of ERISA maintained or contributed to by the Borrower or any
ERISA Affiliate the benefits of which are guaranteed on termination in full or
in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
Guaranty. The Guaranty, dated or to be dated on or prior to the Closing
Date, made by each Subsidiary of the Borrower (other than the Mexican
Subsidiary) in favor of the Banks, the Collateral Agent and the Agents pursuant
to which each such Subsidiary of the Borrower guaranties to the Banks, the
Collateral Agent and the Agents the payment and performance of the Obligations
and in form and substance satisfactory to the Banks, the Collateral Agent and
the Agents.
Hazardous Substances. See ss.10.18(b).
Hedging Agreement. Any swap, cap, collar, floor, option or other hedging
agreement in respect of interest rates, currency exchange rates or commodities.
Indebtedness. All obligations, contingent and otherwise, that in accordance
with generally accepted accounting principles should be classified upon the
obligor's balance sheet as liabilities, or to which reference should be made by
footnotes thereto, including in any event and whether or not so classified: (i)
all debt and similar monetary obligations, whether direct or indirect; (ii) all
liabilities secured by any
<PAGE>
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mortgage, pledge, security interest, lien, charge or other encumbrance existing
on property owned or acquired subject thereto, whether or not the liability
secured thereby shall have been assumed; and (iii) all guarantees (the amount of
any such Indebtedness represented by a guarantee to be taken at the lesser of
(A) the principal amount of the obligations guaranteed and still outstanding and
(B) the maximum amount for which the guaranteeing Person may be liable pursuant
to the terms of the instrument embodying such Indebtedness), endorsements and
other contingent obligations whether direct or indirect in respect of
indebtedness of others, including any obligation to supply funds to or in any
manner to invest in, directly or indirectly, the debtor, to purchase
indebtedness, or to assure the owner of indebtedness against loss, through an
agreement to purchase goods, supplies, or services for the purpose of enabling
the debtor to make payment of the indebtedness held by such owner or otherwise,
and the obligations to reimburse the issuer in respect of any letters of credit.
Notwithstanding anything herein to the contrary, "Indebtedness" shall not
include any Trade and OCB Liabilities.
Indenture. The Indenture dated as of December 16, 1996 between the Borrower
and Marine Midland Bank, as trustee.
Installment Amount. See ss.8.19(a).
Interest Payment Date. (i) As to any Base Rate Loan, the last day of the
calendar month which includes the Drawdown Date thereof; and (ii) as to any
Eurodollar Rate Loan in respect of which the Interest Period is (A) 3 months or
less, the last day of such Interest Period and (B) more than 3 months, the date
that is 3 months from the first day of such Interest Period and, in addition,
the last day of such Interest Period.
Interest Period. With respect to each Dollar Facility Loan, Gold Loan or
Consignment Fixed Rate Amount, (a) initially, the period commencing on the
Drawdown Date of such Loan (or, as the case may be, the Gold Drawdown Date of
the Consignments with respect to such Consignment Fixed Rate Amounts) and ending
on the last day of one of the periods set forth below, as selected by the
Borrower in a Loan Request (or, as the case may be, Consignment Request with
respect to Consignment Fixed Rate Amounts) (i) for any Base Rate Loan, the
calendar month; and (ii) for any Eurodollar Rate Loan or Consignment Fixed Rate
Amount, 1, 2, 3 or 6 months; and (b) thereafter, each period commencing on the
last day of the next preceding Interest Period applicable to such Loan or
Consignment Fixed Rate Amount and ending on the last day of one of the periods
set forth above, as selected by the Borrower in a Conversion Request or
Consignment Conversion Request; provided that all of the foregoing provisions
relating to Interest Periods are subject to the following:
(A) if any Interest Period with respect to a Eurodollar Rate Loan or
Consignment Fixed Rate Amount would otherwise end on a day that is not a
<PAGE>
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Eurodollar Business Day, that Interest Period shall be extended to the next
succeeding Eurodollar 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 immediately preceding
Eurodollar Business Day;
(B) if any Interest Period with respect to a Base Rate Loan would end
on a day that is not a Business Day, that Interest Period shall end on the
next succeeding Business Day;
(C) if the Borrower shall fail to give notice as provided inss.ss.2.6,
3.5, 6.4 or 8.4, the Borrower shall be deemed to have requested a
conversion of the affected Eurodollar Rate Loan or Consignment Fixed Rate
Amount to a Base Rate Loan or Consignment Base Rate Amount, as applicable,
on the last day of the then current Interest Period with respect thereto;
(D) any Interest Period relating to any Eurodollar Rate Loan or
Consignment Fixed Rate Amount that begins on the last Eurodollar 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 Eurodollar Business Day of a calendar month;
(E) any Interest Period relating to any Revolving Credit Loan that is
a Eurodollar Rate Loan that would otherwise extend beyond the Revolver
Maturity Date shall end on the Revolver Maturity Date;
(F) any Interest Period relating to (i) any Gold Loan that is a
Eurodollar Rate Loan or (ii) any Consigned Precious Metal that is a
Consignment Fixed Rate Amount, that would otherwise extend beyond the Gold
Maturity Date shall end on the Gold Maturity Date; and
(G) any Interest Period relating to any portion of the Term Loan that
is a Eurodollar Rate Loan that would otherwise extend beyond the Term Loan
Maturity Date shall end on the Term Loan Maturity Date.
Investments. All (a) expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Indebtedness of any
Person, (b) loans, advances and capital contributions to any Person, or (c)
guaranties (or other commitments as described under Indebtedness) of obligations
of any Person. In determining the aggregate amount of Investments outstanding at
any particular time: (i) the amount of any Investment represented by a guaranty
shall be taken at not less than the principal amount of the obligations
guaranteed and still outstanding; (ii) there shall be included as an Investment
all interest accrued with respect to Indebtedness constituting an Investment
unless and until such interest is paid; (iii) there shall be deducted in respect
of each such Investment any amount received as a return of capital (but only by
repurchase, redemption, retirement, repayment, liquidating
<PAGE>
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dividend or liquidating distribution); (iv) there shall not be deducted in
respect of any Investment any amounts received as earnings on such Investment,
whether as dividends, interest or otherwise, except that accrued interest
included as provided in the foregoing clause (ii) may be deducted when paid; and
(v) there shall not be deducted from the aggregate amount of Investments any
decrease in the value thereof.
Issuance Prepayment Termination Date. The earlier of (a) payment in full of
the Term Loan and (b) the earliest date (in no event earlier than five Business
Days after the Borrower shall have delivered to the Agents and the Banks
quarterly or annual financial statements and computations of the Consolidated
EBITDA and Consolidated Total Funded Debt for the applicable period with
reference to which the occurrence of the Issuance Prepayment Termination Date is
being asserted and in no event prior to delivery of the financial statements and
computations for the fiscal period ending on February 28, 1998) upon which the
Borrower and its Subsidiaries shall have had a ratio of Consolidated Senior
Funded Debt for the period of four consecutive fiscal quarters most recently
ended prior to such asserted Issuance Prepayment Termination Date to
Consolidated EBITDA for the period of four consecutive fiscal quarters most
recently ended prior to such asserted Issuance Prepayment Termination Date of
less than 3.5 to 1.0.
Letter of Credit. See ss.4.1.1.
Letter of Credit Application. See ss.4.1.1.
Letter of Credit Fees. See ss.4.6.
Letter of Credit Participation. See ss.4.1.4.
Loan Documents. This Credit Agreement, the Notes, the Guaranty, the Letter
of Credit Applications, the Letters of Credit, the Fee Letter and the Security
Documents.
Loan Request. See ss.8.3(a).
Loans. The Revolving Credit Loans, the Term Loan and the Gold Loans.
Local Accounts. Depository accounts in depository institutions for, or on
behalf of, any of the Borrower or its Subsidiaries and listed on Schedule 10.20
hereto (as such may be amended from time to time in accordance withss.13.10
hereof).
Majority Banks. As of any date, the Banks (other than Delinquent Banks)
whose aggregate portions of the outstanding amount of the Term Loan and whose
aggregate Commitments or, as the case may be, Gold Commitments together
constitute at least sixty-six and two thirds percent (66-2/3%) of the Total
Commitment; provided, however, that if the Commitments or the Gold Commitments
shall have been terminated, then the Majority Banks shall be the Banks whose
<PAGE>
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aggregate portions of the Outstanding Facility Amounts together constitute at
least sixty-six and two thirds percent (66-2/3%) of the Outstanding Facility
Amounts.
Maximum Drawing Amount. The maximum aggregate amount that the beneficiaries
may at any time draw under outstanding Letters of Credit, as such aggregate
amount may be reduced from time to time pursuant to the terms of the Letters of
Credit.
Mexican Stock Pledge Agreement. The Stock Pledge Agreement (Mexican), dated
or to be dated on or prior to the Closing Date, between the Borrower and the
Collateral Agent and in form and substance satisfactory to the Banks, the
Collateral Agent and the Agents.
Mexican Subsidiary. Pulidos de Juarez, S.A. de C.V., a corporation
organized under the laws of Mexico.
Mortgaged Property. Any Real Estate which is subject to any Mortgage.
Mortgages. The several mortgages and deeds of trust, dated or to be dated
on or prior to the Closing Date, from the Borrower and its Subsidiaries to the
Collateral Agent with respect to the fee and leasehold interests of the Borrower
and its Subsidiaries in certain of the Real Estate described on Schedule 4
hereto and in form and substance reasonably satisfactory to the Banks, the
Collateral Agent and the Agents.
Multiemployer Plan. Any multiemployer plan within the meaning of ss.3(37)
of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate.
Net Proceeds. With respect to any sale or other disposition of any asset by
any Person or any issuance of common equity securities of such Person, the
excess of (i) the gross cash proceeds received by such Person from the sale or
disposition of any such asset, or, as the case may be, the issuance of any such
common equity securities of such Person, plus, as and when received, all cash
payments received subsequent to such sale or disposition or such issuance
representing (A) any deferred purchase price therefor or (B) any cash proceeds
from the sale or other disposition of any cash equivalents (or any deferred
purchase price obligations) received therefor over (ii) the sum of (A) a
reasonable reserve for any liabilities payable incident to such sale or
disposition or such issuance, (B) the reasonable direct costs and expenses
incurred by such Person in connection with such sale or disposition or such
issuance (including, without limitation, reasonable brokerage, legal, investment
banking, accounting, consulting, survey, title and recording fees and
commissions), (C) all payments actually made on any Indebtedness (other than the
Obligations) or other obligations which are secured by any assets subject to
such sale or disposition which are required to be repaid out of the proceeds
from such transaction and (D) actual tax payments made or to be made in
connection therewith.
<PAGE>
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New Issuance Prepayment. See ss.3.6.3.
New Lending Office. See ss.8.12.4.
New Notes. See ss.12.8.
Non-U.S. Bank. See ss.8.12.3.
Notes. The Term Notes, the Gold Notes and the Revolving Credit Notes.
Obligations. All indebtedness, obligations and liabilities of any of the
Borrower and its Subsidiaries to any of the Banks, the Agents and the Collateral
Agent, individually or collectively, existing on the date of this Credit
Agreement or arising thereafter, direct or indirect, joint or several, absolute
or contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, arising or
incurred under this Credit Agreement or any of the other Loan Documents, or
under any Hedging Agreement entered into between any of the Borrower and its
Subsidiaries and either of the Agents, or in respect of any of the Loans or
Consignments made or Reimbursement Obligations incurred or any of the Notes, the
Guaranty, any Letter of Credit Application, Letter of Credit or other
instruments at any time evidencing any thereof.
Operating Accounts. See ss.8.3(b).
outstanding. With respect to the Loans, the aggregate unpaid principal
thereof as of any date of determination; with respect to Consignments, the
aggregate Fair Market Value or number of troy ounces of Consigned Precious Metal
which, as of any date of determination, has not been paid for by the Borrower or
Redelivered.
Outstanding Facility Amounts. The sum of (a) the outstanding amount of the
Revolving Credit Loans (after giving effect to all amounts requested) plus (b)
the outstanding amount of the Gold Loans (after giving effect to all amounts
requested) plus (c) the Fair Market Value of Consigned Precious Metal (after
giving effect to all Consignments requested) plus (d) the Maximum Drawing Amount
and all Unpaid Reimbursement Obligations.
Overdue Receivables. Accounts Receivable of the Borrower that are
outstanding for more than (a) with respect to Accounts Receivable owing by
independent sales representatives of the division of the Borrower previously
constituting the "Scholastic Division" of the Balfour Sellers, (i) during the
months of July, August, November and December of any year (and during the month
of June of 1997), one hundred eighty (180) days past the earlier to occur of (A)
the date of the respective invoices therefor and (B) the date of shipment
<PAGE>
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thereof in the case of goods or the end of the calendar month following the
provision thereof in the case of services, and (ii) at any other time, one
hundred twenty (120) days past the earlier to occur of (A) the date of the
respective invoices therefor and (B) the date of shipment thereof in the case of
goods or the end of the calendar month following the provision thereof in the
case of services, (b) with respect to Accounts Receivable owing by Walmart
Stores, the earlier to occur of (i) one hundred fifty (150) days past the date
of shipment of the goods relating thereto and (ii) one hundred twenty (120) days
past the due date for payment thereon, (c) with respect to Accounts Receivable
owing by any of the Specified Account Debtors classified as "60 Day Term
Specified Account Debtors" on the Specified Account Debtor Letter, the earlier
to occur of (i) one hundred twenty (120) days past the date of shipment of the
goods relating thereto and (ii) sixty (60) days past the due date for payment
thereon, (d) with respect to Accounts Receivable owing by any of the Specified
Account Debtors classified as "90 Day Term Specified Account Debtors" on the
Specified Account Debtor Letter, the earlier to occur of (i) one hundred fifty
(150) days past the date of shipment of the goods relating thereto and (ii)
sixty (60) days past the due date for payment thereon, (e) with respect to
Accounts Receivable owing by any of the Specified Account Debtors classified as
"120 Day Term Specified Account Debtors" on the Specified Account Debtor Letter,
the earlier to occur of (i) one hundred fifty (150) days past the date of
shipment thereof and (ii) thirty (30) days past the due date for payment
thereon, (f) sixty (60) days past the due date for payment thereon with respect
to Accounts Receivable (A) owed by college students who have purchased goods on
an installment sale basis with full payment to be due within eight (8) months of
the date of sale, (B) owed by high school students who have purchased goods on
an installment sale basis with full payment to be due within six (6) months of
the date of sale, or (C) generated in connection with the Borrower's
"Recognition Products" division where the account debtor has purchased goods on
an installment sale basis with full payment to be due within ten (10) months of
the date of sale, provided, that the aggregate amount of any such Accounts
Receivable owing by college or high school students or generated in connection
with the Borrower's "Recognition Products" division constituting Eligible
Accounts Receivable shall in no event exceed $5,000,000 at any time, and (g)
with respect to all other Accounts Receivable of the Borrower, the earlier to
occur of (i) ninety (90) days past the earlier to occur of (A) the date of the
respective invoices therefor and (B) the date of shipment thereof in the case of
goods or the end of the calendar month following the provision thereof in the
case of services and (ii) sixty (60) days past the due date for payment thereon.
Patent Assignment. The Patent Collateral Assignment and Security Agreement,
dated or to be dated on or prior to the Closing Date, made by the Borrower in
favor of the Collateral Agent and in form and substance satisfactory to the
Banks, the Collateral Agent and the Agents.
PBGC. The Pension Benefit Guaranty Corporation created by ss.4002 of ERISA
and any successor entity or entities having similar responsibilities.
Perfection Certificates. The Perfection Certificates as defined in the
Security Agreement.
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Performance Adjustment. See ss.8.21.
Performance Adjustment Date. See ss.8.21.
Permitted Common Stock Repurchases. Repurchases of the Borrower's common
stock which are made concurrently with the issuance by the Borrower of
additional common stock to employees or sales representatives so long as the
Borrower receives a cash purchase price in respect of any such additional common
stock from such employees or sales representatives in an amount equal to the
aggregate amount of cash to be paid in order to effect such repurchases of
common stock.
Permitted Employee Stock Repurchases. Repurchases of common stock of the
Borrower theretofore issued to employees or independent sales representatives of
the Borrower so long as the aggregate amount paid by the Borrower in cash with
respect thereto shall not exceed $500,000 during any fiscal year.
Notwithstanding the foregoing, (a) any unused portion of any such amount for
common stock repurchases in any fiscal year may be used in the succeeding fiscal
year (but not any other fiscal year) and any such amounts carried forward to a
succeeding fiscal year shall be used for common stock repurchases in such
succeeding fiscal year prior to using any portion of the amount permitted for
such succeeding fiscal year, and (b) after using the entire permitted cash
amount available for such common stock repurchases in any fiscal year, the
Borrower may also issue promissory notes to employees and sales representatives
to effect such repurchases of common stock so long as such promissory notes are
issued on terms which are subordinate in all respects to the Obligations and so
long as no payments, redemptions or repurchases of any kind may be made with
respect to any such promissory notes prior to the irrevocable payment in full in
cash of all of the Obligations and the termination of all of the Commitments,
Gold Commitments and the Gold Fronting Commitment.
Permitted Liens. Liens, security interests and other encumbrances permitted
by ss.12.2.
Permitted Preferred Stock Dividends. Payments of cash dividends in respect
of the Borrower's Series A Preferred Stock as set forth in the Borrower's
Certificate of Incorporation as in effect on the date hereof or any Permitted
Preferred Stock Replacement constituting preferred stock, provided that (a) the
Borrower and its Subsidiaries shall have had, for the period of four consecutive
fiscal quarters most recently ended prior to the payment of any such dividend, a
ratio of Consolidated EBITDA to Consolidated Total Interest Expense equal to at
least 2.25:1.0, (b) no Event of Default shall have occurred and be continuing
and none would result from the making of such dividend, (c) such dividends shall
be payable at a rate not to exceed one percent (1%) per annum in excess of the
interest rate payable in respect of the Subordinated Notes, and (d) the Borrower
shall provide the Agents, prior to the making of any such dividend payment, with
a statement certified by the principal
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financial or accounting officer of the Borrower setting forth in reasonable
detail computations evidencing the calculation described in clause (a) above.
Permitted Preferred Stock Replacement. (a) Indebtedness incurred by the
Borrower, (b) additional common stock issued by the Borrower or (c) preferred
stock issued by the Borrower, in each case in connection with, and solely to the
extent of, the replacement of a portion of the Borrower's existing Series A
Preferred Stock in an aggregate principal amount not in excess of $10,000,000
(plus the amount of accrued dividends on such existing Series A Preferred Stock)
at any time outstanding, provided that (i) in the case of any such Indebtedness,
the Borrower and its Subsidiaries shall have had for the period of four
consecutive fiscal quarters most recently ended prior to the incurrence of such
Indebtedness, a ratio of Consolidated EBITDA to Consolidated Total Interest
Expense equal to at least 2.5:1.0, (ii) in the case of any such Indebtedness,
such Indebtedness shall be subordinated in all other respects to the Obligations
on terms substantially identical to, or no more favorable to the holders thereof
than, the terms of the Subordinated Notes (except that the interest rate payable
thereon may exceed the rate payable in respect of the Subordinated Notes by no
more than one percent (1%) per annum), and (iii) in the case of any such
preferred stock, such preferred stock shall have rights, preferences and terms
no more adverse to the interests of the Banks and the Agents than the existing
Series A Preferred Stock and shall accrue dividends at a rate not in excess of
the rate payable on such existing Series A Preferred Stock as of the date
hereof, and (d) the Borrower shall provide the Agents, prior to the incurrence
of such Indebtedness or, as the case may be, the issuance of such common stock
or preferred stock, with a statement certified by the principal financial or
accounting officer of the Borrower setting forth in reasonable detail
computations evidencing the calculation described in clause (a) above.
Person. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
Precious Metal. Gold measured in troy ounces having a fineness of not less
than .9995, without regard to whether such gold is alloyed or unalloyed, in
bullion form or contained in or processed into other materials which contain
elements other than gold.
Purchase and Consignment. Purchases from, and consignments to, the Borrower
of Borrower's Precious Metal made or to be made by the Gold Agent (on behalf of
the Gold Banks) pursuant toss.5.1(a).
Purchase Price. See ss.5.1(b).
Real Estate. All real property at any time owned or leased (as lessee or
sublessee) by the Borrower or any of its Subsidiaries.
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Record. The grid attached to a Note, or the continuation of such grid, or
any other similar record, including computer records, maintained by any Bank
with respect to any Loan referred to in such Note.
Redeliver(ed) or Redelivery. The delivery by the Borrower to the Gold
Agent's Head Office, at the Borrower's sole risk and expense, of Precious Metal
in bullion form of a type and quality which is acceptable to the Gold Agent.
Reemployment Period. See ss.8.19(a).
Register. See ss.22.3.
Reimbursement Obligation. The Borrower's obligation to reimburse the Dollar
Agent and the Dollar Banks on account of any drawing under any Letter of Credit
as provided inss.4.2.
Replaced Bank. See ss.8.22.
Replacement Bank. See ss.8.22.
Revolver Maturity Date. December 16, 2001.
Revolving Credit Loans. Revolving credit loans made or to be made by the
Dollar Banks to the Borrower pursuant to ss.2.
Revolving Credit Note Record. A Record with respect to a Revolving Credit
Note.
Revolving Credit Notes. See ss.2.4.
RIHT. Rhode Island Hospital Trust National Bank, a national banking
association, in its individual capacity.
Sales Representative Inventory Locations. The locations of the inventory
held by sale representatives of the Borrower in the United States of America and
disclosed in writing to the Agents, as such list of locations may be
supplemented from time to time in accordance with the provisions ofss.11.4(i).
Security Agreement. The Security Agreement, dated or to be dated on or
prior to the Closing Date, among the Borrower, its Subsidiaries (other than the
Mexican Subsidiary) and the Collateral Agent and in form and substance
satisfactory to the Banks, the Collateral Agent and the Agents.
Security Documents. The Security Agreement, the Mortgages, the Stock Pledge
Agreement, the Trademark Assignment, the Trademark Security Agreement, the
Patent Assignment, the Copyright Memorandum, the Mexican Stock Pledge
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Agreement, the Cash Collateral Agreement, all Agency Account Agreements, the
Confirmation of Swap Agreement, and the Swap Agreement.
Sellers. Collectively, the CJC Sellers and the Balfour Sellers.
Settlement. The making of, or receiving of payments, in immediately
available funds, by the Dollar Banks or, as the case may be, the Gold Banks, to
the extent necessary to cause each Applicable Bank's actual share of the
outstanding amount of Revolving Credit Loans (after giving effect to any Loan
Request) or, as the case may be, of Gold Loans (after giving effect to any Loan
Request) to be equal to each Dollar Bank's Commitment Percentage of the
outstanding amount of such Revolving Credit Loans (after giving effect to any
Loan Request) or, as the case may be, each Gold Bank's Gold Commitment
Percentage of the outstanding amount of such Gold Loans (after giving effect to
any Loan Request), in any case where, prior to such event or action, the actual
share is not so equal.
Settlement Amount. See ss.8.6(a).
Settlement Date. (a) The Drawdown Date relating to any Loan Request, (b)
Friday of each week, or if Friday is not a Business Day, the Business Day
immediately following such Friday, (c) the Business Day immediately following
either Agent becoming aware of the existence of an Event of Default, (d) any
Business Day on which (i) the amount of Revolving Credit Loans outstanding from
FNBB plus FNBB's Commitment Percentage of the sum of the Maximum Drawing Amount
and any Unpaid Reimbursement Obligations is equal to or greater than FNBB's
Commitment Percentage of the Total Revolver Commitment, or, as the case may be,
(ii) the amount of Gold Loans outstanding from RIHT plus RIHT's Gold Commitment
Percentage of the Fair Market Value of Consigned Precious Metal outstanding is
equal to or greater than RIHT's Gold Commitment Percentage of the Total Gold
Commitment, (e) the Business Day immediately following any Business Day on which
the amount of Loans outstanding increases or decreases by more than $5,000,000
as compared to the previous Settlement Date, (f) any day on which any conversion
of a Base Rate Loan to a Eurodollar Rate Loan occurs, or (g) any Business Day on
which (i) the amount of outstanding Revolving Credit Loans or, as the case may
be, Gold Loans decreases and (ii) the amount of the Applicable Agent's Loans
outstanding equals Zero Dollars ($0).
Settling Bank. See ss.8.6(a).
Specified Account Debtors. The account debtors of the Borrower specifically
disclosed in writing to the Agents and the Banks pursuant to a letter from the
Borrower to the Agents and the Banks delivered as of the Closing Date (the
"Specified Account Debtor Letter") so long as the Agents shall not have notified
the Borrower in writing that the Agents shall have determined in their
discretion that any such Person shall no longer constitute
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a Specified Account Debtor or shall constitute a Specified Account Debtor under
a different heading as set forth on the Specified Account Debtor Letter.
Specified Account Debtor Letter. See the definition of Specified Account
Debtors.
Specified Refiner. Any refiner of Precious Metal inventory of the Borrower
designated by the Borrower and approved by the Agents so long as the Agents
shall not have notified the Borrower in writing that the Agents shall have
determined in their sole reasonable discretion that any such refiner shall no
longer constitute a Specified Refiner due to a change in the creditworthiness of
such refiner or a change in the Agents' trading relationship with such refiner.
Spot Value: At any time, with respect to the calculation of the Dollar
value of Precious Metal, (a) in all cases in which the Borrower is purchasing
Precious Metal or in which the value of Consigned Precious Metal for purposes of
the Consignment Limit is being calculated, RIHT's "ask" spot quotation for
Precious Metal at such time times the number of ounces of such Precious Metal
and (b) in all cases in which Gold Banks are purchasing Precious Metal, RIHT's
"bid" spot quotation for Precious Metal at such time times the number of ounces
of such Precious Metal.
Stock Pledge Agreement. The Stock Pledge Agreement, dated or to be dated on
or prior to the Closing Date, between the Borrower and the Collateral Agent and
in form and substance satisfactory to the Banks, the Collateral Agent and the
Agents.
Subordinated Notes. The Borrower's (a) 11% Senior Subordinated Notes due
2006 issued by the Borrower pursuant to the Indenture, as in effect on the
Closing Date and as amended in accordance with the provisions ofss.12.8 hereof,
or any replacement thereof entered into by the Borrower in accordance with the
provisions ofss.12.8.
Subsidiary. Any corporation, association, trust, or other business entity
of which the designated parent shall at any time own directly or indirectly
through a Subsidiary or Subsidiaries at least a majority (by number of votes) of
the outstanding Voting Stock.
Survey. In relation to each Mortgaged Property (other than the Real Estate
of the Borrower located in Kentucky), an instrument survey of such Mortgaged
Property dated as of a date subsequent to December 8, 1996, which shall show the
location of all buildings, structures, easements and utility lines on such
Mortgaged Property, shall show that all buildings and structures are within the
lot lines of such Mortgaged Property, shall not show any encroachments by
others, shall show the zoning district or districts in which such Mortgaged
Property is located in a flood hazard district as established by the Federal
Emergency Management Agency or any successor agency or is located in any flood
plain, flood hazard or wetland protection district established under federal,
state or local law.
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Surveyor Certificate. In relation to each Mortgaged Property for which a
Survey has been conducted, a certificate executed by the surveyor who prepared
such Survey dated subsequent to December 8, 1996, as of a recent date and
containing such information relating to such Mortgaged Property as the
Collateral Agent or the Title Insurance Company may require.
Swap Agreement. The ISDA Master Agreement dated or to be dated on or prior
to the Closing Date, between the Borrower and the Gold Agent and in form and
substance satisfactory to each of the Borrower, the Banks and the Agents.
Taxes. See ss.8.12.2.
Term Loan. The term loan made or to be made by the Dollar Banks to the
Borrower in the aggregate principal amount of $25,000,000.00 pursuant toss.3.1.
Term Loan Maturity Date. December 16, 2003.
Term Notes. See ss.3.2.
Term Note Record. A Record with respect to a Term Note.
Title Policy. In relation to each Mortgaged Property, an ALTA standard form
title insurance policy issued by the Title Insurance Company (with such
reinsurance or co-insurance as the Collateral Agent may require, any such
reinsurance to be with direct access endorsements) in such amount as may be
determined by the Collateral Agent insuring the priority of the Mortgage of such
Mortgaged Property and that the Borrower or one of its Subsidiaries holds
marketable fee simple, or, as the case may be, leasehold title to such Mortgaged
Property, subject only to the encumbrances permitted by such Mortgage and which
shall not contain exceptions for mechanics liens, persons in occupancy or
matters which would be shown by a survey (except as may be permitted by such
Mortgage), shall not insure over any matter except to the extent that any such
affirmative insurance is acceptable to the Collateral Agent in its reasonable
discretion, and shall to the extent available contain such endorsements and
affirmative insurance as the Collateral Agent in its reasonable discretion may
require, including but not limited to (i) comprehensive endorsement, (ii)
variable rate of interest endorsement, (iii) usury endorsement, (iv) revolving
credit endorsement, (v) tie-in endorsement, (vi) doing business endorsement and
(vii) ALTA form 3.1 zoning endorsement.
Total Commitment. The sum of the Total Revolver Commitment, the Total Gold
Commitment and the then outstanding principal amount of the Term Loan.
Total Gold Commitment. The sum of the Gold Commitments of the Gold Banks,
as in effect from time to time.
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Total Revolver Commitment. The sum of the Commitments of the Dollar Banks,
as in effect from time to time.
Trade and OCB Liabilities. All liabilities of the Borrower and its
Subsidiaries incurred in the ordinary course of business not incurred through
(a) the borrowing of money, or (b) the obtaining of credit except for credit on
an open account basis customarily extended and in fact extended in connection
with normal purchases of goods and services.
Trademark Assignments. The Trademark Assignment, dated or to be dated on or
prior to the Closing Date, made by the Borrower in favor of the Collateral Agent
and in form and substance satisfactory to the Banks, the Collateral Agent and
the Agents.
Trademark Security Agreement. The Trademark Collateral Security and Pledge
Agreement, dated or to be dated on or prior to the Closing Date, between the
Borrower and the Collateral Agent and in form and substance satisfactory to the
Banks, the Collateral Agent and the Agents.
Type. As to any Revolving Credit Loan, Gold Loan or all or any portion of
the Term Loan, its nature as a Base Rate Loan or a Eurodollar Rate Loan.
Uniform Customs. With respect to any Letter of Credit, the Uniform Customs
and Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500 or any successor version thereto adopted by the
Dollar Agent in the ordinary course of its business as a letter of credit issuer
and in effect at the time of issuance of such Letter of Credit.
Unpaid Reimbursement Obligation. Any Reimbursement Obligation for which the
Borrower does not reimburse the Dollar Agent and the Dollar Banks on the date
specified in, and in accordance with,ss.4.2.
Voting Stock. Stock or similar interests, of any class or classes (however
designated), the holders of which are at the time entitled, as such holders, to
vote for the election of a majority of the directors (or persons performing
similar functions) of the corporation, association, trust or other business
entity involved, whether or not the right so to vote exists by reason of the
happening of a contingency.
1.2. Rules of Interpretation.
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to
time in accordance with its terms and the terms of this Credit Agreement.
(b) The singular includes the plural and the plural includes the
singular.
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(c) A reference to any law includes any amendment or modification to
such law.
(d) A reference to any Person includes its permitted successors and
permitted assigns.
(e) Accounting terms not otherwise defined herein have the meanings
assigned to them by generally accepted accounting principles applied on a
consistent basis by the accounting entity to which they refer.
(f) The words "include", "includes" and "including" are not limiting.
(g) All terms not specifically defined herein or by generally accepted
accounting principles, which terms are defined in the Uniform Commercial
Code as in effect in the Commonwealth of Massachusetts, have the meanings
assigned to them therein, with the term "instrument" being that defined
under Article 9 of the Uniform Commercial Code.
(h) Reference to a particular "ss." refers to that section of this
Credit Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like import
shall refer to this Credit Agreement as a whole and not to any particular
section or subdivision of this Credit Agreement.
2. THE DOLLAR FACILITY - REVOLVING CREDIT LOANS.
2.1. Commitment to Lend. Subject to the terms and conditions set forth in
this Credit Agreement, each of the Dollar Banks severally agrees to lend to the
Borrower and the Borrower may borrow, repay, and reborrow from time to time
between the Closing Date and the Revolver Maturity Date upon notice by the
Borrower to the Dollar Agent given in accordance with ss.8.3, such sums as are
requested by the Borrower up to a maximum aggregate amount outstanding (after
giving effect to all amounts requested) at any one time equal to such Dollar
Bank's Commitment minus such Dollar Bank's Commitment Percentage of the sum of
the Maximum Drawing Amount and all Unpaid Reimbursement Obligations, provided
that the sum of the outstanding amount of the Revolving Credit Loans (after
giving effect to all amounts requested) plus the Maximum Drawing Amount and all
Unpaid Reimbursement Obligations shall not at any time exceed the Total Revolver
Commitment. The Revolving Credit Loans shall be made pro rata in accordance with
each Dollar Bank's Commitment Percentage. Each request for a Revolving Credit
Loan hereunder shall constitute a representation and warranty by the Borrower
that the conditions set forth in ss.14 and ss.15, in the case of the initial
Revolving Credit Loans to be made on the Closing Date, and ss.15, in the case of
all other Revolving Credit Loans, have been satisfied on the date of such
request.
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2.2. Commitment Fee. The Borrower agrees to pay to the Dollar Agent for the
accounts of the Dollar Banks in accordance with their respective Commitment
Percentages a commitment fee calculated at the rate of one half of one percent
(1/2%) per annum on the average daily amount during each calendar quarter or
portion thereof from the Closing Date to the Revolver Maturity Date by which the
Total Revolver Commitment minus the sum of the Maximum Drawing Amount and all
Unpaid Reimbursement Obligations exceeds the outstanding amount of Revolving
Credit Loans during such calendar quarter. The commitment fee shall be payable
quarterly in arrears on the first day of each calendar quarter for the
immediately preceding calendar quarter commencing on the first such date
following the date hereof, with a final payment on the Revolver Maturity Date or
any earlier date on which the Commitments shall terminate.
2.3. Reduction of Total Revolver Commitment. The Borrower shall have the
right at any time and from time to time upon five (5) Business Days prior
written notice to the Dollar Agent to reduce by $500,000.00 or an integral
multiple thereof or terminate entirely the Total Revolver Commitment, whereupon
the Commitments of the Dollar Banks shall be reduced pro rata in accordance with
their respective Commitment Percentages of the amount specified in such notice
or, as the case may be, terminated. Promptly after receiving any notice of the
Borrower delivered pursuant to this ss.2.3, the Dollar Agent will notify the
Dollar Banks of the substance thereof. Upon the effective date of any such
reduction or termination, the Borrower shall pay to the Dollar Agent for the
respective accounts of the Dollar Banks the full amount of any commitment fee
then accrued on the amount of the reduction. No reduction or termination of the
Commitments may be reinstated.
2.4. The Revolving Credit Notes. The Revolving Credit Loans shall be
evidenced by separate promissory notes of the Borrower in substantially the form
of Exhibit E hereto (each a "Revolving Credit Note"), dated as of the Closing
Date and completed with appropriate insertions. One Revolving Credit Note shall
be payable to the order of each Dollar Bank in a principal amount equal to such
Dollar Bank's Commitment or, if less, the outstanding amount of all Revolving
Credit Loans made by such Dollar Bank, plus interest accrued thereon, as set
forth below. The Borrower irrevocably authorizes each Dollar Bank to make or
cause to be made, at or about the time of the Drawdown Date of any Revolving
Credit Loan or at the time of receipt of any payment of principal on such Dollar
Bank's Revolving Credit Note, an appropriate notation on such Dollar Bank's
Revolving Credit Note Record reflecting the making of such Revolving Credit Loan
or (as the case may be) the receipt of such payment. The outstanding amount of
the Revolving Credit Loans set forth on such Dollar Bank's Revolving Credit Note
Record shall be prima facie evidence of the principal amount thereof owing and
unpaid to such Dollar Bank, but the failure to record, or any error in so
recording, any such amount on such Dollar Bank's Revolving Credit Note Record
shall not limit or otherwise affect the obligations of the Borrower hereunder or
under any Revolving Credit Note to make payments of principal of or interest on
any Revolving Credit Note when due.
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2.5. Interest on Revolving Credit Loans. Except as otherwise provided in
ss.8.20, the Revolving Credit Loans shall bear interest in accordance with the
provisions of ss.8.1 hereof.
2.6. Requests for Revolving Credit Loans; Conversion Options. The Borrower
shall request Revolving Credit Loans by providing to the Dollar Agent Loan
Requests for Revolving Credit Loans in accordance with the requirements of
ss.8.3(a) hereof. The Dollar Agent may, in its sole discretion and without
conferring with the Dollar Banks, make Revolving Credit Loans to the Borrower in
accordance with the provisions of ss.8.3(b) hereof. The Borrower shall be
permitted to convert Revolving Credit Loans to Revolving Credit Loans of
different Types in accordance with the provisions of ss.8.4 hereof, and such
provisions of ss.8.4 shall apply mutatis mutandis with respect to the Revolving
Credit Loans so that the Borrower will have the same interest rate options with
respect to the Revolving Credit Loans as they would be entitled to with respect
to the Gold Loans and the Term Loan.
2.7. Funds for Revolving Credit Loans. The provisions of ss.8.5 and ss.8.6
with respect to the funding procedures and Settlement procedures for the Loans
shall apply to the Revolving Credit Loans.
2.8. Maturity. The Borrower promises to pay on the Revolver Maturity Date,
and there shall become absolutely due and payable on the Revolver Maturity Date,
all of the Revolving Credit Loans outstanding on such date, together with any
and all accrued and unpaid interest thereon.
2.9. Optional Repayments of Revolving Credit Loans. The Borrower shall have
the right, at its election, to repay the outstanding Revolving Credit Loans in
accordance with the provisions of ss.8.7 hereof.
3. THE DOLLAR FACILITY - THE TERM LOAN.
3.1. Commitment to Lend. Subject to the terms and conditions set forth in
this Credit agreement, each Dollar Bank agrees to lend to the Borrower the
amount of its Commitment Percentage of the principal amount of $25,000,000.00.
3.2. The Term Notes. The Term Loan shall be evidenced by separate
promissory notes of the Borrower in substantially the form of Exhibit F hereto
(each a "Term Note"), dated the Closing Date and completed with appropriate
insertions. One Term Note shall be payable to the order of each Dollar Bank in a
principal amount equal to such Dollar Bank's Commitment Percentage of the Term
Loan and representing the obligation of the Borrower to pay to such Dollar Bank
such principal amount or, if less, the outstanding amount of such Dollar Bank's
Commitment Percentage of the Term Loan, plus interest accrued thereon, as set
forth below. The Borrower irrevocably authorizes each Dollar Bank to make or
cause to be made a notation on such Dollar Bank's Term Note Record reflecting
the original principal
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amount of such Dollar Bank's Commitment Percentage of the Term Loan and, at or
about the time of such Dollar Bank's receipt of any principal payment on such
Dollar Bank's Term Note, an appropriate notation on such Dollar Bank's Term Note
Record reflecting such payment. The aggregate unpaid amount set forth on such
Dollar Bank's Term Note Record shall be prima facie evidence of the principal
amount thereof owing and unpaid to such Dollar Bank, but the failure to record,
or any error in so recording, any such amount on such Dollar Bank's Term Note
Record shall not affect the obligations of the Borrower hereunder or under any
Term Note to make payments of principal of and interest on any Term Note when
due.
3.3. Schedule of Installment Payments of Principal of Term Loan. The
Borrower promises to pay to the Dollar Agent for the account of the Dollar Banks
the principal amount of the Term Loan in twenty-eight (28) consecutive quarterly
installment payments, twenty-seven (27) of which shall be payable on each
calendar quarter ending date and each in the amount set forth in the table below
opposite the period in such table during which such calendar quarter ending date
occurs, with a final payment on the Term Loan Maturity Date in an amount equal
to the unpaid balance of the Term Loan:
Amount of
Period: Quarterly Payment:
------- ------------------
January 1, 1997 - December 31, 1997 $125,000.00
January 1, 1998 - December 31, 1998 $250,000.00
January 1, 1999 - December 31, 1999 $375,000.00
January 1, 2000 - December 31, 2000 $500,000.00
January 1, 2001 - December 31, 2001 $750,000.00
January 1, 2002 - December 31, 2002 $2,000,000.00
January 1, 2003 - September 30, 2003 $2,250,000.00
3.4. Optional Prepayment of Term Loan. The Borrower shall have the right at
any time to prepay the Term Loan in accordance with the provisions ofss.8.7. Any
prepayment of principal of the Term Loan shall be applied ratably against the
remaining scheduled installments of principal due on the Term Loan. No amount
repaid with respect to the Term Loan may be reborrowed.
3.5. Interest on Term Loan. Except as otherwise provided in ss.8.20, the
outstanding amount of the Term Loan shall bear interest in accordance with the
provisions of ss.8.1. The Borrower shall notify the Dollar Agent, such notice to
be irrevocable, at least two (2) Business Days prior to the Drawdown Date of the
Term
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Loan if all or any portion of the Term Loan is to bear interest at the
Eurodollar Rate. After the Term Loan has been made, the provisions of ss.8.4
shall apply mutatis mutandis with respect to all or any portion of the Term Loan
so that the Borrower may have the same interest rate options with respect to all
or any portion of the Term Loan as it would be entitled to with respect to the
Revolving Credit Loans and the Gold Loans. The Borrower shall select each
Interest Period with respect to the Term Loan so as not to require a payment or
prepayment of any Eurodollar Rate Loan prior to the end of the applicable
Interest Period with respect to such Eurodollar Rate Loan.
3.6. Mandatory Prepayments of the Term Loan.
3.6.1. Excess Cash Flow Prepayment. The Borrower shall pay to the
Dollar Agent, for the accounts of the Dollar Banks (each, an "Excess Cash
Flow Prepayment"), annually in arrears on February 15 of each year
(commencing on February 15, 1998), an amount equal to fifty percent (50%)
of the Consolidated Excess Cash Flow, if any, for such immediately
preceding fiscal year. Each such Excess Cash Flow Prepayment shall be
applied ratably against the remaining scheduled installments of principal
due on the Term Loan; provided, however, that a portion of the Excess Cash
Flow Prepayment (if any) scheduled to be made on February 15, 1999, not to
exceed $1,500,000, shall be applied instead to repay the outstanding
Revolving Credit Loans with the remainder of such Excess Cash Flow
Prepayment, if any, to be applied ratably against the remaining scheduled
installments of principal due on the Term Loan.
3.6.2. Asset Disposition Prepayment. The Borrower shall pay to the
Dollar Agent, for the accounts of the Dollar Banks (each, an "Asset
Disposition Prepayment"), within thirty (30) days after the completion by
the Borrower of any asset dispositions pursuant to ss.12.5.2(j), an amount
equal to one hundred percent (100%) of the Net Proceeds received by the
Borrower in connection with such asset disposition solely to the extent
that the aggregate amount of Net Proceeds received by the Borrower shall
exceed (a) for all such asset dispositions undertaken pursuant to
ss.12.5.2(j) during the period prior to the first anniversary of the
Closing Date, $500,000 and (b) for all such asset dispositions undertaken
pursuant to ss.12.5.2(j) during any one year period after the first
anniversary of the Closing Date from one anniversary of the Closing Date to
the next anniversary of the Closing Date, $250,000. Each such Asset
Disposition Prepayment shall be applied ratably against the remaining
scheduled installments of principal due on the Term Loan. The Borrower
shall also use any proceeds from the sale of assets mandated by the Federal
Trade Commission, to the extent such sale is permitted by ss.12.5.2(f), to
prepay the principal amount of the Term Loan as set forth in such
ss.12.5.2(f).
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3.6.3. New Issuance Prepayment. The Borrower shall pay to the Dollar
Agent, for the accounts of the Dollar Banks (each, a "New Issuance
Prepayment"), within ten (10) days after the completion by the Borrower of
any issuance of additional common equity securities (other than issuances
of common stock to employees or independent sales representatives of the
Borrower and other than any Permitted Preferred Stock Replacement), an
amount equal to one hundred percent 100% of the Net Proceeds received by
the Borrower in connection with any such issuance by the Borrower of equity
securities or warrants or subscription rights for equity securities;
provided however, that no such New Issuance Prepayments shall be required
from and after the occurrence of the Issuance Prepayment Termination Date.
Each such New Issuance Prepayment shall be applied ratably against the
remaining scheduled installments of principal due on the Term Loan.
4. THE DOLLAR FACILITY - LETTERS OF CREDIT.
4.1. Letter of Credit Commitments.
4.1.1. Commitment to Issue Letters of Credit. Subject to the terms and
conditions hereof and the execution and delivery by the Borrower of a
letter of credit application on the Dollar Agent's customary form (a
"Letter of Credit Application"), the Dollar Agent on behalf of the Dollar
Banks and in reliance upon the agreement of the Dollar Banks set forth in
ss.4.1.4 and upon the representations and warranties of the Borrower
contained herein, agrees, in its individual capacity, to issue, extend and
renew for the account of the Borrower one or more standby or documentary
letters of credit (individually, a "Letter of Credit"), in such form as may
be requested from time to time by the Borrower and agreed to by the Dollar
Agent; provided, however, that, after giving effect to such request, (a)
the sum of the aggregate Maximum Drawing Amount and all Unpaid
Reimbursement Obligations shall not exceed $5,000,000.00 at any one time
and (b) the sum of (i) the Maximum Drawing Amount on all Letters of Credit,
(ii) all Unpaid Reimbursement Obligations, and (iii) the amount of all
Revolving Credit Loans outstanding shall not exceed the Total Revolver
Commitment. Notwithstanding the foregoing, the Dollar Agent shall have no
obligation to issue any Letter of Credit to support or secure any
Indebtedness of the Borrower or any of its Subsidiaries to the extent that
such Indebtedness was incurred prior to the proposed issuance date of such
Letter of Credit, unless in any such case the Borrower demonstrates to the
satisfaction of the Dollar Agent that (x) such prior incurred Indebtedness
were then fully secured by a prior perfected and unavoidable security
interest in collateral provided by the Borrower or such Subsidiary to the
proposed beneficiary of such Letter of Credit or (y) such prior incurred
Indebtedness were then secured or supported by a letter of credit issued
for the account of the Borrower or such Subsidiary and the reimbursement
obligation with respect to such letter of credit was fully secured by a
prior perfected and
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unavoidable security interest in collateral provided to the issuer of such
letter of credit by the Borrower or such Subsidiary.
4.1.2. Letter of Credit Applications. Each Letter of Credit
Application shall be completed to the satisfaction of the Dollar Agent. In
the event that any provision of any Letter of Credit Application shall be
inconsistent with any provision of this Credit Agreement shall, to the
extent of any such inconsistency, govern.
4.1.3. Terms of Letters of Credit. Each Letter of Credit issued,
extended or renewed hereunder shall, among other things, (a) provide for
the payment of sight drafts for honor thereunder when presented in
accordance with the terms thereof and when accompanied by the documents
described therein, and (b) have an expiry date (i) no later than the date
which is fourteen (14) days (or, if the Letter of Credit is confirmed by a
confirmer or otherwise provides for one or more nominated persons,
forty-five (45) days) prior to the Revolver Maturity Date, (ii) no more
than one (1) year from the issue date thereof with respect to standby
Letters of Credit, and (iii) no more than one hundred twenty (120) days
from the issue date thereof with respect to documentary Letters of Credit.
Each Letter of Credit so issued, extended or renewed shall be subject to
the Uniform Customs.
4.1.4. Reimbursement Obligations of Dollar Banks. Each Dollar Bank
severally agrees that it shall be absolutely liable, without regard to the
occurrence of any Default or Event of Default or any other condition
precedent whatsoever, to the extent of such Dollar Bank's Commitment
Percentage, to reimburse the Dollar Agent on demand for the amount of each
draft paid by the Dollar Agent under each Letter of Credit to the extent
that such amount is not reimbursed by the Borrower pursuant to ss.4.2 (such
agreement for a Dollar Bank being called herein the "Letter of Credit
Participation" of such Dollar Bank).
4.1.5. Participations of Dollar Banks. Each such payment made by a
Dollar Bank shall be treated as the purchase by such Dollar Bank of a
participating interest in the Borrower's Reimbursement Obligation
underss.4.2 in an amount equal to such payment. Each Dollar Bank shall
share in accordance with its participating interest in any interest which
accrues pursuant toss.4.2.
4.2. Reimbursement of the Borrower. In order to induce the Dollar Agent to
issue, extend and renew each Letter of Credit and the Dollar Banks to
participate therein, the Borrower hereby agrees to reimburse or pay to the
Dollar Agent, for the account of the Dollar Agent or (as the case may be) the
Dollar Banks, with respect to each Letter of Credit issued, extended or renewed
by the Dollar Agent hereunder,
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(a) except as otherwise expressly provided in ss.4.2(b) and (c), on
each date that any draft presented under such Letter of Credit is honored
by the Dollar Agent, or the Dollar Agent otherwise makes a payment with
respect thereto, (i) the amount paid by the Dollar Agent under or with
respect to such Letter of Credit, and (ii) the amount of any taxes, fees,
charges or other reasonable costs and expenses whatsoever incurred by the
Dollar Agent or any Dollar Bank in connection with any payment made by the
Dollar Agent or any Dollar Bank under, or with respect to, such Letter of
Credit,
(b) upon the reduction (but not termination) of the Total Revolver
Commitment to an amount less than the Maximum Drawing Amount, an amount
equal to such difference, which amount shall be held by the Dollar Agent
for the benefit of the Dollar Banks and the Dollar Agent as cash collateral
for all Reimbursement Obligations pursuant to the Cash Collateral
Agreement, and
(c) upon the termination of the Total Revolver Commitment, or the
acceleration of the Reimbursement Obligations with respect to all Letters
of Credit in accordance with ss.16, an amount equal to the then Maximum
Drawing Amount on all Letters of Credit, which amount shall be held by
Dollar Agent as cash collateral for all Reimbursement Obligations pursuant
to the Cash Collateral Agreement.
Each such payment shall be made to the Dollar Agent at the Dollar Agent's Head
Office in immediately available funds. Interest on any and all amounts remaining
unpaid by the Borrower under this ss.4.2 at any time from the date such amounts
become due and payable (whether as stated in this ss.4.2, by acceleration or
otherwise) until payment in full (whether before or after judgment) shall be
payable to the Dollar Agent on demand at the rate specified in ss.8.20 for
overdue principal on the Revolving Credit Loans.
4.3. Letter of Credit Payments. If any draft shall be presented or other
demand for payment shall be made under any Letter of Credit, the Dollar Agent
shall notify the Borrower of the date and amount of the draft presented or
demand for payment and of the date and time when it expects to pay such draft or
honor such demand for payment. If the Borrower fails to reimburse the Dollar
Agent as provided in ss.4.2 on or before the date that such draft is paid or
other payment is made by the Dollar Agent, the Dollar Agent may at any time
thereafter notify the Dollar Banks of the amount of any such Unpaid
Reimbursement Obligation. No later than 3:00 p.m. (Boston time) on the Business
Day next following the receipt of such notice, each Dollar Bank shall make
available to the Dollar Agent, at its Head Office, in immediately available
funds, such Dollar Bank's Commitment Percentage of such Unpaid Reimbursement
Obligation, together with an amount equal to the product of (i) the average,
computed for the period referred to in clause (iii) below, of the weighted
average interest rate paid by the Dollar Agent for federal funds acquired by
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the Dollar Agent during each day included in such period, times (ii) the amount
equal to such Dollar Bank's Commitment Percentage of such Unpaid Reimbursement
Obligation, times (iii) a fraction, the numerator of which is the number of days
that elapse from and including the date the Dollar Agent paid the draft
presented for honor or otherwise made payment to the date on which such Dollar
Bank's Commitment Percentage of such Unpaid Reimbursement obligation shall
become immediately available to the Dollar Agent, and the denominator of which
is 360. The responsibility of the Dollar Agent to the Borrower and the Dollar
Banks shall be only to determine that the documents (including each draft)
delivered under each Letter of Credit in connection with such presentment shall
be in conformity in all material respects with such Letter of Credit.
4.4. Obligations Absolute. The Borrower's obligations under this ss.4 shall
be absolute and unconditional under any and all circumstances and irrespective
of the occurrence of any Default or Event of Default or any condition precedent
whatsoever or any setoff, counterclaim or defense to payment which the Borrower
may have or have had against the Dollar Agent, any Dollar Bank or any
beneficiary of a Letter of Credit in the absence of the Dollar Agent's gross
negligence or willful misconduct. The Borrower further agrees with the Dollar
Agent and the Dollar Banks that the Dollar Agent and the Dollar Banks shall not
be responsible for, and the Borrower's Reimbursement Obligations under ss.4.2
shall not be affected by, among other things, the validity or genuineness of
documents or of any endorsements thereon, even if such documents should in fact
prove to be in any or all respects invalid, fraudulent or forged, or any dispute
between or among the Borrower, the beneficiary of any Letter of Credit or any
financing institution or other party to which any Letter of Credit may be
transferred or any claims or defenses whatsoever of the Borrower against the
beneficiary of any Letter of Credit or any such transferee in the absence of the
Dollar Agent's gross negligence or willful misconduct. The Dollar Agent and the
Dollar Banks shall not be liable for any error, omission, interruption or delay
in transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit. The Borrower agrees that
any action taken or omitted by the Dollar Agent or any Dollar Bank under or in
connection with each Letter of Credit and the related drafts and documents, if
done in good faith, shall be binding upon the Borrower and shall not result in
any liability on the part of the Dollar Agent or any Dollar Bank to the Borrower
if done in the absence of gross negligence or willful misconduct and in
accordance with the standards of care specified in the Uniform Commercial Code
of the Commonwealth of Massachusetts.
4.5. Reliance by Issuer. To the extent not inconsistent with ss.4.4, the
Dollar Agent shall be entitled to rely, and shall be fully protected in relying
upon, any Letter of Credit, draft, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document 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, independent accountants and
other experts selected by the Dollar Agent in
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the absence of the Dollar Agent's gross negligence or willful misconduct. The
Dollar Agent shall be fully justified in failing or refusing to take any action
under this Credit Agreement unless it shall first have received such advice or
concurrence of the Majority Banks as it reasonably deems appropriate or it shall
first be indemnified to its reasonable satisfaction by the Dollar Banks 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 Dollar Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Credit Agreement in accordance with a request of the Majority Banks, and such
request and any action taken or failure to act pursuant thereto shall be binding
upon the Dollar Banks and all future holders of the Revolving Credit Notes or of
a Letter of Credit Participation.
4.6. Letter of Credit Fees. The Borrower shall pay to the Dollar Agent a
fee (in each case, a "Letter of Credit Fee") in respect of Letters of Credit on
the average daily Maximum Drawing Amount at a rate per annum equal to (a) with
respect to each standby Letter of Credit, the Eurodollar Applicable Margin per
annum from time to time applicable to Revolving Credit Loans and (b) with
respect to each documentary Letter of Credit, the Eurodollar Applicable Margin
per annum from time to time applicable to Revolving Credit Loans minus 1%, such
Letter of Credit Fees being payable quarterly in arrears on the first day of
each calendar quarter and on the Revolver Maturity Date. A portion of such
Letter of Credit Fees equal to 1/4% per annum shall be payable to the Dollar
Agent for its own account and the remainder of such Letter of Credit Fees shall
be payable to the Dollar Agent for the ratable accounts of the Dollar Banks in
accordance with their respective Commitment Percentages. The Borrower shall also
pay to the Dollar Agent, at such time or times as such charges are customarily
made by the Dollar Agent, the Dollar Agent's customary issuance fees or
amendment fees, as the case may be, and the Dollar Agent's customary time
negotiation fees per document examination or other administrative fees.
5. THE GOLD FACILITY - CONSIGNMENTS.
5.1. Commitment To Make Consignments; Title To Consigned Precious Metal.
(a) Subject to the terms and conditions set forth in this Credit
Agreement, the Gold Agent agrees, at the option of the Borrower, to
Deliver, or make Purchases and Consignments of, from time to time between
the Closing Date and the Gold Maturity Date upon notice by the Borrower to
the Gold Agent given in accordance with ss.5.3, such amounts of Precious
Metal as are requested by the Borrower up to a maximum aggregate amount of
Consigned Precious Metal outstanding (after giving effect to all amounts
requested) equal to the Total Gold Commitment minus the aggregate amount of
all outstanding Gold Loans; provided that the sum of the outstanding amount
of troy ounces or, as the case may be, Fair Market Value of Consigned
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Precious Metal which the Borrower requests that the Gold Agent purchase or
Deliver, when added to the amount of troy ounces or, as the case may be,
the Fair Market Value of Consigned Precious Metal outstanding, shall not
exceed the Consignment Ounce Cap, in the case of amounts of troy ounces of
Consigned Precious Metal, or the Consignment Dollar Cap, in the case of the
Fair Market Value of Consigned Precious Metal.
(b) The purchase price (the "Purchase Price") paid by the Gold Agent
for Consigned Precious Metal in respect of each Purchase and Consignment
shall be the Fair Market Value of Precious Metal two (2) Business Days
prior to the Gold Drawdown Date of any Purchase and Consignment.
(c) Each request for a Consignment hereunder shall constitute a
representation and warranty by the Borrower that the conditions set forth
inss.14 andss.15, in the case of the initial Consignment to be made on the
Closing Date, andss.15, in the case of all other Consignments, have been
satisfied on the date of such request.
(d) Upon receipt of the documents required by ss.ss.14 and 15 and the
satisfaction of the other conditions set forth therein, to the extent
applicable, the Gold Agent will make available to the Borrower at the Gold
Agent's Head Office (or such other location agreed to by the Gold Agent and
the Borrower) (i) in the case of a Delivery, the amount of Precious Metal
requested to be Delivered, and (ii) in the case of a Purchase and
Consignment, the Purchase Price for such Purchase and Consignment and, at
such time, the Gold Agent shall be deemed to have taken title to such
Borrower's Precious Metal. Thereafter, title to such Precious Metal shall
remain in the Gold Agent and shall not vest in the Borrower until the Gold
Agent has received payment for such Consigned Precious Metal in accordance
with the requirements of ss.5.4 or ss.5.6, as applicable. The Gold Agent
may Deliver Precious Metal to the Borrower at the Gold Agent's Head Office
or, at the option of the Borrower and with the consent of the Gold Agent,
at Borrower Permitted Inventory Locations, in each case at the Borrower's
sole expense (including insurance with respect thereto). At all times
following the Gold Drawdown Date relating to each Consignment, the Borrower
shall bear the entire risk of loss, theft, damage or destruction of the
Consigned Precious Metal from any cause whatsoever, whether or not insured,
and the Borrower agrees to hold the Consigned Precious Metal in trust for
the Gold Agent, and to indemnify and hold harmless the Gold Agent against
any and all liabilities, damages, losses, costs, expenses, suits, claims,
demands or judgments of any nature (including, without limitation,
reasonable attorneys' fees and expenses) arising from or connected with any
loss, theft, damage or destruction of the Consigned Precious Metal.
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(e) The Borrower irrevocably authorizes the Gold Agent, at or about
the time of the Gold Drawdown Date of any Consignment or at the time of any
payment or Redelivery with respect to Consigned Precious Metal, to make an
appropriate notation in the records of the Gold Agent customarily
maintained by the Gold Agent reflecting the making of such Consignment or
the receipt of such payment or Redelivery. The outstanding amount of
Consigned Precious Metal set forth in the records of the Gold Agent
customarily maintained by the Gold Agent shall be prima facie evidence of
the amount thereof owing and unpaid or not Redelivered, but the failure to
record or any error in so recording any such amount in the records of the
Gold Agent shall not limit or otherwise affect the obligations of the
Borrower hereunder to make payments or Redeliveries in accordance with the
terms hereof.
(f) In connection with each Consignment, and as a condition to the
making of any Consignment by the Gold Agent, the Borrower shall pay to the
Gold Agent a per toy ounce premium to be set by the Gold Agent based upon
prevailing market conditions (the "Consignment Premium"). In the case of
any Delivery hereunder, such Consignment Premium shall be payable upon the
making of such Delivery by the Gold Agent. In the case of any Purchase and
Consignment hereunder, such Consignment Premium shall be deducted from the
amount of the Purchase Price paid by the Gold Agent to the Borrower in
respect thereof.
5.2. Consignment Fees; Gold Fronting Fees.
5.2.1. Consigment Fees. Except as otherwise provided inss.8.20, with
respect to Consigned Precious Metal, the Borrower agrees to pay to the Gold
Agent, for the accounts of the Gold Banks in accordance with their
respective Gold Commitment Percentages, Consignment Fee equal to:
(a) for each day with respect to Consignment Base Rate Amounts,
the product of (i) the difference of (A) the Consignment Base Rate
minus (B) one half of one percent (1/2%) times (ii) a fraction, the
numerator of which is one (1) and the denominator of which is three
hundred and sixty (360) times (iii) the Fair Market Value of Consigned
Precious Metal outstanding on such day which are Consignment Base Rate
Amounts.
(b) for each day during each Interest Period with respect to
Consignment Fixed Rate Amounts, the product of (i) the difference of
(A) the Consignment Fixed Rate applicable to such Interest Period
minus (B) one half of one percent (1/2%) times (ii) a fraction, the
numerator of which is one (1) and the denominator of which is three
hundred and sixty (360) times (iii) the Fair Market Value (as of such
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date) of Consigned Precious Metal outstanding for such Interest Period
which are Consignment Fixed Rate Amounts.
5.2.2. Gold Fronting Fees. Except as otherwise provided in ss.8.20,
with respect to Consigned Precious Metal, the Borrower agrees to pay to the
Gold Agent, for its own account, a Gold Fronting Fee equal to:
(a) for each day with respect to Consignment Base Rate Amounts,
the product of (i) one half of one percent (1/2%) times (ii) a
fraction, the numerator of which is one (1) and the denominator of
which is three hundred and sixty (360) times (iii) the Fair Market
Value of Consigned Precious Metal outstanding on such day which are
Consignment Base Rate Amounts.
(b) for each day during each Interest Period with respect to
Consignment Fixed Rate Amounts, the product of (i) one half of one
percent (1/2%) times (ii) a fraction, the numerator of which is one
(1) and the denominator of which is three hundred and sixty (360)
times (iii) the Fair Market Value (as of such date) of Consigned
Precious Metal outstanding for such Interest Period which are
Consignment Fixed Rate Amounts.
5.2.3. Payment of Fees. The Consignment Fee and the Gold Fronting Fee
with respect to Consignment Base Rate Amounts shall be payable monthly in
arrears on the first Business Day of each calendar month, commencing on the
first such date following the Closing Date, with a final payment on the
Gold Maturity Date or any earlier date on which the Total Gold Commitment
shall terminate. The Consignment Fee and Gold Fronting Fee with respect to
Consignment Fixed Rate Amounts shall be payable as to any Consignment Fixed
Rate Amounts in respect of which the applicable Interest Period is (y) 3
months or less, on the last day of such Interest Period, and (z) more than
3 months, on the date that is 3 months from the first day of such Interest
Period and, in addition, on the last day of such Interest Period.
5.3. Requests For Consignments. The Borrower shall give to the Gold Agent
written notice in the form of Exhibit G hereto (or telephonic notice confirmed
in a writing in the form of Exhibit G hereto) of each Consignment requested
hereunder (a "Consignment Request") no later than 10:00 a.m. one (1) Business
Day prior to the proposed Gold Drawdown Date of any Consignment Base Rate Amount
or three (3) Business Days prior to the proposed Gold Drawdown Date of any
Consignment Fixed Rate Amount; provided, that solely with respect to Deliveries
to be made at Specified Refiner locations by the making of a book entry transfer
of Precious Metal to the Borrower's account with such Specified Refiner, the
Borrower shall be permitted to provide such Consignment Request to the Gold
Agent no later than 2:00 p.m. on the proposed Gold Drawdown Date of any such
Delivery. Each
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such Consignment Request shall specify (a) the nature of the Consignment as a
Delivery or a Purchase and Consignment, (b) the number of troy ounces of (i)
Precious Metal to be Delivered or, as the case may be (ii) Borrower's Precious
Metal to be purchased and consigned, (c) the proposed Gold Drawdown Date of such
Consignment, (d) whether such Consignment is to be a Consignment Fixed Rate
Amount or a Consignment Base Rate Amount, (e) if such Consignment is to be a
Consignment Fixed Rate Amount, the Interest Period applicable to such
Consignment, and (f) if such Consignment is to be a Delivery, whether such
Delivery is to be made to the Borrower at the Gold Agent's Head Office or at a
Borrower Permitted Inventory Location (with each such Consignment Request to
specify such Borrower Permitted Inventory Location). Each Consignment Request
shall be irrevocable and binding on the Borrower and shall obligate the Borrower
to either (i) in the case of any Purchase and Consignment, sell and take on
consignment such Borrower's Precious Metal on the proposed Gold Drawdown Date or
(ii) in the case of any Delivery, take Delivery of such Precious Metal on the
proposed Gold Drawdown Date. Each Consignment Request for Consignment Base Rate
Amounts shall be in a minimum aggregate amount of 100 troy ounces or an integral
multiple of one hundred (100) in excess thereof, and each Consignment Request
for Consignment Fixed Rate Amounts shall be in a minimum aggregate amount of
five thousand (5,000) troy ounces or an integral multiple of one thousand (1000)
in excess thereof.
5.4. Payment on Account of Repurchase or Redelivery of Consigned Precious
Metal.
(a) Notwithstanding the provisions of ss.6.1(b), upon the occurrence
and during the continuance of an Event of Default (other than an Event of
Default described in ss.16.1(g) or (h)) and upon notice from the Gold Agent
to the Borrower, unless the Borrower shall, on the date of dispatch of such
notice, immediately Redeliver to the Gold Agent an amount of Borrower's
Precious Metal (measured in troy ounces) equal to all outstanding Consigned
Precious Metal, the Borrower shall be deemed to have purchased from the
Gold Agent, on the date of dispatch of such notice, all outstanding
Consigned Precious Metal at the then applicable Spot Value thereof, and the
Gold Agent, on behalf of the Gold Banks (based upon each Gold Bank's Gold
Commitment Percentage of such outstanding Consigned Precious Metal
immediately prior to such conversion), shall simultaneously be deemed to
have made Gold Loans to the Borrower in amounts equal to the Spot Value of
Consigned Precious Metal. Such Gold Loans deemed to have been made by the
Gold Agent on behalf of the Gold Banks shall be treated as Gold Loans made
pursuant to ss.8.3(b) hereof for all purposes under this Credit Agreement
(including, without limitation, the provisions of ss.8.6 hereof relating to
Settlements).
(b) Upon the occurrence and during the continuance of an Event of
Default described in Section 16.1(g) or (h), each Gold Bank severally
agrees to purchase from the Gold Agent a participating interest in all
outstanding
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Consigned Precious Metal (if any) equal to such Gold Bank's Gold Commitment
Percentage of the Fair Market Value of Consigned Precious Metal as of the
date of such Event of Default (a "Consignment Participation"). Not later
than 11:00 a.m. (Boston time) on the Business Day following such Event of
Default described in Section 16.1(g) or (h), each of the Gold Banks will
make available to the Gold Agent, at the Gold Agent's Head Office, in
immediately available funds, an amount in Dollars equal to such Gold Bank's
Consignment Participation. If any Bank makes available to the Gold Agent
such amount on a date after such date, such Gold Bank shall pay to the Gold
Agent on demand an amount equal to the product of (i) the average computed
for the period referred to in clause (iii) below, of the weighted average
interest rate paid by the Gold Agent for federal funds acquired by the Gold
Agent during each day included in such period, times (ii) the amount owed
by such Gold Bank to the Gold Agent, times (iii) a fraction, the numerator
of which is the number of days that elapse from and including such date the
amounts were owed to the Gold Agent to the date on which the amounts due
pursuant to the Consignment Participation shall become immediately
available to the Gold Agent, and the denominator of which is 360. A
statement of the Gold Agent submitted to such Gold Bank with respect to any
amounts owing under this paragraph shall be prima facie evidence of the
amount due and owing to the Gold Agent by such Gold Bank. The failure or
refusal of any Gold Bank to make available to the Gold Agent at the
aforesaid time and place its Consignment Participation shall not relieve
any other Gold Bank from its several obligations hereunder to make
available to the Gold Agent its Consignment Participation.
(c) If, on any date, the Fair Market Value of Consigned Precious Metal
shall exceed the Consignment Dollar Cap, the Gold Agent shall calculate the
amount of Consigned Precious Metal (measured in troy ounces and calculated
by reference to the Fair Market Value thereof on the date of determination)
of such excess, and the Borrower shall either (i) pay to the Gold Agent an
amount in Dollars equal to the Fair Market Value (on the Business Day
following the date of determination) of such excess, and the Gold Agent
shall be deemed to have sold to the Borrower an amount of Consigned
Precious Metal equal to such excess, or (ii) Redeliver to the Gold Agent
Consigned Precious Metal in quantities (measured in troy ounces) equal to
such excess. If, on any date of determination, the number of troy ounces of
Consigned Precious Metal shall exceed the Consignment Ounce Cap, the
Borrower shall either (i) repurchase from the Gold Agent such excess at the
Fair Market Value thereof on the Business Day following the date of
determination, or (ii) Redeliver to the Gold Agent Consigned Precious Metal
in quantities (measured in troy ounces) equal to such excess. If, on any
date of determination, the Fair Market Value of Consigned Precious Metal
exceeds the Consignment Advance Rate Percentage multiplied by the Fair
Market Value of the sum of (A) Consigned Precious Metal plus (B) Borrower's
Precious Metal, the Borrower
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shall pay to the Gold Agent an amount in Dollars equal to the Fair Market
Value (on the Business Day following the date of determination) of such
excess, and the Gold Agent shall be deemed to have sold to the Borrower an
amount of Consigned Precious Metal equal to such excess.
(d) In connection with any sale of Consigned Precious Metal by the
Borrower (other than as part of a Purchase and Consignment pursuant to the
terms hereof), the Borrower shall immediately either (i) pay to the Gold
Agent an amount in Dollars equal to the Fair Market Value (on the Business
Day following the date of such sale) of such Consigned Precious Metal, (ii)
Redeliver to the Gold Agent an amount of Borrower's Precious Metal
(measured in troy ounces) equal to such sold Consigned Precious Metal, or
(iii) Replace such Consigned Precious Metal, so long as no Event of Default
has occurred and is continuing, with additional Precious Metal (which
replacement, if the Borrower shall not have purchased such sold Consigned
Precious Metal pursuant to clause (i) hereof or Redelivered Borrower's
Precious Metal pursuant to clause (ii) hereof, shall be automatic upon such
sale) which shall constitute Consigned Precious Metal in quantities equal
to any Consigned Precious Metal sold. At all times following the occurrence
and during the continuance of an Event of Default, upon any sale by the
Borrower of Precious Metal which prior to the Borrower's purchase thereof
pursuant to ss.5.4(a) constituted Consigned Precious Metal, the Borrower
shall hold the proceeds of such sale in trust for the Gold Agent, on behalf
of the Gold Banks, and shall immediately deliver to the Gold Agent the
proceeds of such sale to be applied to the Obligations in accordance with
ss.8.9 hereof. Prior to the occurrence of an Event of Default and absent
other instruction by the Borrower, the Gold Agent shall apply Dollar
amounts received to reduction of Consigned Precious Metal, for application
first to Consignment Base Rate Amounts and then to Consignment Fixed Rate
Amounts.
(e) At any time before the Gold Maturity Date, the Borrower may, at
its election, purchase any or all Consigned Precious Metal from the Gold
Agent in whole or in part, without penalty, provided that any full or
partial repurchase of the outstanding amount of Consignment Fixed Rate
Amounts of Consigned Precious Metal pursuant to this ss.5.4(e) may be made
only on the last day of the Interest Period relating thereto. The Borrower
shall give the Gold Agent prior written notice, no later than one-half hour
prior to the Second London Fixing for Gold on any Business Day, of any
proposed repurchase of Consigned Precious Metal specifying the amount of
Consigned Precious Metal to be so repurchased and the proposed date of
repurchase, which notice shall be irrevocable and binding on the Borrower
and shall obligate the Borrower to repurchase such Consigned Precious Metal
on the proposed date of repurchase. Each such repurchase of Consignment
Base Rate Amounts shall be in a minimum amount of one hundred (100) troy
ounces or an integral multiple of one hundred (100) in excess thereof, with
accrued
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Consignment Fees and Gold Fronting Fees on the Consignment Base Rate
Amounts so purchased being due on the earliest to occur of a Default or
Event of Default and the first day of the calendar month following the
calendar month in which such purchase is made, and each such purchase of
Consignment Fixed Rate Amounts shall be in a minimum amount of five
thousand (5,000) troy ounces or an integral multiple of one thousand (1000)
troy ounces in excess thereof and shall be accompanied by a payment of all
accrued but unpaid Consignment Fees and Gold Fronting Fees on the amount so
purchased. Each such repurchase shall be at a price equal to, at the
Borrower's option, (i) the Fair Market Value of Precious Metal two Business
Days prior to the date of the Borrower's purchase of Consigned Precious
Metal, or (ii) the Spot Value on the date of the Gold Agent's receipt of
the written notice described above, and, prior to the occurrence of an
Event of Default, shall be applied to effect a reduction of Consigned
Precious Metal, for application first to Consignment Base Rate Amounts and
then to Consignment Fixed Rate Amounts; provided, however, that, in lieu of
paying in Dollars the Fair Market Value, or Spot Value, as the case may be,
of such Consigned Precious Metal, the Borrower may, at its option,
Redeliver to the Gold Agent Borrower's Precious Metal in an amount
(measured in troy ounces) equal to the amount of Consigned Precious Metal
being purchased.
(f) All purchases of Consignment Fixed Rate Amounts prior to the end
of an Interest Period shall obligate the Borrower to pay any breakage costs
associated with such Consignment Fixed Rate Amounts in accordance
withss.8.19 hereof.
5.5. Conversion Options.
(a) The Borrower may elect from time to time to have the Consignment
Fee and the Gold Fronting Fee applicable to portions of Consigned Precious
Metal outstanding calculated based upon either the Consignment Base Rate or
Consignment Fixed Rate, provided that (i) with respect to any such
conversion of Consigned Precious Metal, the Borrower shall give the Gold
Agent prior written notice of such election no later than one-half hour
prior to the Second London Fixing for Gold on any Business Day; and (ii)
with respect to any such conversion of a Consignment Fixed Rate Amount into
a Consignment Base Rate Amount or another Consignment Fixed Rate Amount,
such conversion shall only be made on the last day of the Interest Period
with respect thereto. All or any part of outstanding Consigned Precious
Metal may be converted into a Consignment Fixed Rate Amount or Consignment
Base Rate Amount as provided herein, provided that any partial conversion
of Consignment Base Rate Amounts shall be for Precious Metal in a minimum
amount at least equal to one hundred (100) troy ounces or an integral
multiple of one hundred (100) in excess thereof and any partial conversion
of Consignment Fixed Rate Amounts shall be for Precious Metal in
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an amount equal to five thousand (5,000) troy ounces or an integral
multiple of one thousand (1000) in excess thereof. Each conversion request
relating to the conversion of Consigned Precious Metal to a Consignment
Fixed Rate Amount shall be irrevocable by the Borrower.
(b) Prior to the occurrence and continuance of an Event of Default,
Consigned Precious Metal may be continued as Consignment Fixed Rate Amounts
upon the expiration of an Interest Period with respect thereto by
compliance by the Borrower with the notice provisions contained in
ss.5.5(a); provided that no Consignment Fixed Rate Amounts may be continued
as such when any Event of Default has occurred and is continuing, but shall
be converted to a Consignment Base Rate Amounts on the last day of the
first Interest Period relating thereto ending during the continuance of any
Event of Default if the Gold Agent in its discretion elects not to permit
such continuation. In the event that the Borrower fails to provide any such
notice with respect to the continuation of any Consignment Fixed Rate
Amounts as such, then such Consignment Fixed Rate Amounts shall be
automatically converted to a Consignment Base Rate Amounts on the last day
of the first Interest Period relating thereto.
(c) Any conversion to or from Consignment Fixed Rate Amounts shall be
in such amounts and be made pursuant to such elections so that, after
giving effect thereto, the aggregate principal amount of all Consignment
Fixed Rate Amounts having the same Interest Period shall not be less than
five thousand (5,000) troy ounces or a whole multiple of one thousand
(1000) troy ounces in excess thereof.
5.6. Repurchase at Maturity. The Borrower promises to (a) purchase from the
Gold Agent all Consigned Precious Metal on the Gold Maturity Date, and there
shall become absolutely due and payable on the Gold Maturity Date an amount in
Dollars equal to the Spot Value as of the Gold Maturity Date of the outstanding
amount of Consigned Precious Metal (measured in troy ounces), together with any
and all accrued and unpaid Consignment Fees, Gold Fronting Fees and other
amounts accrued thereon, or (b) Redeliver to the Gold Agent Precious Metal in an
amount (measured in troy ounces) equal to all Consigned Precious Metal
outstanding, together with payment of all other amounts owed under the Gold
Facility.
5.7. True Consignment. This Credit Agreement is intended to be a true
consignment agreement, where, following a Consignment, the Gold Agent shall have
title to the Consigned Precious Metal until sold by the Borrower. If,
notwithstanding the foregoing sentence, it is determined for any reason that the
consignment created hereby is one intended as security or that the consignment
is a sale or return or other sale, the Consigned Precious Metal shall constitute
Collateral under the terms of the Security Agreement, and the terms of the
Security Agreement shall govern the Banks' security interest therein.
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6. THE GOLD FACILITY - THE GOLD LOANS.
6.1. Commitment to Lend.
(a) Subject to the terms and conditions set forth in this Credit
Agreement, each of the Gold Banks severally agrees to lend to the Borrower
and the Borrower may borrow, repay, and reborrow from time to time between
the Closing Date and the Gold Maturity Date upon notice given in accordance
with ss.6.4, such sums as are requested by the Borrower up to a maximum
aggregate amount outstanding (after giving effect to all amounts requested)
at any one time equal to the Dollar amount of such Gold Bank's Gold
Commitment minus such Gold Bank's Gold Commitment Percentage of the Fair
Market Value of Consigned Precious Metal outstanding; provided that the
aggregate amount of Gold Loans which the Borrower requests, when added to
the principal amount of Gold Loans outstanding, shall not exceed the Dollar
amount of the Total Gold Commitment minus the Fair Market Value of
Consigned Precious Metal. Gold Loans shall be made pro rata in accordance
with each Gold Bank's Gold Commitment Percentage. Each request for a Gold
Loan hereunder shall constitute a representation and warranty by the
Borrower that the conditions set forth in ss.14 and ss.15, in the case of
the initial Gold Loan, if any, to be made on the Closing Date, and ss.15,
in the case of all other Gold Loans, have been satisfied on the date of
such request.
(b) Notwithstanding anything herein contained to the contrary, the
Borrower shall not be entitled to borrow any Gold Loans on any date on
which the sum of the outstanding amount of Revolving Credit Loans plus the
Maximum Drawing Amount and all Unpaid Reimbursement Obligations is less
than the Total Revolver Commitment.
6.2. The Gold Notes. The Gold Loans shall be evidenced by separate
promissory notes of the Borrower in substantially the form of Exhibit H hereto
(each a "Gold Note"), dated as of the Closing Date and completed with
appropriate insertions. One Gold Note shall be payable to the order of each Gold
Bank in a principal amount equal to the Dollar amount of such Gold Bank's Gold
Commitment or, if less, the outstanding amount of all Gold Loans made by such
Gold Bank, plus interest accrued thereon, as set forth below. The Borrower
irrevocably authorizes each Gold Bank to make or cause to be made, at or about
the time of the Drawdown Date of any Gold Loans made by such Gold Bank or at the
time of receipt of any payment of principal on such Gold Bank's Gold Note, an
appropriate notation on such Gold Bank's Gold Note Record reflecting the making
of such Gold Loan or (as the case may be) the receipt of such payment. The
outstanding amount of the Gold Loans set forth on such Gold Bank's Gold Note
Record shall be prima facie evidence of the principal amount thereof owing and
unpaid to such Gold Bank, but the failure to record, or any error in so
recording, any such amount on such Gold Bank's Gold Note Record shall not limit
or otherwise affect the obligations of the Borrower hereunder
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or under any Gold Note to make payments of principal of or interest on any Gold
Note when due.
6.3. Interest on Gold Loans. Except as otherwise provided in ss.8.20, the
Gold Loans shall bear interest in accordance with the provisions of ss.8.1
hereof.
6.4. Requests for Gold Loans; Conversion Options. The Borrower shall
request Gold Loans by providing to the Gold Agent Loan Requests for Gold Loans
in accordance with the requirements of ss.8.3(a) hereof. The Gold Agent may, in
its sole discretion and without conferring with the Gold Banks, make Gold Loans
to the Borrower in accordance with the provisions of ss.8.3(b) hereof. The
Borrower shall be permitted to convert Gold Loans to Gold Loans of different
Types in accordance with the provisions of ss.8.4 hereof, and such provisions of
ss.8.4 shall apply mutatis mutandis with respect to the Gold Loans so that the
Borrower may have the same interest rate options with respect to the Gold Loans
as they would be entitled to with respect to the Revolving Credit Loans and the
Term Loan.
6.5. Funds for Gold Loans. The provisions of ss.8.5 and ss.8.6 with respect
to the funding procedures and Settlement procedures for the Loans shall apply to
the Gold Loans.
6.6. Repayment of Gold Loans at Maturity. The Borrower promises to pay on
the Gold Maturity Date, and there shall become absolutely due and payable on the
Gold Maturity Date, all of the Gold Loans outstanding on such date, together
with any and all accrued and unpaid interest thereon.
6.7. Optional Repayments. The Borrower shall have the right, at its
election, to repay Gold Loans in accordance with the provisions of ss.8.7
hereof.
7. CERTAIN COMMON PROVISIONS RELATING
TO THE GOLD FACILITY.
7.1. Commitment Fee. The Borrower agrees to pay to the Gold Agent, for the
accounts of the Gold Banks in accordance with their respective Gold Commitment
Percentages, a commitment fee calculated at the rate of one-half of one percent
(1/2%) per annum on the average daily amount during each calendar quarter or
portion thereof from the Closing Date to the Gold Maturity Date by which the
Dollar amount of the Total Gold Commitment exceeds the sum of the Fair Market
Value of Consigned Precious Metal plus the aggregate outstanding amount of Gold
Loans during such calendar quarter. The commitment fee shall be payable
quarterly in arrears on the first day of each calendar quarter for the
immediately preceding calendar quarter commencing on the first such date
following the date hereof, with a final payment on the Gold Maturity Date or any
earlier date on which the Gold Commitments and the Gold Fronting Commitment
shall terminate.
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7.2. Reduction of Total Gold Commitment and Gold Fronting Commitment. The
Borrower shall have the right at any time and from time to time upon five (5)
Business Days' prior written notice to the Gold Agent to reduce by $500,000.00
or an integral multiple thereof or terminate entirely the Total Gold Commitment
and the Gold Fronting Commitment, whereupon the Gold Commitments of the Gold
Banks shall be reduced pro rata in accordance with their respective Gold
Commitment Percentages of the amount specified in such notice or, as the case
may be, terminated and the Gold Fronting Commitment shall be reduced by the
amount specified in such notice or, as the case may be, terminated. Promptly
after receiving any notice of the Borrower delivered pursuant to this ss.7.2,
the Gold Agent will notify the Gold Banks of the substance thereof. Upon the
effective date of any such reduction or termination, the Borrower shall, at its
option, (a) purchase from the Gold Agent all Consigned Precious Metal
outstanding in excess of such reduced Total Gold Commitment by paying to the
Gold Agent an amount equal to the Fair Market Value as of such date of the
amount of such excess Consigned Precious Metal, together with the full amount of
any Consignment Fee, Gold Fronting Fee and commitment fee then accrued on the
amount of the reduction, or (b) Redeliver to the Gold Agent Borrower's Precious
Metal in an amount (measured in troy ounces) equal to all Consigned Precious
Metal outstanding in excess of such reduced Total Gold Commitment, together with
the full amount of any Consignment Fee, Gold Fronting Fee and commitment fee
then accrued on the amount of the reduction. No reduction or termination of the
Gold Commitments and the Gold Fronting Commitment may be reinstated.
8. CERTAIN GENERAL PROVISIONS.
8.1. Interest on Loans. Except as otherwise provided in ss.8.20,
(a) Each Base Rate Loan shall bear interest for the period commencing
with the Drawdown Date thereof and ending on the last day of the Interest
Period with respect thereto at a rate per annum equal to the sum of (i) the
Base Rate plus (ii) the Base Rate Applicable Margin.
(b) Each Eurodollar Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of the
Interest Period with respect thereto at a rate per annum equal to the sum
of (i) the Eurodollar Rate plus (ii) the Eurodollar Applicable Margin.
(c) The Borrower promises to pay interest on each Loan in arrears on
each Interest Payment Date with respect thereto.
8.2. Borrowing Base and Consignment Limitations. (a) The Banks shall have
no obligation to make any Extension of Credit if, at any time the Outstanding
Facility Amounts, after giving effect to such Extension of Credit, would exceed
the Borrowing Base. The Borrowing Base shall be determined
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by the Agents by reference to the most recent Borrowing Base Report delivered on
a timely basis to the Agents in accordance with ss.11.4(f).
(b) The Gold Agent shall not have any obligation to make any Consignments
if, at any time, the Fair Market Value of Consigned Precious Metal (after giving
effect to all amounts requested) exceeds the Consignment Advance Rate Percentage
multiplied by the Fair Market Value of the sum of (i) Consigned Precious Metal
plus (ii) Borrower's Precious Metal. The amounts of Consigned Precious Metal and
of Borrower's Precious Metal shall be determined by the Agents by reference to
the most recent Consigned Precious Metal Report delivered on a timely basis to
the Agents in accordance with ss.11.4(f).
8.3. Requests for Loans. (a) The Borrower shall give to the Applicable
Agent written notice in the form of Exhibit I hereto (or telephonic notice
confirmed in a writing in the form of Exhibit I hereto) of each Loan requested
hereunder (a "Loan Request") no less than (i) one (1) Business Day prior to the
proposed Drawdown Date of any Base Rate Loan and (ii) two (2) Eurodollar
Business Days prior to the proposed Drawdown Date of any Eurodollar Rate Loan.
Each such notice shall specify (A) the principal amount of the Loan requested,
(B) the proposed Drawdown Date of such Loan, (C) the Interest Period for such
Loan, (D) the nature of such Loan as a Dollar Facility Loan or a Gold Loan, and
(E) the Type of such Loan. Promptly upon receipt of any such notice, the
Applicable Agent shall notify each of the Applicable Banks thereof. Each Loan
Request shall be irrevocable and binding on the Borrower and shall obligate the
Borrower to accept the Loan requested from the Applicable Banks on the proposed
Drawdown Date. Each Loan Request for a Base Rate Loan shall be in a minimum
aggregate amount of $500,000.00 or an integral multiple thereof, and each Loan
Request for a Eurodollar Rate Loan shall be in a minimum aggregate amount of
$500,000.00 or an integral multiple of $500,000.00 in excess thereof.
(b) Notwithstanding the notice and minimum amount requirements set forth in
ss.8.3(a) but otherwise in accordance with the terms and conditions of this
Credit Agreement, the Applicable Agent may, in its sole discretion and without
conferring with the Applicable Banks, make Revolving Credit Loans or, as the
case may be, Gold Loans, to the Borrower (i) by entry of credits to the
Borrower's operating account(s) (No(s). 523-02282) (the "Operating Accounts")
with the Dollar Agent to cover checks or other charges which the Borrower has
drawn or made against such account, (ii) in payment of any amounts due and
payable by the Borrower hereunder (the Borrower hereby consenting to the
automatic making of such Loans by the Applicable Agent in payment of any such
amounts, and the Applicable Agent hereby agreeing to give notice to the Borrower
promptly after the making of any such Loans in payment of any such amounts), or
(iii) in an amount as otherwise requested by
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the Borrower. The Borrower hereby requests and authorizes the Applicable Agent
to make from time to time such Revolving Credit Loans or, as the case may be,
Gold Loans by means of appropriate entries of such credits sufficient to cover
checks and other charges then presented. The Borrower acknowledges and agrees
that the making of such Loans shall, in each case, be subject in all respects to
the provisions of this Credit Agreement as if they were Loans covered by a Loan
Request including, without limitation, the limitations set forth in ss.ss.2.1
and 6.1 and the requirements that the applicable provisions of ss.ss.14 (in the
case of Loans made on the Closing Date) and ss.15 be satisfied. All actions
taken by either Agent pursuant to the provisions of this ss.8.3(b) shall be
conclusive and binding on the Borrower absent such Agent's gross negligence or
willful misconduct. Loans made pursuant to this ss.8.3(b) shall be Base Rate
Loans until converted in accordance with the provisions of the Credit Agreement
and, prior to a Settlement, such interest shall be for the account of the
Applicable Agent.
8.4. Conversion Options.
8.4.1. Conversion to Different Type of Loan. The Borrower may elect
from time to time to convert any outstanding Loan to a Loan of another
Type, provided that (a) with respect to any such conversion of a Loan to a
Base Rate Loan, the Borrower shall give the Applicable Agent at least one
(1) Business Day's prior written notice of such election; (b) with respect
to any such conversion of a Base Rate Loan to a Eurodollar Rate Loan, the
Borrower shall give the Applicable Agent at least two (2) Eurodollar
Business Days' prior written notice of such election; (c) with respect to
any such conversion of a Eurodollar Rate Loan into a Base Rate Loan, such
conversion shall only be made on the last day of the Interest Period with
respect thereto, and (d) no Loan may be converted into a Eurodollar Rate
Loan when any Event of Default has occurred and is continuing. On the date
on which such conversion is being made each Applicable Bank shall take such
action, if any, as is necessary to transfer its Commitment Percentage or
Gold Commitment Percentage, as the case may be, of such Loans to its
Domestic Lending Office or its Eurodollar Lending Office, as the case may
be. All or any part of outstanding Loans of any Type may be converted into
a Loan of another Type as provided herein, provided that (y) any partial
conversion of any Loan to a Base Rate Loan shall be in an aggregate
principal amount of $500,000.00 or an integral multiple thereof and (z) any
partial conversion of any Loan to a Eurodollar Rate Loan shall be in an
aggregate principal amount of $500,000.00 or a whole multiple of
$500,000.00 in excess thereof. Each Conversion Request relating to the
conversion of a Loan to a Eurodollar Rate Loan shall be irrevocable by the
Borrower.
8.4.2. Continuation of Type of Loan. Any Loan of any Type may be
continued as a Loan of the same Type upon the expiration of an Interest
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Period with respect thereto by compliance by the Borrower with the notice
provisions contained in ss.8.4.1; provided that no Eurodollar Rate Loan may
be continued as such when any Event of Default has occurred and is
continuing, but shall be converted to a Base Rate Loan on the last day of
the first Interest Period relating thereto ending during the continuance of
any Event of Default if the Applicable Agent in its discretion elects not
to permit such continuation. In the event that the Borrower fails to
provide any such notice with respect to the continuation of any Eurodollar
Rate Loan as such, then such Eurodollar Rate Loan shall be automatically
converted to a Base Rate Loan on the last day of the first Interest Period
relating thereto. The Applicable Agent shall notify the Applicable Banks
promptly when any such automatic conversion contemplated by this ss.8.4 is
scheduled to occur.
8.4.3. Eurodollar Rate Loans. Any conversion to or from Eurodollar
Rate Loans shall be in such amounts and be made pursuant to such elections
so that, after giving effect thereto, the aggregate principal amount of all
Eurodollar Rate Loans having the same Interest Period shall not be less
than $500,000.00 or a whole multiple of $500,000.00 in excess thereof. At
no time shall there be more than seven (7) Eurodollar Rate Loans
outstanding. Notwithstanding anything contained herein to the contrary,
until the earlier of (a) January 16, 1997 and (b) the date on which the
FNBB and RIHT's share of the Total Commitment is not more than $20,000,000,
Consignment Fixed Rate Amounts and Eurodollar Rate Loans shall not have
Interest Periods longer than seven (7) days and all such Interest Periods
shall be concurrent (and FNBB and RIHT hereby agree to provide the Borrower
with Interest Periods with a duration of seven (7) days, with interest to
be paid on the last day of each calendar month following the end of each
such Interest Period).
8.5. Funds for Loans.
8.5.1. Funding Procedures. Not later than 11:00 a.m. (Boston time) on
the proposed Drawdown Date of any Loans, each of the Applicable Banks will
make available to the Applicable Agent, at its Head Office, in immediately
available funds, the amount of such Applicable Bank's Commitment Percentage
or Gold Commitment Percentage, as the case may be, of the amount of the
requested Loans. Upon receipt from each Applicable Bank of such amount, and
upon receipt of the documents required by ss.ss.14 and 15 and the
satisfaction of the other conditions set forth therein, to the extent
applicable, the Applicable Agent will make available to the Borrower the
aggregate amount of such Loans made available to the Applicable Agent by
the Applicable Banks. The failure or refusal of any Applicable Bank to make
available to the Applicable Agent at the aforesaid time and place on any
Drawdown Date the amount of its Commitment Percentage or Gold Commitment
Percentage, as the case may be, of the requested Loans shall not relieve
any other Applicable Bank from its several obligation hereunder to
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make available to the Applicable Agent the amount of such other Applicable
Bank's Commitment Percentage or Gold Commitment Percentage, as the case may
be, of any requested Loans.
8.5.2. Advances by Applicable Agent. The Applicable Agent may, unless
notified to the contrary by any Applicable Bank prior to a Drawdown Date,
assume that such Applicable Bank has made available to the Applicable Agent
on such Drawdown Date the amount of such Applicable Bank's Commitment
Percentage or Gold Commitment Percentage, as the case may be, of the Loans
to be made on such Drawdown Date, and the Applicable Agent may (but it
shall not be required to), in reliance upon such assumption, make available
to the Borrower a corresponding amount. If any Applicable Bank makes
available to the Applicable Agent such amount on a date after such Drawdown
Date, such Applicable Bank shall pay to the Applicable Agent on demand an
amount equal to the product of (i) the average computed for the period
referred to in clause (iii) below, of the weighted average interest rate
paid by the Applicable Agent for federal funds acquired by the Applicable
Agent during each day included in such period, times (ii) the amount of
such Applicable Bank's Commitment Percentage or Gold Commitment Percentage,
as the case may be, of such Loans, times (iii) a fraction, the numerator of
which is the number of days that elapse from and including such Drawdown
Date to the date on which the amount of such Applicable Bank's Commitment
Percentage or Gold Commitment Percentage, as the case may be, of such Loans
shall become immediately available to the Applicable Agent, and the
denominator of which is 360. A statement of the Applicable Agent submitted
to such Applicable Bank with respect to any amounts owing under this
paragraph shall be prima facie evidence of the amount due and owing to the
Applicable Agent by such Applicable Bank. If the amount of such Applicable
Bank's Commitment Percentage or Gold Commitment Percentage, as the case may
be, of such Loans is not made available to the Applicable Agent by such
Applicable Bank within three (3) Business Days following such Drawdown
Date, the Applicable Agent shall be entitled to recover such amount from
the Borrower promptly after demand, with interest thereon at the rate per
annum applicable to the Loans made on such Drawdown Date.
8.6. Settlements; Failure to Make Funds Available. (a) On each Settlement
Date, the Applicable Agent shall, not later than 11:00 a.m. (Boston time), give
telephonic or facsimile notice (i) to the Applicable Banks and the Borrower of
the respective outstanding amount of Loans made by the Applicable Agent on
behalf of the Applicable Banks from the immediately preceding Settlement Date
through the close of business on the prior day and the amount of any Eurodollar
Rate Loans to be made (following the giving of notice pursuant to ss.8.3(a)(ii))
on such date pursuant to a Loan Request and (ii) to the Applicable Banks of the
amount (a "Settlement Amount") that each Applicable Bank (the "Settling Bank")
shall pay to effect a Settlement of any
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Loan. A statement of the Applicable Agent submitted to the Applicable Banks and
the Borrower or to the Applicable Banks with respect to any amounts owing under
this ss.8.6 shall be prima facie evidence of the amount due and owing. The
Settling Bank shall, not later than 3:00 p.m. (Boston time) on such Settlement
Date, effect a wire transfer of immediately available funds to the Applicable
Agent in the amount of the Settlement Amount. All funds advanced by any
Applicable Bank as a Settling Bank pursuant to this ss.8.6 shall for all
purposes be treated as a Loan made by such Settling Bank to the Borrower and all
funds received by any Bank pursuant to this ss.8.6 shall for all purposes be
treated as repayment of amounts owed with respect to Loans made by such Bank. In
the event that any bankruptcy, reorganization, liquidation, receivership or
similar cases or proceedings in which the Borrower is a debtor prevent a
Settling Bank from making any Loan to effect a Settlement as contemplated
hereby, such Settling Bank will make such disposition and arrangements with the
other Applicable Banks with respect to such Loans, either by way of purchase of
participations, distribution, pro tanto assignment of claims, subrogation or
otherwise as shall result in each Applicable Bank's share of the outstanding
Revolving Credit Loans or, as the case may be, Gold Loans being equal, as nearly
as may be, to such Dollar Bank's Commitment Percentage of the outstanding amount
of the Revolving Credit Loans, or as the case may be, such Gold Bank's
Commitment Percentage of the outstanding amount of Gold Loans.
(b) The Applicable Agent may, unless notified to the contrary by any
Applicable Bank prior to a Settlement Date, assume that such Applicable Bank has
made or will make available to the Applicable Agent on such Settlement Date the
amount of such Applicable Bank's Settlement Amount, and the Applicable Agent may
(but it shall not be required to), in reliance upon such assumption, make
available to the Borrower a corresponding amount. If any Applicable Bank makes
available to the Applicable Agent such amount on a date after such Settlement
Date, such Applicable Bank shall pay to the Applicable Agent on demand an amount
equal to the product of (i) the average computed for the period referred to in
clause (iii) below, of the weighted average interest rate paid by the Applicable
Agent for federal funds acquired by such Applicable Agent during each day
included in such period, times (ii) the amount of such Settlement Amount, times
(iii) a fraction, the numerator of which is the number of days that elapse from
and including such Settlement Date to the date on which the amount of such
Settlement Amount shall become immediately available to such Applicable Agent,
and the denominator of which is 360. A statement of the Applicable Agent
submitted to such Applicable Bank with respect to any amounts owing under this
paragraph shall be prima facie evidence of the amount due and owing to the
Applicable Agent by such Applicable Bank. If such Applicable Bank's Settlement
Amount is not made available to the Applicable Agent by such Applicable Bank
within three (3) Business Days following such Settlement Date, the Applicable
Agent shall be
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entitled to recover such amount from the Borrower promptly after
demand, with interest thereon at the rate per annum applicable to the Revolving
Credit Loans or, as the case may be, the Gold Loans as of such Settlement Date.
(c) The failure or refusal of any Applicable Bank to make available to the
Applicable Agent at the aforesaid time and place on any Settlement Date the
amount of its Settlement Amount (i) shall not relieve any other Applicable Bank
from its several obligations hereunder to make available to the Applicable Agent
the amount of such other Applicable Bank's Settlement Amount and (ii) shall not
impose upon such other Applicable Bank any liability with respect to such
failure or refusal or otherwise increase the Commitment or, as the case may be,
the Gold Commitment, of such other Applicable Bank.
8.7. Optional Repayments of Loans. (a) The Borrower shall have the right,
at its election, to repay the outstanding amount of any Loan, as a whole or in
part, at any time without penalty or premium, provided that any full or partial
prepayment of the outstanding amount of any Eurodollar Rate Loans pursuant to
this ss.8.7 may be made only on the last day of the Interest Period relating
thereto. The Borrower shall give the Agent, no later than 11:00 a.m., Boston
time, at least two (2) Business Days prior written notice of any proposed
prepayment pursuant to this ss.8.7 of Base Rate Loans, and three (3) Eurodollar
Business Days notice of any proposed prepayment pursuant to this ss.8.7 of
Eurodollar Rate Loans, in each case specifying the proposed date of prepayment
of Loans, the nature of the Loan as a Revolving Credit Loan, the Term Loan or a
Gold Loan and the principal amount to be prepaid. Each such partial prepayment
of the Loans shall be in a minimum amount of $500,000.00 or an integral multiple
of $100,000.00 in excess thereof, shall be accompanied by the payment of accrued
interest on the principal prepaid to the date of prepayment and shall be
applied, in the absence of instruction by the Borrower, first to the principal
of Base Rate Loans and then to the principal of Eurodollar Rate Loans. Each
partial prepayment shall be allocated among the Applicable Banks, in proportion,
as nearly as practicable, to the respective unpaid principal amount of each
Applicable Bank's Notes, with adjustments to the extent practicable to equalize
any prior repayments not exactly in proportion.
(b) Notwithstanding the notice and minimum amount requirements set forth in
ss.8.7(a) but otherwise in accordance with the terms and conditions of this
Credit Agreement, the Applicable Agent may, in its sole discretion at the
Borrower's request, apply amounts held in the FNBB Concentration Accounts in
payment of any Loans made to the Borrower by such Applicable Agent pursuant to
ss.8.3(b) hereof, subject to the procedures for Settlement set forth in ss.8.6.
8.8. Repayments of Loans and Repurchases of Consigned Precious Metals Prior
to Event of Default. (a) So long as the provisions of ss.8.9 are not
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applicable, (i) all funds and cash proceeds in the form of money, checks and
like items received in the FNBB Concentration Accounts as contemplated by
ss.11.14 shall be credited, on the same Business Day on which the Dollar Agent
determines that good collected funds have been received, and, prior to the
receipt of good collected funds, on a provisional basis until final receipt of
good collected funds, to the Operating Accounts, (ii) all funds and cash
proceeds in the form of a wire transfer received in the FNBB Concentration
Accounts as contemplated by ss.11.14 shall be credited on the same Business Day
as the Dollar Agent's receipt of such amounts (or up to such later date as the
Dollar Agent determines that good collected funds have been received), to the
Operating Accounts, and (iii) all funds and cash proceeds in the form of an
automated clearing house transfer received in the FNBB Concentration Accounts as
contemplated by ss.11.14 shall be credited on the next Business Day following
the Dollar Agent's receipt of such amounts (or up to such later date as the
Dollar Agent determines that good collected funds have been received), to the
Operating Accounts. For purposes of the foregoing provisions of this ss.8.8(a)
the Dollar Agent shall not be deemed to have received any such cash proceeds on
any day unless received by the Dollar Agent before 2:30 p.m. (Boston time) on
such day. The Borrower further acknowledges and agrees that any such provisional
credit or credit in respect of wire transfers shall be subject to reversal if
final collection in good funds of the related item is not received by the Dollar
Agent in accordance with the Dollar Agent's customary procedures and practices
for collecting provisional or wire transfer items.
(b) If at any time (i) the Outstanding Facility Amounts exceed the
Borrowing Base, or (ii) the Fair Market Value of Consigned Precious Metal
exceeds the Consignment Advance Rate Percentage multiplied by the Fair Market
Value of the sum of (A) Consigned Precious Metal plus (B) Borrower's Precious
Metal, the Borrower shall immediately pay the amount of such excess to the
Agents for the respective accounts of the Banks for application, so long as the
provisions of ss.8.9 are not applicable, as follows:
(i) first, to pay amounts then due and payable under the Dollar Facility
and the Gold Facility;
(ii) second, to reduce Gold Loans which are Base Rate Loans;
(iii) third, to reduce Gold Loans which are Eurodollar Rate Loans;
(iv) fourth, to reduce Revolving Credit Loans which are Base Rate Loans;
(v) fifth, to reduce Revolving Credit Loans which are Eurodollar Rate
Loans;
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(vi) sixth, to the Borrower's Operating Accounts.
All prepayments of the Loans pursuant to this ss.8.8(b) shall be allocated
among the Banks making such Loans, in proportion, as nearly as practicable,
to the respective unpaid principal amount of such Loans outstanding, with
adjustments to the extent practicable to equalize any prior payments or
repayments not exactly in proportion. Prior to any Settlement Date, all
prepayments of the Loans shall be applied in accordance with this
ss.8.8(b), first to outstanding Loans of the Applicable Agent.
8.9. Repayments of Loans and Repurchases of Consigned Precious Metals and
Distribution of Collateral Proceeds After Event of Default. If any Event of
Default shall have occurred and be continuing, the Agents may and, upon the
request of the Majority Banks, shall, apply and distribute any amounts held by
the Agents or the Collateral Agent in any accounts (including without limitation
the Borrower's Operating Accounts and the FNBB Concentration Accounts) or any
other amounts otherwise received by the Collateral Agent, either Agent or any
Bank, whether pursuant to ss.5.4(d), ss.11.14 or ss.16.4 or otherwise with
respect to the realization upon any of the Collateral, as follows (the Borrower
hereby authorizing and consenting to such application):
(a) First, to the payment of, or (as the case may be) the
reimbursement of the Agents and the Collateral Agent for or in respect of
all reasonable costs, expenses, disbursements and losses which shall have
been incurred or sustained by the Agents and the Collateral Agent in
connection with the collection of such monies by the Agents, for the
exercise, protection or enforcement by the Collateral Agent of all or any
of the rights, remedies, powers and privileges of the Collateral Agent, for
the benefit of the Agents and the Banks, under this Credit Agreement or any
of the other Loan Documents or in respect of the Collateral or in support
of any provision of adequate indemnity to the Agents and the Collateral
Agent against any taxes or liens which by law shall have, or may have,
priority over the rights of the Agents and the Collateral Agent to such
monies;
(b) Second, to all other Obligations in such order or preference as
the Majority Banks may determine; provided, however, that distributions in
respect of (i) such Obligations shall be made pari passu among Obligations
with respect to the Agents' fees payable pursuant to ss.8.11 and all other
Obligations and (ii) Obligations owing to the Banks with respect to each
type of Obligation such as interest, principal, fees and expenses, shall be
made among the Banks pro rata, with the value of the Gold Banks' claims in
respect of Consigned Precious Metal equal to the Gold Loans made pursuant
to ss.5.4 (and solely for purposes of so determining the pro rata portion
of each Gold Bank's claim in respect of Consigned Precious Metal following
an Event of Default described in ss.ss.16.1(g) or (h), the amount of the
Obligations owed to
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the Gold Banks shall be an amount equal to the Effective Date Value, as
such term is defined in the Confirmation of Swap Agreement); and provided,
further, that the Agents may in their discretion make proper allowance to
take into account any Obligations not then due and payable;
(c) Third, upon payment and satisfaction in full or other provisions
for payment in full satisfactory to each of the Banks and the Agents of all
of the Obligations, to the payment of any obligations required to be paid
pursuant to ss.9-504(1)(c) of the Uniform Commercial Code of the
Commonwealth of Massachusetts; and
(d) Fourth, the excess, if any, shall be returned to the Borrower or
to such other Persons as are entitled thereto.
8.10. Closing Fee. The Borrower agrees to pay to the Dollar Agent a closing
fee according to the terms of a separate fee letter entered into on or prior to
the Closing Date (the "Fee Letter") among the Borrower and the Agents.
8.11. Agents' Fee. The Borrower agrees to pay to the Agents, for each
Agent's own account, an Agents' fee according to the terms of the Fee Letter.
8.12. Funds for Payments.
8.12.1 Payments to Agents. All payments of principal, interest,
Reimbursement Obligations, commitment fees, Letter of Credit Fees and any
other amounts due hereunder or under any of the other Loan Documents with
respect to the Dollar Facility shall be made to the Dollar Agent, for the
respective accounts of the Dollar Banks and the Dollar Agent, at the Dollar
Agent's Head Office or at such other location in the Boston, Massachusetts,
area that the Dollar Agent may from time to time designate, in each case in
immediately available funds in Dollars. Each Redelivery and all payments of
principal, interest, commitment fees, Consignment Fees, Gold Fronting Fees,
Consignment Premiums, and any other amounts due hereunder or under any of
the other Loan Documents with respect to the Gold Facility shall be made to
the Gold Agent, for the respective accounts of the Gold Banks and the Gold
Agent, at the Gold Agent's Head Office or at such other location as the
Gold Agent may from time to time designate, in each case in immediately
available funds in Dollars or, as applicable, troy ounces.
8.12.2. No Offset, etc.(a) All payments by the Borrower hereunder and
under any of the other Loan Documents shall be made (except as otherwise
expressly provided in this ss.8.12.2) without setoff or counterclaim and
free and clear of and without deduction for any taxes, levies, imposts,
duties, charges, fees, deductions, withholdings, compulsory loans,
restrictions or conditions of any nature now or hereafter imposed or levied
by any jurisdiction or any political subdivision thereof or taxing or other
authority
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therein (but excluding (i) any tax imposed on or measured by the net income
or profits of a Bank pursuant to the laws of the jurisdiction in which it
is organized or qualified to do business or the jurisdiction in which the
principal office or applicable lending office of such Bank or Agent is
located or any subdivision thereof or therein and (ii) any franchise taxes,
branch taxes, taxes on doing business or taxes on the overall capital or
net worth of any Bank or Agent pursuant to the laws of the jurisdiction in
which it is organized or the jurisdiction in which the principal office or
applicable lending office of such Bank or Agent is located or any
subdivision thereof or therein) unless the Borrower is compelled by law to
make such deduction or withholding (all such non-excluded taxes, levies,
imposts, duties, fees, assessments or other charges being referred to
collectively as "Taxes"). If any such Tax is imposed upon the Borrower with
respect to any amount payable by it hereunder or under any of the other
Loan Documents, the Borrower will pay to the Agents, for the account of the
Banks or (as the case may be) the Agents, on the date on which such amount
is due and payable hereunder or under such other Loan Document, such
additional amount in Dollars as shall be necessary to enable the Banks or
the Agents to receive the same net amount which the Banks or the Agents
would have received on such due date had no such obligation been imposed
upon the Borrower. The Borrower will deliver promptly to the Agents
certificates or other valid vouchers for all taxes or other charges
deducted from or paid with respect to payments made by the Borrower
hereunder or under such other Loan Document.
8.12.3. Withholding Forms. Each Bank that is not incorporated or
organized under the laws of the United States of America or a state thereof
or the District of Columbia (a "Non-U.S. Bank") agrees that it will deliver
to each of the Borrower and the Agents, within ten (10) days after the
Closing Date, or, in the case of any Non-U.S. Bank that becomes a Bank
pursuant to an Assignment and Acceptance, on the date of such Assignment
and Acceptance, two duly completed copies of United States Internal Revenue
Service Form 1001 or 4224 (or a successor form) certifying that such
Non-U.S. Bank is entitled to receive all payments under this Credit
Agreement and the Notes without deduction or withholding of any United
States federal income taxes. Each Non-U.S. Bank that so delivers a Form
1001 or 4224 further undertakes to deliver to each of the Borrower and the
Agents two additional copies of such form (or a successor form) on or
before the date that such form expires or becomes obsolete or promptly
after the occurrence of any event requiring a change in the most recent
form so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrower or the
Agents, in each case certifying that such Non-U.S. Bank is entitled to
receive payments under this Credit Agreement and the Notes without
deduction or withholding of any United States federal income taxes, unless
an event (including any change in treaty, law, or regulation) has occurred
prior to the date on which any such delivery would otherwise be
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required that renders all such forms inapplicable or that would prevent
such Non-U.S. Bank from duly completing and delivering any such form with
respect to it and such Non-U.S. Bank advises the Borrower and the Agents
that it is not capable of receiving payments without any deduction or
withholding of United States federal income tax.
8.12.4. Exclusions. The Borrower shall not be required to pay any
additional amounts to any Non-U.S. Bank in respect of United States federal
withholding tax pursuant to ss.8.12.2 above to the extent that (i) the
obligation to withhold amounts with respect to United States federal
withholding tax existed on the date such Non-U.S. Bank became a party to
this Credit Agreement or, with respect to payments to a different lending
office designated by the Non-U.S. Bank as its applicable lending office (a
"New Lending Office"), the date such Non-U.S. Bank designated such New
Lending Office with respect to a Loan; provided, however, that this clause
(i) shall not apply to any transferee or New Lending Office as a result of
an assignment, transfer or designation made at the request of the Borrower;
and provided further, however, that this clause (i) shall not apply to the
extent the indemnity payment or additional amounts any transferee, or Bank
through a New Lending Office, 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 or transfer to such
transferee, or Bank making the designation of such New Lending Office,
would have been entitled to receive in the absence of such assignment,
transfer or designation; or (ii) the obligation to pay such additional
amounts would not have arisen but for a failure by such Non-U.S. Bank to
comply with the provisions of ss.8.12.3 above. Each Bank agrees to use
reasonable efforts (consistent with legal and regulatory restrictions) to
change its Domestic Lending Office or Eurodollar Lending Office to avoid or
to minimize any amounts otherwise payable under ss.8.12.2 hereof solely if
such change can be made in a manner so that such Bank, in its sole
determination, suffers no legal, economic or regulatory disadvantage.
8.13. Computations. All computations of interest on the Loans and of
commitment fees, Letter of Credit Fees, Consignment Fees, Gold Fronting Fees or
other fees shall, unless otherwise expressly provided herein, be based on a
360-day year and paid for the actual number of days elapsed. Except as otherwise
provided in the definition of the term "Interest Period" with respect to
Eurodollar Rate Loans and Consignment Fixed Rate Amounts, whenever a payment
hereunder or under any of the other Loan Documents becomes due on a day that is
not a Business Day, the due date for such payment shall be extended to the next
succeeding Business Day, and, with respect to payments of principal, interest
shall accrue thereon during such extension. The outstanding amount of the Loans
and Consigned Precious Metal as reflected on the Revolving Credit Note Records,
the Term Note Records, the Gold Note Records and the other records maintained by
the Agents and each Bank from time to time shall
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be considered correct and binding on the Borrower in the absence of demonstrable
error.
8.14. Inability to Determine Eurodollar Rate or Consignment Fixed Rate. In
the event, prior to the commencement of any Interest Period relating to any
Eurodollar Rate Loan or Consignment Fixed Rate Amount, the Dollar Agent, in the
case of Dollar Facility Loans, or the Gold Agent, in the case of Gold Loans or
Consignments, shall determine in good faith that adequate and reasonable methods
do not exist for ascertaining (a) the Eurodollar Rate that would otherwise
determine the rate of interest to be applicable to any Eurodollar Rate Loan
during any Interest Period or (b) the Eurodollar Rate or the Contango Rate that
would otherwise determine the rate of interest to be applicable to any
Consignment Fixed Rate Amount during any Interest Period, such Agent shall
forthwith give notice of such determination and the basis therefor (which shall
be conclusive and binding on the Borrower and the Applicable Banks) to the
Borrower and the Applicable Banks. In such event (x) any Loan Request or
Conversion Request with respect to Eurodollar Rate Loans or Consignment Request
with respect to Consignment Fixed Rate Amounts shall be automatically withdrawn
and, shall be deemed a request for Base Rate Loans or Consignment Base Rate
Amounts, as applicable, (y) each Eurodollar Rate Loan or Consignment Fixed Rate
Amount, as applicable, will automatically, on the last day of the then current
Interest Period relating thereto, become a Base Rate Loan or Consignment Base
Rate Amount, as applicable and (z) the obligations of the Applicable Banks to
make Eurodollar Rate Loans or Consignment Fixed Rate Amounts shall be suspended
until such Applicable Agent determines that the circumstances giving rise to
such suspension no longer exist, whereupon such Applicable Agent shall so notify
the Borrower and the Applicable Banks.
8.15. Illegality of Eurodollar Rate Loans or Consignment Fixed Rate
Amounts.
(a) Notwithstanding any other provisions herein, if any change in any
present law, regulation, treaty or directive or any future law, regulation,
treaty or directive or any change in the interpretation or application of
any thereof shall make it unlawful for any Bank to make or maintain
Eurodollar Rate Loans, such Bank shall forthwith give notice of such
circumstances to the Borrower and the other Applicable Banks and thereupon
(i) the commitment of such Bank to make Eurodollar Rate Loans or convert
Loans of another Type to Eurodollar Rate Loans shall forthwith be suspended
and (ii) such Bank's Loans then outstanding as Eurodollar Rate Loans, if
any, shall be converted automatically to Base Rate Loans on the last day of
each Interest Period applicable to such Eurodollar Rate Loans or within
such earlier period as may be required by law. The Borrower hereby agrees
promptly to pay the Applicable Agent, for the account of such Bank, within
ten (10) days of demand by such Bank, any additional amounts necessary to
compensate such Bank for any reasonable costs incurred by such Bank in
making any conversion
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in accordance with this ss.8.15, including any interest or fees payable by
such Bank to lenders of funds obtained by it in order to make or maintain
its Eurodollar Rate Loans hereunder.
(b) Notwithstanding any other provisions herein, if any change in any
present law, regulation, treaty or directive or any future law, regulation,
treaty or directive or any change in the interpretation or application of
any thereof shall make it unlawful for any Gold Bank to make or maintain
Consignment Fixed Rate Amounts, such Gold Bank shall forthwith give notice
of such circumstances to the Borrower and the other Gold Banks and
thereupon (i) the commitment of such Gold Bank to make Consignment Fixed
Rate Amounts or convert Consigned Precious Metal into Consignment Fixed
Rate Amounts shall forthwith be suspended, and (ii) such Gold Bank's
Consigned Precious Metal then outstanding as Consignment Fixed Rate
Amounts, if any, shall be converted automatically to Consignment Base Rate
Amounts on the last day of each Interest Period applicable to such
Consignment Fixed Rate Amounts or within such earlier period as may be
required by law. The Borrower hereby agrees promptly to pay the Gold Agent,
for the account of such Gold Bank, within ten (10) days of demand by such
Gold Bank, any additional amounts necessary to compensate such Gold Bank
for any reasonable costs incurred by such Gold Bank in making any
conversion in accordance with this ss.8.15, including any interest or fees
payable by such Gold Bank to lenders of funds obtained by it in order to
make or maintain its Consignment Fixed Rate Amounts hereunder.
8.16. Additional Costs, etc. If any changes in applicable law, which
expression, as used herein, includes statutes, rules and regulations thereunder
and interpretations thereof by any competent court or by any governmental or
other regulatory body or official charged with the administration or the
interpretation thereof and requests, directives, instructions and notices at any
time or from time to time hereafter made upon or otherwise issued to any Bank or
either Agent by any central bank or other fiscal, monetary or other authority
(whether or not having the force of law), shall:
(a) subject any Bank or either Agent to any tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature with respect to this
Credit Agreement, the other Loan Documents, any Letters of Credit, such
Bank's Commitment, Gold Commitment, the Consignments or the Loans (other
than taxes based upon or measured by the income or profits of such Bank or
such Agent and other taxes specifically excluded from ss.8.12.2 hereof), or
(b) materially change the basis of taxation (except for changes in
taxes on income or profits and other taxes specifically excluded from
ss.8.12.2 hereof) of payments to any Bank of the principal of or the
interest on any Loans or any
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other amounts payable to any Bank or either Agent under this Credit
Agreement or any of the other Loan Documents, or
(c) impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Credit Agreement) any special
deposit, reserve, assessment, liquidity, capital adequacy or other similar
requirements (whether or not having the force of law) against assets held
by, or deposits in or for the account of, or loans by, or letters of credit
issued by, or commitments of an office of any Bank, or
(d) impose on any Bank or either Agent any other conditions or
requirements with respect to this Credit Agreement, the other Loan
Documents, any Letters of Credit, the Loans, the Consignments, such Bank's
Commitment or Gold Commitment, or any class of loans, letters of credit or
commitments of which any of the Loans, Consignments or such Bank's
Commitment or Gold Commitment forms a part, and the result of any of the
foregoing is
(i) to increase the cost to any Bank of making, funding, issuing,
renewing, extending or maintaining any of the Loans, any Consignment
or such Bank's Commitment or Gold Commitment or any Letter of Credit,
or
(ii) to reduce the amount of principal, interest, Reimbursement
Obligation or other amount payable to such Bank or either Agent
hereunder on account of such Bank's Commitment, Gold Commitment, any
Letter of Credit, any Consignment or any of the Loans, or
(iii) to require such Bank or either Agent to make any payment or
to forego any interest or Reimbursement Obligation or other sum
payable hereunder, the amount of which payment or foregone interest or
Reimbursement Obligation or other sum is calculated by reference to
the gross amount of any sum receivable or deemed received by such Bank
or either Agent from the Borrower hereunder,
then, and in each such case, the Borrower will, within fifteen (15) days after
demand made by such Bank or (as the case may be) such Agent at any time and from
time to time and as often as the occasion therefor may arise, pay to such Bank
or such Agent such additional amounts as will be sufficient to compensate such
Bank or such Agent for such additional cost, reduction, payment or foregone
interest or Reimbursement Obligation or other sum.
8.17. Capital Adequacy. If after the date hereof any Bank or either Agent
determines that (a) the adoption of or change in any law, governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law) regarding capital requirements for banks or bank holding companies or any
change in
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the interpretation or application thereof by a court or governmental authority
with appropriate jurisdiction, or (b) compliance by such Bank or such Agent or
any corporation controlling such Bank or such Agent with any such newly adopted
or change in any applicable law, governmental rule, regulation, policy,
guideline or directive (whether or not having the force of law) of any such
entity regarding capital adequacy, has the effect of reducing the return on such
Bank's or such Agent's commitment with respect to any Loans or any Consignments
to a level below that which such Bank or such Agent could have achieved but for
such adoption, change or compliance (taking into consideration such Bank's or
such Agent's then existing policies with respect to capital adequacy and
assuming full utilization of such entity's capital) by any amount deemed by such
Bank or (as the case may be) such Agent to be material, then such Bank or such
Agent may notify the Borrower of such fact. To the extent that the amount of
such reduction in the return on capital is not reflected in the Base Rate or the
amount of Consignment Fees or Gold Fronting Fees, as applicable, the Borrower
agrees to pay such Bank or (as the case may be) such Agent for the amount of
such reduction in the return on capital as and when such reduction is determined
upon presentation by such Bank or (as the case may be) such Agent of a
certificate in accordance with ss.8.18 hereof. Each Bank shall allocate such
cost increases among its customers in good faith and on an equitable basis.
8.18. Certificate. A certificate setting forth any additional amounts
payable pursuant to ss.ss.8.16 or 8.17 and an explanation of such amounts which
are due, submitted by any Bank or either Agent to the Borrower, shall be
conclusive, absent manifest error, that such amounts are due and owing. Such
certificate shall include a written confirmation that all increases in costs for
which reimbursement is sought shall have been allocated equitably among all
similarly situated customers of such Bank or Agent. The Borrower will not be
required to compensate any Bank or Agent for any amounts pursuant to ss.ss.8.16
or 8.17 incurred by such Bank or Agent more than ninety (90) days prior to such
Bank's or Agent's request therefore given to the Borrower. The Borrower agrees
to pay such Bank or either Agent the amount shown as due on such certificate
within fifteen (15) days after receipt by the Borrower thereof. The Banks and
the Agents agree to act in a commercially reasonable manner in order, to the
extent reasonably possible, to minimize or avoid incurrence of additional costs
under ss.ss.8.16 or 8.17.
8.19. Indemnity. (a) The Borrower agrees to indemnify each Bank and to hold
each Bank harmless from and against any loss, cost or expense (excluding loss of
anticipated profits) that such Bank may sustain or incur by reason of the
liquidation or re-employment of deposits or other funds obtained by it in order
to maintain any Eurodollar Rate Loans as a consequence of (i) default by the
Borrower in payment of the principal amount of or any interest on any Eurodollar
Rate Loans as and when due and payable, including any such loss or expense
arising from interest or fees payable by such Bank to lenders of funds obtained
by it in order to maintain its Eurodollar Rate Loans, (ii) default by the
Borrower in making a borrowing or conversion after the Borrower have
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given (or are deemed to have given) a Loan Request, notice (in the case of all
or any portion of the Term Loan pursuant to ss.3.5), Conversion Request or
Consignment Conversion Request relating thereto in accordance with ss.ss.2.6,
3.5, 5.5, 5.4, 8.3 or 8.4 or (iii) the making of any payment of a Eurodollar
Rate Loan or the making of any conversion of any such Loan to a Base Rate Loan
on a day that is not the last day of the applicable Interest Period with respect
thereto, the amount of such losses, costs and expenses payable to any such Bank
being determined in the following manner:
(i) First, such Bank shall determine the amount by which (A) the
total amount of interest which would have otherwise accrued hereunder
on each Eurodollar Rate Loan so paid or not paid, borrowed or, as the
case may be, converted, during the period beginning on the date of
such payment or failure to pay, borrow or convert and ending on the
last day of the Interest Period relating to such Eurodollar Rate Loan
(the "Reemployment Period"), with such interest to be calculated on
the basis of the Eurodollar Rate applicable to such Interest Period
(not including the Eurodollar Applicable Margin), exceeds (B) the
total amount of interest which would accrue and become payable to such
Bank, during the Reemployment Period, if such Bank were to reemploy,
at or about the time of such payment or failure to pay, borrow or
convert, the principal so paid by lending to a prime bank in the
eurodollar interbank market selected by such Bank in its sole
discretion, deposits of Dollars in an amount equal (as nearly as may
be) to the amount of principal so paid or not paid, borrowed or
converted for a number of days comparable to the Reemployment Period.
Each such amount is hereafter referred to as an "Installment Amount";
(ii) Second, each Installment Amount shall be treated as payable
on the last day of the Interest Period relating to such Eurodollar
Rate Loan had such Eurodollar Rate Loan not been prepaid or such
failure to repay, borrow or convert such Eurodollar Rate Loan not
occurred; and
(iii) Third, the amount to be paid on each such date shall be the
present value of the Installment Amount determined by discounting the
amount thereof from the date on which such Installment Amount is to be
treated as payable, at the same annual interest rate as that payable
upon the eurodollar deposit designated as aforesaid by such Bank.
(b) The Borrower agrees to indemnify the Gold Agent and each Gold Bank
and to hold the Gold Agent and each Gold Bank harmless from and against any
loss, cost or expense (excluding loss of anticipated profits) that the Gold
Agent or such Gold Bank may sustain or incur by reason of the liquidation
or re-employment of deposits or other funds obtained by it in order to
maintain any Consignment Fixed Rate Amount or Consignment Participation
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in a Consignment Fixed Rate Amount as a consequence of (i) default by the
Borrower in making a purchase or Redelivery in respect of any Consignment
Fixed Rate Amount or in making any payment of Consignment Fees or Gold
Fronting Fees on any Consignment Fixed Rate Amount as and when due and
payable, including any such loss or expense arising from interest or fees
payable by the Gold Agent or such Gold Bank to lenders of funds obtained by
it in order to maintain its Consignments or Consignment Participations,
(ii) default by the Borrower in making a Consignment as a Consignment Fixed
Rate Amount, or a conversion to a Consignment Fixed Rate Amount after the
Borrower has given (or is deemed to have given) a Consignment Request or a
conversion request relating thereto in accordance with ss.5.3 or ss.5.5 or
(iii) the making of any payment of a Consignment Fixed Rate Amount or the
making of any conversion of any such Consignment Fixed Rate Amount to a
Consignment Base Rate Amount on a day that is not the last day of the
applicable Interest Period with respect thereto, including interest or fees
payable by the Gold Agent or such Gold Bank to lenders of funds obtained by
it in order to maintain any such Consignments.
8.20. Interest After Default. During the continuance of an Event of Default
under ss.ss.16.1(a) or (b) hereof (a) the principal of the Loans, whether or not
due, the Fair Market Value of Consigned Precious Metal, whether or not due to be
purchased or Redelivered by the Borrower in accordance with the requirements of
ss.5.4, and (to the extent permitted by applicable law) interest on the Loans
and Consignment Fees and Gold Fronting Fees shall bear interest, compounded
monthly and payable on demand, at a rate per annum equal to two percent (2%)
above the rate of interest or, as the case may be, Consignment Fees or Gold
Fronting Fees otherwise applicable thereto pursuant to ss.8.1 or, as the case
may be, ss.5.2 until such amounts shall be paid in full (after as well as before
judgment), and (b) all other amounts payable hereunder or under any of the other
Loan Documents shall bear interest at a rate per annum equal to two percent (2%)
above the Base Rate until such amounts shall be paid in full (after as well as
before judgment).
8.21. Performance Adjustments. Based upon, and following receipt by the
Banks of (a) beginning with the Borrower's financial statements as hereafter
described for the fiscal quarter of the Borrower ending on or about February 28,
1998, (i) with respect to the first three fiscal quarters of each fiscal year,
the Borrower's quarterly unaudited consolidated financial statements pursuant to
ss.11.4(b) and (ii) with respect to the last fiscal quarter of each fiscal year,
the Borrower's annual audited consolidated financial statements pursuant to
ss.11.4(a), and (b) a certificate of the chief financial officer of the Borrower
setting forth calculations of the financial information set forth below, the
Base Rate Applicable Margin and the Eurodollar Applicable Margin shall be
subject to possible adjustment in accordance with the provisions of this
paragraph (each such adjustment, a "Performance Adjustment"). Performance
Adjustments shall be effective (the date of the effectiveness of any Performance
Adjustment, a "Performance Adjustment Date") with respect to
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adjustments to the Base Rate Applicable Margin and the Eurodollar Applicable
Margin, three (3) Business Days following receipt by the Agents of the relevant
quarterly unaudited or annual audited financial statements and the certificate
of the chief financial officer of the Borrower, each as described above. The
Eurodollar Applicable Margin and the Base Rate Applicable Margin with respect to
any period following any Performance Adjustment Date until the next succeeding
Performance Adjustment Date shall be as set forth in the table below on the line
furthest down in such table with respect to which, for the period of four
consecutive fiscal quarters most recently ended prior to such possible
Performance Adjustment Date, both (A) the Borrower's ratio of (1) Consolidated
Total Funded Debt for such period to (2) Consolidated EBITDA for such period
shall be within the range set forth on such line in such table, and (B) the
Borrower's ratio of (1) Consolidated EBITDA for such period to (2) Consolidated
Total Interest Expense for such period shall be within the range set forth on
such line in such table:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------
Base Rate
Ratio of Eurodollar Applicable
Ratio of EBITDA Applicable Margin Eurodollar Margin for Base Rate
Total Funded to Total for Revolving Applicable Revolving Credit Applicable
Debt to Interest Credit Loans and Margin for Loans and Margin for
EBITDA Expense Gold Loans Term Loan Gold Loans Term Loan
- - -----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
greater less than 3.00% 3.50% 1.25% 1.75%
than or or equal
equal to to
4.25:1.0 1.75:1.0
- - -----------------------------------------------------------------------------------------------------------------------------
greater greater 2.75% 3.25% 1.00% 1.50%
than or than
equal to 1.75:1.0
4.0:1.0 but less
but less than or
than equal to
4.25:1.0 2.0:1.0
- - -----------------------------------------------------------------------------------------------------------------------------
less than greater 2.50% 3.00% 0.75% 1.25%
4.0:1.0 than
2.0:1.0
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
8.22. Replacement of Banks. If any Bank becomes a Delinquent Bank, if any
Bank delivers a certificate pursuant to ss.8.18, if any Bank requires the
Borrower to pay any additional amounts to it pursuant to ss.8.12.2, or if any
Bank fails to consent to a waiver or amendment which requires the consent of all
of the Banks (hereinafter such Bank shall be referred to as a "Replaced Bank"),
then in such case, the Borrower may, upon at least five (5) Business Days'
notice to the Agents and such Replaced Bank, designate a replacement lender (a
"Replacement Bank") for such Replaced Bank, which Replacement Bank shall be
reasonably acceptable to the Agents. Such Replaced Bank shall thereafter assign,
subject to its receipt (unless a later date for the remittance thereof shall be
agreed to by the Replaced Bank) of all amounts owed to such Replaced Bank
hereunder, all (but not less than all) of its rights and obligations
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hereunder pursuant to an Assignment and Acceptance and pursuant to the terms of
ss.22 hereof. Upon the effectiveness of such Assignment and Acceptance, the
Replacement Bank shall become a Bank hereunder and the Replaced Bank shall be
released from its obligations hereunder, in each case to the extent provided in
ss.22.1 hereof.
9. COLLATERAL SECURITY AND GUARANTIES.
9.1. Security of Borrower and Capital Stock of the Borrower. The
Obligations shall be secured by a perfected first priority security interest
(subject only to Permitted Liens entitled to priority under applicable law) in
all of the assets of the Borrower (including, without limitation, in all shares
of capital stock of the Borrower's Subsidiaries owned by the Borrower other than
the Mexican Subsidiary and in 66-2/3% of the shares of the capital stock of the
Mexican Subsidiary), whether now owned or hereafter acquired, pursuant to the
terms of the Security Documents to which the Borrower is a party.
9.2. Guaranties and Security of Subsidiaries. The Obligations shall also be
guaranteed pursuant to the terms of the Guaranty. The obligations of the
Borrower's Subsidiaries (other than the Mexican Subsidiary) under the Guaranty
shall be in turn secured by a perfected first priority security interest
(subject only to Permitted Liens entitled to priority under applicable law) in
all of the assets of each such Subsidiary (including, without limitation, all
shares of capital stock of each such Subsidiary's Subsidiaries, if any, owned by
such Subsidiary), whether now owned or hereafter acquired, pursuant to the terms
of the Security Documents to which such Subsidiary is a party.
10. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Banks and the Agents as
follows:
10.1. Corporate Authority.
10.1.1 Incorporation; Good Standing. Each of the Borrower and its
Subsidiaries (i) is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation, (ii) has all
requisite corporate power to own its property and conduct its business as
now conducted and as presently contemplated, and (iii) is in good standing
as a foreign corporation and is duly authorized to do business in each
jurisdiction where such qualification is necessary except where a failure
to be so qualified would not have a materially adverse effect on the
business or financial condition of the Borrower and its Subsidiaries taken
as a whole.
10.1.2. Authorization. The execution, delivery and performance of this
Credit Agreement and the other Loan Documents to which the Borrower or any
of its Subsidiaries is or is to become a party and the transactions
<PAGE>
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contemplated hereby and thereby (i) are within the corporate authority of
such Person, (ii) have been duly authorized by all necessary corporate
proceedings, (iii) do not conflict with or result in any breach or
contravention of any provision of law, statute, rule or regulation to which
the Borrower or any of its Subsidiaries is subject or any judgment, order,
writ, injunction, license or permit applicable to the Borrower or any of
its Subsidiaries, except to the extent the same would not reasonably be
expected to have a material adverse effect on the business or financial
condition of the Borrower and its Subsidiaries taken as a whole and (iv) do
not conflict with any provision of the corporate charter or bylaws of, or,
except to the extent the same would not reasonably be expected to have a
material adverse effect on the business or financial condition of the
Borrower and its Subsidiaries taken as a whole, any agreement or other
instrument binding upon, the Borrower or any of its Subsidiaries.
10.1.3. Enforceability. The execution and delivery of this Credit
Agreement and the other Loan Documents to which the Borrower or any of its
Subsidiaries is or is to become a party will result in valid and legally
binding obligations of such Person enforceable against it in accordance
with the respective terms and provisions hereof and thereof, except as
enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the enforcement
of creditors' rights and except to the extent that availability of the
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be
brought. To the actual knowledge of the Borrower, the execution and
delivery of each of the Acquisition Documents to which the Borrower or any
of its Subsidiaries is or is to become a party will result in valid and
legally binding obligations of such Person enforceable against it in
accordance with the respective terms and provisions thereof, except as
enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the enforcement
of creditors' rights and except to the extent that availability of the
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be
brought.
10.2 Governmental Approvals. The execution, delivery and performance by the
Borrower or any of its Subsidiaries of this Credit Agreement and the other Loan
Documents and Acquisition Documents to which the Borrower or any of its
Subsidiaries is or is to become a party and the transactions contemplated hereby
and thereby do not require the approval or consent of, or filing with, any
governmental agency or authority other than those already obtained or those to
be made when and as required in the ordinary course of business and not
affecting the validity of the Borrower's or any such Subsidiary's obligations
under the Loan Documents.
<PAGE>
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10.3. Title to Properties; Leases. Except as indicated on Schedule 10.3
hereto, as of the Closing Date the Borrower and its Subsidiaries own all of the
assets reflected in the pro-forma consolidated balance sheet of the Borrower and
its Subsidiaries as at the Closing Date, subject to no rights of others,
including any mortgages, leases, conditional sales agreements, title retention
agreements, liens or other encumbrances except Permitted Liens.
10.4. Financial Statements and Projections.
10.4.1. Financial Statements. There has been furnished to each of the
Banks (a) balance sheets of the CJC Business and L.G. Balfour Company, Inc.
as at the Balance Sheet Date, the statements of income (loss) of the CJC
Business and the statements of operations of L.G. Balfour Company, Inc.
for, in the case of the CJC Business, the fiscal year then ended, and in
the case of L.G. Balfour Company, Inc., the six-month period then ended,
certified by Arthur Andersen LLP, (b) balance sheets of the CJC Business
and L.G. Balfour Company, Inc. as at their respective fiscal year end dates
for the last three fiscal years prior to the Closing Date, the statements
of income (loss) of the CJC Business and the statements of operations of
L.G. Balfour Company, Inc. for the respective fiscal years then ended,
certified by Arthur Andersen LLP, and (c) an unaudited pro-forma combined
balance sheet of the Borrower and its Subsidiaries as at August 31, 1996
after giving effect to the transactions contemplated hereby and the
Acquisitions. Such balance sheets, statements of income (loss) and
statements of operations have been prepared in accordance with generally
accepted accounting principles in all material respects and fairly present
in all material respects the financial condition of the CJC Business or, as
applicable, L.G. Balfour Company, Inc., as at the close of business on the
date thereof and the results of operations for the applicable fiscal period
then ended. There are no contingent liabilities of the businesses of the
CJC Business or, as applicable, L.G. Balfour Company, Inc., acquired
pursuant to the Acquisitions, as of such date involving material amounts,
known to the officers of the Borrower as of the Closing Date, which were
not disclosed in such balance sheets and the notes related thereto or in
the reports of Arthur Andersen LLP.
10.4.2. Projections. The projections of the annual operating budgets
of the Borrower and its Subsidiaries on a consolidated basis, balance
sheets and cash flow statements for the 1997 to 2002 fiscal years have been
delivered to each Bank. As of the Closing Date, the projections are based
upon reasonable estimates of the Borrower of the results of operations and
other information projected therein, it being recognized that such
projections do not constitute a warranty as to the future performance of
the Borrower or its Subsidiaries, and that actual results may vary from
projected results.
10.5. No Material Changes, etc.; Solvency.
<PAGE>
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10.5.1. No MAterial Changes, etc. From the Balance Sheet Date until
the Closing Date, there has occurred no materially adverse change in the
financial condition or business of the Sellers acquired by the Borrower
pursuant to the Acquisitions to the extent reflected in the consolidated
balance sheet of the CJC Business or, as applicable, L.G. Balfour Company,
Inc., as at the Balance Sheet Date, or the consolidated statement of income
for the fiscal year then ended, other than changes in the ordinary course
of business that have not had any materially adverse effect either
individually or in the aggregate on the business or financial condition of
the CJC Sellers or, as applicable, the Balfour Sellers. Since the Closing
Date there has occurred no materially adverse change in the financial
condition or business of the Borrower and its Subsidiaries as shown on or
reflected in the pro-forma combined balance sheet of the Borrower and its
Subsidiaries as at August 31, 1996 assuming on a pro forma basis completion
of the transactions contemplated hereby and in connection with the
Acquisitions, other than changes in the ordinary course of business that
have not had any materially adverse effect either individually or in the
aggregate on the business or financial condition of the Borrower or any of
its Subsidiaries. Since the Balance Sheet Date, the Borrower has not made
any Distribution except as permitted pursuant to ss.12.4 hereof.
10.5.2. Solvency. Both before and after giving effect to the
transactions contemplated by this Credit Agreement, the other Loan
Documents and the Acquisition Documents, the Borrower and its Subsidiaries
on a consolidated basis are Solvent. As used herein, "Solvent" shall mean
that the Borrower and its Subsidiaries (i) have assets having a fair value
in excess of their liabilities, (ii) have assets having a fair value in
excess of the amount required to pay their liabilities on existing debts as
such debts become absolute and matured, and (iii) have, and expect to
continue to have, access to adequate capital for the conduct of their
business and the ability to pay their debts from time to time incurred in
connection with the operation of their business as such debts mature.
10.6. Franchises, Patents, Copyrights, etc. Except as set forth on
Schedule 10.6 hereof, each of the Borrower and its Subsidiaries possesses all
franchises, patents, copyrights, trademarks, trade names, licenses and permits,
and rights in respect of the foregoing, adequate for the conduct of its business
substantially as now conducted without known conflict as of the Closing Date
with any rights of others.
10.7. Litigation. Except as set forth in Schedule 10.7 hereto, as of the
Closing Date there are no actions, suits, proceedings or investigations of any
kind pending or threatened against the Borrower or any of its Subsidiaries
before any court, tribunal or administrative agency or board that are reasonably
likely to be adversely determined and that, if adversely determined, could,
either in any case or in the aggregate, reasonably be expected to materially
adversely affect the financial
<PAGE>
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condition or business of the Borrower and its Subsidiaries or materially impair
the right of the Borrower and its Subsidiaries, considered as a whole, to carry
on business substantially as now conducted by them, or which question the
validity of this Credit Agreement or any of the other Loan Documents or any of
the Acquisition Documents.
10.8. No Materially Adverse Contracts, etc. Neither the Borrower nor any of
its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that has or is
expected in the future to have a materially adverse effect on the business or
financial condition of the Borrower and its Subsidiaries taken as a whole.
Neither the Borrower nor any of its Subsidiaries is a party to any contract or
agreement that has or is expected, in the judgment of the Borrower's officers,
to have any materially adverse effect on the business or financial condition of
the Borrower and its Subsidiaries taken as a whole.
10.9. Compliance with Other Instruments, Laws, etc. Neither the Borrower
nor any of its Subsidiaries is in violation of any provision of its charter
documents, bylaws, or any agreement or instrument to which it may be subject or
by which it or any of its properties may be bound or any decree, order,
judgment, statute, license, rule or regulation, in any of the foregoing cases in
a manner that could reasonably be expected to result in the imposition of
substantial penalties or materially and adversely affect the financial
condition, properties or business of the Borrower and its Subsidiaries taken as
a whole.
10.10 Tax Status. The Borrower and its Subsidiaries (a) have made or filed
all federal and state income and sales and all other material tax returns,
reports and declarations required by any jurisdiction to which any of them is
subject, and (b) have paid all taxes and other governmental assessments and
charges shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and by appropriate proceedings or to
the extent that the failure to do so could not reasonably be expected to have a
material adverse effect on the business or financial condition of the Borrower
and its Subsidiaries taken as a whole.
10.11. No Event of Default. No Default or Event of Default has occurred and
is continuing.
10.12. Holding Company and Investment Company Acts. Neither the Borrower
nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of
a "holding company", or an affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935; nor is it a nd
Investment Company Acts. "investment company", or an "affiliated company" or a
"principal underwriter" of an "investment company", as such terms are defined in
the Investment Company Act of 1940.
10.13. Absence of Financing Statements, etc. Except with respect to
Permitted Liens, the Borrower has not signed or become a party to any financing
<PAGE>
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statement, security agreement, chattel mortgage, real estate mortgage or other
document filed or recorded with any filing records, registry or other public
office, that purports to cover, affect or give notice of any present or possible
future lien on, or security interest in, any assets or property of the Borrower
or any of its Subsidiaries or any rights relating thereto.
10.14. Perfection of Security Interest. All filings, assignments, pledges
and deposits of documents or instruments have been made and all other actions
have been taken that are necessary or advisable, under applicable law, to
establish and perfect the Collateral Agent's security interest in the
Collateral. The Collateral and the Collateral Agent's rights with respect to the
Collateral are not subject to any setoff, claims, withholdings or other defenses
except for Permitted Liens and except for offsets or defenses of customers of
the Borrower or any of its Subsidiaries arising in the ordinary course of
business, which offsets and defenses could not reasonably be expected to have a
material adverse effect on the business or financial condition of the Borrower
and its Subsidiaries taken as a whole. The Borrower or a Subsidiary of the
Borrower party to the Security Agreement is the owner of the Collateral free
from any lien, security interest, encumbrance and any other claim or demand,
except for Permitted Liens.
10.15. Certain Transactions. Except for (a) arm's length transactions
pursuant to which one of the Borrower or any of its Subsidiaries makes payments
in the ordinary course of business upon terms no less favorable than the
Borrower or such Subsidiary could obtain from third parties, (b) payment of the
CH Management Fee to the extent permitted by ss.12.4 and ss.12.12 hereof, (c)
transactions with Oakley Insurance Group regarding the Borrower's insurance
policies and coverage upon terms not materially less favorable to the Borrower
or such Subsidiary than it could obtain in a comparable arm's-length transaction
with a party other than Oakley Insurance Group, (d) transactions among the
Borrower and its Subsidiaries, (e) any Permitted Employee Stock Repurchases, (f)
any Permitted Common Stock Repurchase, (g) any Permitted Preferred Stock
Replacement, and (h) transactions constituting Investments permitted by
ss.ss.12.3(h) or (o) hereof, none of the officers, directors, or employees of
the Borrower or any of its Subsidiaries is presently a party to any transaction
with the Borrower or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Borrower, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
10.16. Employee Benefit Plans.
10.16.1. In General. Each Employee Benefit Plan and each Guaranteed
Pension Plan has been maintained and operated in compliance in all
<PAGE>
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material respects with the provisions of ERISA and, to the extent
applicable, the Code, including but not limited to the provisions
thereunder respecting prohibited transactions and the bonding of
fiduciaries and other persons handling plan funds as required by ss.412 of
ERISA. Borrower has heretofore delivered to the Agents the most recently
completed annual report, Form 5500, with all required attachments, and
actuarial statement required to be submitted under ss.103(d) of ERISA, with
respect to each Guaranteed Pension Plan.
10.16.2. Terminability of Welfare Plans. Except as set forth on
Schedule 10.16, no Employee Benefit Plan which is an employee welfare
benefit plan within the meaning of ss.3(1) or ss.3(2)(B) of ERISA, provides
benefit coverage subsequent to termination of employment except as required
by Title I, Part 6 of ERISA or applicable state insurance laws. Except as
set forth on Schedule 10.16, the Borrower may terminate each such Plan at
any time (or at any time subsequent to the expiration of any applicable
bargaining agreement) in the discretion of the Borrower without liability
to any Person other than for claims arising prior to termination.
10.16.3. Guaranteed Pension Plans. Each contribution required to be
made to a Guaranteed Pension Plan, whether required to be made to avoid the
incurrence of an accumulated funding deficiency, the notice or lien
provisions of ss.302(f) of ERISA, or otherwise, has been timely made. No
waiver of an accumulated funding deficiency or extension of amortization
periods has been received with respect to any Guaranteed Pension Plan, and
neither the Borrower nor any ERISA Affiliate is obligated to or has posted
security in connection with an amendment of a Guaranteed Pension Plan
pursuant to ss.307 of ERISA or ss.401(a)(29) of the Code. No liability to
the PBGC (other than required insurance premiums, all of which have been
paid) has been incurred by the Borrower or any ERISA Affiliate with respect
to any Guaranteed Pension Plan, and there has not occurred any ERISA
Reportable Event (other than an Event as to which the requirement of 30
days notice has been waived), or any other event or condition which
presents a material risk of termination of any Guaranteed Pension Plan by
the PBGC. Based on the latest valuation of each Guaranteed Pension Plan
(which in each case occurred within twelve months of the date of this
representation) and on the actuarial methods and assumptions employed for
that valuation, the aggregate benefit liabilities of all such Guaranteed
Pension Plans within the meaning of ss.4001 of ERISA did not exceed the
aggregate value of the assets of all such Plans, disregarding for this
purpose the benefit liabilities and assets of any Guaranteed Pension Plan
with assets in excess of benefit liabilities, by more than $500,000.00.
10.16.4. Multiemployer Plans. Neither the Borrower nor any ERISA
Affiliate has incurred any material liability (including secondary
liability) to any Multiemployer Plan as a result of a complete or partial
withdrawal from such Multiemployer Plan under ss.4201 of ERISA or as a
result of a sale of assets
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described in ss.4204 of ERISA. Neither the Borrower nor any ERISA Affiliate
has been notified that any Multiemployer Plan is in reorganization or
insolvent under and within the meaning of ss.4241 or ss.4245 of ERISA or is
at risk of entering reorganization or becoming insolvent, or that any
Multiemployer Plan intends to terminate or has been terminated under
ss.4041A of ERISA.
10.17. Regulations U and X. The proceeds of the Loans and the Consignments
shall be used to finance the Acquisitions and for operating expenses, payment of
CH Management Fees, Capital Expenditures, payments in respect of Indebtedness
and for other working capital and general corporate purposes. The Borrower will
obtain Letters of Credit solely for working capital and general corporate
purposes. No portion of any Loan or proceeds from any Consignment is to be used,
and no portion of any Letter of Credit is to be obtained, for the purpose of
purchasing or carrying any "margin security" or "margin stock" as such terms are
used in Regulations U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R. Parts 221 and 224.
10.18. Environmental Compliance. To the best knowledge of the Borrower and
its Subsidiaries, based upon reasonable inquiries to the Sellers and based upon
Phase I environmental site assessments conducted by the Borrower on its Austin,
Texas and Louisville, Kentucky facilities and the review of the 1994 site
assessment conducted by L.G. Balfour Company, Inc. with respect to the North
Attleboro, Massachusetts facilities (collectively, the "Environmental Reports"):
(a) none of the Borrower, its Subsidiaries or any operator of the Real
Estate or any operations thereon is in violation, or alleged violation, of
any judgment, decree, order, law, license, rule or regulation pertaining to
environmental matters, including without limitation, those arising under
the Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, the Federal Clean
Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or
any state or local statute, regulation, ordinance, order or decree relating
to health, safety or the environment (hereinafter "Environmental Laws"),
which violation would reasonably be expected to have a material adverse
effect on the environment or the business or financial condition of the
Borrower and its Subsidiaries taken as a whole;
(b) neither the Borrower nor any of its Subsidiaries has received
notice from any third party including, without limitation, any federal,
state or local governmental authority, (i) that any one of them has been
identified by the United States Environmental Protection Agency ("EPA") as
a potentially responsible party under CERCLA with respect to a site listed
on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that
any hazardous waste, as defined by 42
<PAGE>
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U.S.C. ss.6903(5), any hazardous substances as defined by 42 U.S.C.
ss.9601(14), any pollutant or contaminant as defined by 42 U.S.C.
ss.9601(33) and any toxic substances, oil or hazardous materials or other
chemicals or substances regulated by any Environmental Laws ("Hazardous
Substances") have been generated, transported or disposed at any site where
a federal, state or local agency or other third party has conducted or has
ordered that the Borrower or any of its Subsidiaries conduct a remedial
investigation, removal or other response action pursuant to any
Environmental Law; or (iii) that it is or shall be a named party to any
claim, action, cause of action, complaint, or legal or administrative
proceeding (in each case, contingent or otherwise) arising out of any third
party's incurrence of costs, expenses, losses or damages of any kind
whatsoever in connection with the release of Hazardous Substances, in any
case except to the extent that the foregoing would not reasonably be
expected to have a material adverse effect on the business or financial
condition of the Borrower and its Subsidiaries taken as a whole;
(c) except as set forth on Schedule 10.18 attached hereto and except
to the extent not reasonably expected to have a material adverse effect on
the business or financial condition of the Borrower and its Subsidiaries
taken as a whole: (i) no portion of the Real Estate has been used for the
handling, processing, storage or disposal of Hazardous Substances except in
accordance with applicable Environmental Laws; and no underground tank or
other underground storage receptacle used to store Hazardous Substances is
located on any portion of the Real Estate; (ii) in the course of any
activities conducted by the Borrower, its Subsidiaries or operators of its
properties, no Hazardous Substances have been generated or are being used
on the Real Estate except in accordance with applicable Environmental Laws;
(iii) there have been no releases (i.e. any past or present releasing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, disposing or dumping) or threatened releases of
Hazardous Substances on, upon, into or from the properties of the Borrower
or any of its Subsidiaries, which releases would have a material adverse
effect on the value of any of the Real Estate; (iv) to the best of the
Borrower's knowledge, there have been no releases on, upon, from or into
any real property in the vicinity of any of the Real Estate which, through
soil or groundwater contamination, may have come to be located on, and
which would have a material adverse effect on the value of, the Real
Estate; and (v) in addition, any Hazardous Substances that have been
generated on any of the Real Estate have been transported offsite only by
carriers having an identification number issued by the EPA, treated or
disposed of only by treatment or disposal facilities maintaining valid
permits as required under applicable Environmental Laws, which transporters
and facilities have been and are, to the best of the Borrower's knowledge,
operating in compliance with such permits and applicable Environmental
Laws; and
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(d) None of the Borrower and its Subsidiaries, any Mortgaged Property
or any of the other Real Estate is subject to any applicable environmental
law requiring the performance of Hazardous Substances site assessments, or
the removal or remediation of Hazardous Substances, or the giving of notice
to any governmental agency or the recording or delivery to other Persons of
an environmental disclosure document or statement by virtue of the
transactions set forth and contemplated in the Loan Documents or the
Acquisition Documents, or as a condition to the recording of any Mortgage
or to the effectiveness of any other transactions contemplated hereby.
10.19. Subsidiaries, etc. Except as set forth on Schedule 10.19 hereto, the
Borrower has no Subsidiaries. Except as set forth on Schedule 10.19 hereto,
neither the Borrower nor any Subsidiary of the Borrower is engaged in any joint
venture or partnership with any other Person.
10.20. Bank Accounts. Schedule 10.20 (as such may be amended from time to
time in accordance with ss.12.10 hereof) sets forth the account numbers and
location of all bank accounts of each of the Borrower and its Subsidiaries.
10.21. Acquisition Documents. The Borrower has heretofore furnished to the
Agents true, complete and correct copies of the Acquisition Documents (including
schedules, exhibits and annexes thereto). Except as set forth on Schedule 10.6
hereto, the Acquisition Documents have not subsequently been amended,
supplemented, or modified and constitute the complete understanding among the
parties thereto in respect of the matters and transactions covered thereby. The
representations and warranties of the Borrower contained in the Acquisition
Documents were true and correct in all material respects when made or deemed to
be made except as would not have a materially adverse effect on the business or
financial condition of the Borrower and its Subsidiaries taken as a whole, and
the Agents may rely on such representations and warranties as if they were
incorporated herein on the Closing Date. The requirements of ss.14.20 have been
satisfied as of the Closing Date.
11. AFFIRMATIVE COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that, so long as any Loan, Unpaid
Reimbursement Obligation, Letter of Credit, amount of Consigned Precious Metal
or Note is outstanding or any Bank has any obligation to make any Loans or
Consignments or the Dollar Agent has any obligation to issue, extend or renew
any Letters of Credit:
11.1. Puntual Payment. The Borrower will duly and punctually pay, purchase
or Redeliver, or cause to be paid, purchased or Redelivered, the principal and
interest on the Loans, all Consigned Precious Metal, all Reimbursement
Obligations, the Letter of Credit Fees, the commitment fees, the Consignment
Fees, the Gold Fronting Fees, the Consignment Premiums, the Agents' fee and all
other
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amounts provided for in this Credit Agreement and the other Loan Documents
to which the Borrower or any of its Subsidiaries is a party, all in accordance
with the terms of this Credit Agreement and such other Loan Documents.
11.2. Maintenance of Office. The Borrower will maintain its chief executive
office in Austin, Texas, or at such other place in the United States of America
as the Borrower shall designate upon written notice to the Agents, where
notices, presentations and demands to or upon th ice. Borrower in respect of the
Loan Documents to which the Borrower is a party may be given or made.
11.3. Records and Accounts. The Borrower will (a) keep, and cause each of
its Subsidiaries to keep, true and accurate records and books of account in
accordance with generally accepted accounting principles and (b) maintain
adequate accounts and reserves for all taxes (including income taxes),
depreciation, depletion, obsolescence and amortization of its properties and the
properties of its Subsidiaries, contingencies, and other reserves in accordance
with generally accepted accounting principles.
11.4. Financial Statements, Certificates and Information. The Borrower
will deliver to each of the Banks:nformation.
(a) as soon as practicable, but in any event not later than ninety
(90) days after the end of each fiscal year of the Borrower, the
consolidated balance sheet of the Borrower and its Subsidiaries as of the
end of such year, and the related consolidated statement of income and
consolidated statement of cash flow for such year, each setting forth in
comparative form the figures for the previous fiscal year and all such
consolidated statements to be in reasonable detail, prepared in accordance
with generally accepted accounting principles, and certified by Arthur
Andersen LLP or by other independent certified public accountants
satisfactory to the Agents, reported on without a "going concern" or like
qualification or exception, or qualification indicating that the scope of
the audit was inadequate to permit such independent certified public
accountants to certify such financial statements without such
qualification, together with a written statement from such accountants to
the effect that they have read a copy of this Credit Agreement, and that,
in making the examination necessary to said certification, nothing shall
have come to their attention indicating that any Default or Event of
Default shall exist, or, if such accountants shall have obtained knowledge
of any then existing Default or Event of Default they shall disclose in
such statement any such Default or Event of Default; provided that such
accountants shall not be liable to the Banks for failure to obtain
knowledge of any Default or Event of Default;
(b) as soon as practicable, but in any event not later than (i) with
respect to the first two fiscal quarters of the Borrower ending after the
Closing Date, fifty (50) days after the end of each such two fiscal
quarters of the Borrower and (ii) with respect to any other fiscal quarters
of the Borrower
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forty-five (45) days after the end of each such fiscal quarter of the
Borrower, copies of the unaudited consolidated balance sheet of the
Borrower and its Subsidiaries as at the end of such quarter, and the
related consolidated statement of income and consolidated statement of cash
flow for the portion of the Borrower's fiscal year then elapsed, all in
reasonable detail and prepared in accordance with generally accepted
accounting principles, together with a certification by the principal
financial or accounting officer of the Borrower that the information
contained in such financial statements fairly presents the financial
position of the Borrower and its Subsidiaries on the date thereof (subject
to year-end adjustments);
(c) as soon as practicable, but in any event not later than (i) with
respect to the first three months ending after the Closing Date, forty (40)
days after the end of each such three months and (ii) with respect to any
other month in each fiscal year, thirty (30) days after the end of each
such month in each fiscal year of the Borrower, unaudited monthly
consolidated financial statements of the Borrower and its Subsidiaries for
such month prepared in accordance with generally accepted accounting
principles, together with a certification by the principal financial or
accounting officer of the Borrower that the information contained in such
financial statements fairly presents the financial condition of the
Borrower and its Subsidiaries on the date thereof (subject to quarterly and
year-end adjustments);
(d) simultaneously with the delivery of the financial statements
referred to in subsections (a) and (b) above, a statement certified by the
principal financial or accounting officer of the Borrower in substantially
the form of Exhibit J hereto and setting forth in reasonable detail
computations evidencing compliance with the covenants contained in ss.13
and (if applicable) reconciliations to reflect changes in generally
accepted accounting principles since the Balance Sheet Date;
(e) contemporaneously with the filing or mailing thereof, copies of
all material of a financial nature filed with the Securities and Exchange
Commission or sent to the stockholders of the Borrower;
(f) within (i) during the period through June 30, 1997, thirty (30)
days after the end of each calendar month, and (ii) during the period after
June 30, 1997, fifteen (15) days after the end of each calendar month, or
at such earlier time as the Agents may reasonably request, (A) a Borrowing
Base Report setting forth the Borrowing Base as at the end of such calendar
month or other date so requested by the Agents, and (B) a Consigned
Precious Metal Report setting forth (1) the amount of Consigned Precious
Metal and Borrower's Precious Metal as of the end of such calendar month or
other date so requested by the Agents, and (2) a calculation of the
Consignment Advance Rate Percentage multiplied by the Fair Market Value of
the sum of (y)
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Borrower's Precious Metal plus (z) Consigned Precious Metal as of the end
of such calendar month or other date so requested by the Agents, in each
case together with supporting schedules and documentation, with each such
Borrowing Base Report and Consigned Precious Metal Report to be accompanied
by a certification by the principal financial or accounting officer of the
Borrower that the information contained therein is true and accurate in all
material respects;
(g) within thirty (30) days after the end of each calendar month, an
Accounts Receivable aging report;
(h) on or prior to September 30 of each calendar year, projections of
the Borrower and its Subsidiaries updating those projections delivered to
the Banks and referred to inss.10.4.2 or, if applicable, updating any later
such projections delivered in response to a request pursuant to
thisss.11.4(h);
(i) (i) prior to the opening by the Borrower of any location at which
Eligible Inventory or Consigned Precious Metal is to be located, a
supplement to Schedule 2 hereto in the form of Exhibit K hereto, listing
any additions or deletions to the list of Borrower Permitted Inventory
Locations, which supplement, together with Schedule 2 hereto and any prior
supplements, shall be deemed to constitute Schedule 2 for all purposes of
this Credit Agreement, and (ii) as soon as practicable, but in any event
not later than ten (10) days after the end of each fiscal quarter of the
Borrower, a supplemental listing of any additions or deletions to the list
of sales representative locations at which any inventory is to be located,
which supplemental listings, together with the list of Sales Representative
Inventory Locations disclosed in writing to the Agents on the Closing Date
and any prior such supplemental listings, shall be deemed to constitute the
list of Sales Representative Inventory Locations for all purposes of this
Credit Agreement;
(j) from time to time such other financial data and information
(including accountants' management letters) as either Agent or any Bank may
reasonably request.
11.5. Notices.
11.5.1. Defaults. The Borrower will, promptly after obtaining
actual knowledge thereof, notify each of the Agents and each of the
Banks in writing of the occurrence of any Default or Event of Default.
If any Person shall give any notice or take any other action in
respect of a claimed default (whether or not constituting an Event of
Default) under this Credit Agreement or under the Subordinated Notes,
the Borrower shall, promptly after obtaining actual knowledge thereof,
give written notice thereof to each of the Agents and each
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of the Banks, describing the notice or action and the nature of the
claimed default.
11.5.2. Environmental Events. The Borrower will give notice to
each of the Agents and each of the Banks promptly and in any event
within ten (10) days of (a) the receipt of any written notice of any
violation by the Borrower or any of its Subsidiaries of any
Environmental Law that the Borrower or any of its Subsidiaries reports
in writing or is reportable by such Person in writing (or for which
any written report supplemental to any oral report is made) to any
federal, state or local environmental agency and (b) its becoming
aware thereof, of any written inquiry, proceeding, investigation, or
other action, including a notice from any agency of potential
environmental liability, of any federal, state or local environmental
agency or board, that has the potential to materially affect the
business or financial condition of the Borrower and its Subsidiaries
taken as a whole, or the Collateral Agent's mortgages, deeds of trust
or security interests in any material Collateral covered by the
Security Documents.
11.5.3. Notification of Claim against Collateral. The Borrower
will, promptly and in any event within five (5) Business Days
following its becoming aware thereof, notify each of the Collateral
Agent, the Agents and each of the Banks in writing of any setoff,
claims (including, with respect to the Real Estate, environmental
claims), withholdings or other defenses to which any of the
Collateral, or the Collateral Agent's rights with respect to the
Collateral, are subject to the extent that any such setoff, claims,
withholdings or other defenses could reasonably be expected to result
in liability to the Borrower and its Subsidiaries in excess of
$250,000. The Borrower will, immediately upon receiving notice
thereof, notify each of the Collateral Agent, the Agents and each of
the Banks in writing of any proposed sale or transfer of any Borrower
Permitted Inventory Location by the owner thereof.
11.5.4. Notice of Litigation and Judgments. The Borrower will,
and will cause each of its Subsidiaries to, give notice to each of the
Agents and each of the Banks in writing within fifteen (15) days of
becoming aware of any litigation or proceedings threatened in writing
or any pending litigation and proceedings affecting the Borrower or
any of its Subsidiaries or to which the Borrower or any of its
Subsidiaries is or becomes a party involving an uninsured claim
against the Borrower or any of its Subsidiaries that could reasonably
be expected to have a materially adverse effect on the Borrower or and
its Subsidiaries taken as a whole and stating the nature and status of
such litigation or proceedings. The Borrower will, and will cause each
of its Subsidiaries to, give notice to each of the Agents and each of
the Banks, in writing, in form and detail satisfactory to the Agents,
within ten (10) days of any judgment not covered by insurance, final
or otherwise, against the Borrower or any of its Subsidiaries in an
amount in excess of $500,000.00.
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11.6. Corporate Existence; Maintenance of Properties.
(a) The Borrower will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence, rights
and franchises and those of its Subsidiaries and will not, and will not
cause or permit any of its Subsidiaries to, convert to a limited liability
company.
(b) The Borrower (i) will cause all of its properties and those of its
Subsidiaries necessary in the conduct of its business or the business of
its Subsidiaries to be maintained and kept in good condition, repair and
working order, ordinary wear and tear excepted, and supplied with all
necessary equipment, (ii) will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Borrower may be necessary so that the business carried on
in connection therewith may be properly conducted at all times, and (iii)
will, and will cause each of its Subsidiaries to, continue to engage
primarily in the businesses now conducted by them; provided that nothing in
this ss.11.6 shall prevent the Borrower from discontinuing the operation
and maintenance of any of its properties or any of those of its
Subsidiaries if such discontinuance is, in the judgment of the Borrower,
desirable in the conduct of its or their business and that do not in the
aggregate materially adversely affect the business of the Borrower and its
Subsidiaries on a consolidated basis.
11.7. Insurance.
(a) The Borrower will, and will cause each of its Subsidiaries to,
maintain with financially sound and reputable insurers insurance with
respect to its properties and business against such casualties and
contingencies as shall be in accordance with the general practices of
businesses engaged in similar activities in similar geographic areas and in
amounts, containing such terms, in such forms and for such periods as may
be reasonable and prudent and in accordance with the terms of the Security
Agreement. The Borrower will, and will cause each of its Subsidiaries to,
maintain insurance on the Mortgaged Properties in accordance with the terms
of the Mortgages.
(b) Contemporaneously with the execution of this Credit Agreement, and
within fifteen (15) days of any date when any additional or replacement
insurance coverage is obtained, the Borrower will, and will cause each of
its Subsidiaries to, deliver to the Agents true copies of certificates of
insurance with respect to such additional insurance or replacement policies
and, upon request and to the extent not previously delivered to the Agents,
copies of the original insurance policies evidencing such additional or
replacement insurance, which certificates and policies (i) in the case of
property and casualty policies, shall contain an endorsement or rider
naming the Collateral Agent, for the benefit of the Collateral Agent, the
Agents and the Banks, as a
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mortgagee, loss payee and additional insured, as their interests may
appear, with the proceeds in respect of any such property and casualty
policies being payable to the Collateral Agent or, as the case may be, the
Borrower or a Subsidiary of the Borrower, in accordance with the provisions
of the Security Agreement and the Mortgages, and (ii) in the case of
liability policies, shall contain an endorsement or rider naming the
Collateral Agent, for the benefit of the Collateral Agent, the Agents and
the Banks, as an additional insured, with each such policy providing that
such insurance shall not be cancelled or amended without thirty (30) days
prior written notice to the Collateral Agent, if applicable, and each of
the Agents.
11.8. Taxes. The Borrower will, and will cause each of its Subsidiaries to,
duly pay and discharge, or cause to be paid and discharged, before the same
shall become overdue, all taxes, assessments and other governmental charges
imposed upon it and its real properties, sales and activities, or any part
thereof, or upon the income or profits therefrom, as well as all claims for
labor, materials, or supplies that if unpaid might by law become a lien or
charge upon any of its property and that if unpaid could reasonably be expected
to result in a material adverse effect upon the business or financial condition
of the Borrower and its Subsidiaries taken as a whole; provided that any such
tax, assessment, charge, levy or claim need not be paid if the validity or
amount thereof shall currently be contested in good faith by appropriate
proceedings and if the Borrower or such Subsidiary shall have set aside on its
books adequate reserves with respect thereto; and provided further that the
Borrower and each Subsidiary of each of the Borrower will pay all such taxes,
assessments, charges, levies or claims within three (3) Business Days following
the commencement of proceedings to foreclose any lien that may have attached as
security therefor unless such proceeding shall have been stayed by appropriate
proceedings within such three (3) Business Day period and such stay shall remain
in effect.
11.9. Inspection of Properties and Books, etc.
11.9.1. General. The Borrower shall permit the Banks, through the
Agents or, upon reasonable notice thereof given by any of the Banks,
through any of the Banks' other designated representatives, to visit and
inspect any of the properties of the Borrower or any of its Subsidiaries,
to examine the books of account of the Borrower or any of its Subsidiaries
(and to make copies thereof and extracts therefrom), other than materials
protected by the attorney-client privilege and materials which the Borrower
or any of its Subsidiaries may not disclose without violation of a written
confidentiality obligation binding upon it, to discuss the affairs,
finances and accounts of the Borrower or any of its Subsidiaries with, and
to be advised as to the same by, its and their officers, and to conduct
examinations and verifications of the components of the Borrowing Base, the
other assets of the Borrower or any of its Subsidiaries and all systems and
procedures of the Borrower or any of its Subsidiaries, including those
relating to cash management and those relating to
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gold tracking and valuation, all at such reasonable times and intervals as
either of the Agents or any Bank may reasonably request, provided that
prior to the occurrence and continuance of an Event of Default, the
Borrower shall not be required to permit more than four (4) such visits and
inspections provided for in this ss.11.9.1.
11.9.2. Collateral Reports. No more frequently than three times each
calendar year, or more frequently as determined by the Agents if an Event
of Default shall have occurred and be continuing, upon the request of the
Agents, the Borrower will obtain and deliver to the Agents a report of an
independent collateral auditor or appraiser satisfactory to the Agents
(which may be affiliated with one of the Banks) with respect to the
Accounts Receivable and inventory components included in the Borrowing Base
and the amounts of Borrower's Precious Metal and Consigned Precious Metal
held by the Borrower, which report shall indicate (a) whether or not the
information set forth in the Borrowing Base Report and the Consigned
Precious Metal Report most recently delivered is accurate and complete in
all material respects based upon a review by such auditors of the Accounts
Receivable and inventory (including verification as to the value, location
and respective types) or (b) in the case of an appraisal report by a
collateral appraiser (which appraisal reports of the type described in this
clause (b) only shall be required solely after the occurrence and during
the continuance of an Event of Default) shall state the then current fair
market value, orderly liquidation and forced liquidation values of all or
any portion of the Accounts Receivable and inventory owned by the Borrower
and its Subsidiaries and of the Borrower's Precious Metal and Consigned
Precious Metal. All such collateral reports shall be conducted and made at
the expense of the Borrower.
11.9.3. Appraisals. If an Event of Default shall have occurred and be
continuing, upon the request of the Agents, the Borrower will obtain and
deliver to the Agents appraisal reports in form and substance and from
appraisers reasonably satisfactory to the Agents, stating (i) the then
current fair market, orderly liquidation and forced liquidation values of
all or any portion of the equipment or real estate owned by the Borrower or
any of its Subsidiaries and (ii) the then current business value of the
Borrower and its Subsidiaries. All such appraisals shall be conducted and
made at the expense of the Borrower.
11.9.4. Communications with Accountants. The Borrower authorizes the
Agents and, if accompanied by the Agents, the Banks, upon notice to the
Borrower (and giving the Borrower the opportunity to participate therein),
to communicate directly with the Borrower's independent certified public
accountants and authorizes such accountants to disclose to the Agents and
the Banks any and all financial statements and other supporting financial
documents and schedules including copies of any management letter with
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respect to the business, financial condition and other affairs of the
Borrower and its Subsidiaries. At the request of the Agents, the Borrower
shall deliver a letter addressed to such accountants instructing them to
comply with the provisions of this ss.11.9.4
11.9.5. Environmental Assessments. Whether or not an Event of Default
shall have occurred (but prior to the occurrence and continuance of an
Event of Default only at the expense of the Collateral Agent and the
Banks), the Collateral Agent may, from time to time, in its discretion for
the purpose of assessing and ensuring the value of any Mortgaged Property,
obtain one or more environmental assessments or audits of such Mortgaged
Property prepared by a hydrogeologist, an independent engineer or other
qualified consultant or expert approved by the Collateral Agent to evaluate
or confirm (i) whether there has been a release of any Hazardous Materials
at such Mortgaged Property and (ii) whether the use and operation of such
Mortgaged Property complies with all Environmental Laws. Environmental
assessments may include without limitation detailed visual inspections of
such Mortgaged Property including any and all storage areas, storage tanks,
drains, dry wells and leaching areas, and the taking of soil samples,
surface water samples and ground water samples, as well as such other
investigations or analyses as the Agent reasonably deems appropriate. All
such environmental assessments shall be at the expense of the Borrower
(except as otherwise provided in the first sentence of this paragraph).
11.10. Compliance with Laws, Contracts, Licenses, and Permits. The Borrower
will, and will cause each of its Subsidiaries to, comply with (a) the applicable
laws and regulations wherever its business is conducted, including all
Environmental Laws, (b) the provisions of its charter documents and by-laws, (c)
all agreements and instruments by which it or any of its properties may be
bound, and (d) all applicable decrees, orders, and judgments, except for any
failure to so comply with any of the matters described in the foregoing clauses
(a), (c) and (d) which is not reasonably expected to result in a material
adverse effect on the business or financial condition of the Borrower and its
Subsidiaries taken as a whole. If any authorization, consent, approval, permit
or license from any officer, agency or instrumentality of any government shall
become necessary or required in order that the Borrower or any of its
Subsidiaries may fulfill any of its obligations hereunder or any of the other
Loan Documents or any of the Acquisition Documents to which the Borrower or such
Subsidiary is a party, the Borrower will, or (as the case may be) will cause
such Subsidiary to, immediately take or cause to be taken all reasonable steps
within the power of the Borrower or such Subsidiary to obtain such
authorization, consent, approval, permit or license and furnish the Agents and
the Banks with evidence thereof if the failure to obtain such authorization,
consent, approval, permit or license could reasonably be expected to have a
material adverse effect upon the business or financial condition of the Borrower
and its Subsidiaries taken as a whole.
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11.11. Employee Benefit Plans. The Borrower will (a) promptly upon request
of the Agents, furnish to the Agents a copy of the most recent actuarial
statement required to be submitted under ss.103(d) of ERISA and Annual Report,
Form 5500, with all required attachments, in respect of each Guaranteed Pension
Plan and (b) promptly upon receipt or dispatch, furnish to the Agents any
notice, report or demand sent or received in respect of a Guaranteed Pension
Plan under ss.ss.302, 4041, 4042, 4043, 4063, 4066 and 4068 of ERISA, or in
respect of a Multiemployer Plan, under ss.ss.4041A, 4202, 4219, 4242, or 4245 of
ERISA.
11.12. Use of Proceeds. The Borrower will use the proceeds of the Loans and
the Consignments solely for financing the Acquisitions and for operating
expenses, payment of the CH Management Fees, Capital Expenditures, payments in
respect of Indebtedness and for other working capita and general corporate
purposes. The Borrower will obtain Letters of Credit solely for working capital
and general corporate purposes.
11.13. Additional Mortgaged Property. If, after the Closing Date, the
Borrower or any of its Subsidiaries (except for the Mexican Subsidiary) acquires
or leases for a term in excess of five (5) years real estate used as a
manufacturing or warehouse facility, the Borrower shall, or shall cause such
Subsidiary to, deliver promptly to the Collateral Agent a fully executed
mortgage or deed of trust over such real estate, in form and substance similar
to the Mortgages being delivered on the Closing Date, together with title
insurance policies (for amounts that correspond to the value of any such
property), surveys, evidences of insurances with the Collateral Agent named as
loss payee and additional insured, legal opinions and other documents and
certificates similar to those being delivered concurrently herewith with respect
to such real estate.
11.14. Bank Accounts.
(a) On or prior to the Closing Date, the Borrower will, and will cause
each of its Subsidiaries (other than the Mexican Subsidiary) to, (i)
establish depository accounts (the "FNBB Concentration Accounts") under the
control of the Dollar Agent for the benefit of the Banks and the Agents, in
the name of the Borrower or such Subsidiary, (ii) direct all Depository
Banks (other than as set forth on Schedule 10.20 hereto with respect to a
temporary account with Citibank, N.A.), pursuant to Agency Account
Agreements satisfactory to the Agents with each of such Depository Banks,
to cause all funds held in each such Depository Bank to be transferred on a
daily basis to, and only to, the FNBB Concentration Account or such other
location as the Dollar Agent shall designate; provided that so long as no
Event of Default shall have occurred and be continuing, the Borrower or
such Subsidiary shall not be required to cause to be transferred amounts
deposited in two accounts with Texas Commerce Bank designated as the "SBI
Operations Account" and the "SBI Expense Reports (ACH only)", respectively,
of up to $800,000 in the
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aggregate for both such accounts at any time, (iii) cause all proceeds of
Accounts Receivable of the Borrower to be deposited only into the FNBB
Concentration Account or depository accounts with Depository Banks which
are parties to an Agency Account Agreement requiring such proceeds to be
transferred to the FNBB Concentration Account, and (iv) at all times ensure
that, within five (5) days following the Borrower's or any of its
Subsidiaries' receipt of any cash or cash equivalents or any other proceeds
of Collateral, all such amounts (except to the limited extent provided in
the proviso in clause (ii) above) shall have been deposited in the FNBB
Concentration Accounts.
(b) The Borrower will, and will cause each of its Subsidiaries to,
obtain Agency Account Agreements (whereby such depository institution
shall, among other things, waive any right to set-off, other than for
service charges and returns incurred in connection therewith) from each
Depository Bank (other than as set forth on Schedule 10.20 hereto with
respect to a temporary account with Citibank, N.A.).
(c) The Borrower hereby agrees that all amounts belonging to the
Borrower or any of its Subsidiaries and received by the Dollar Agent in the
FNBB Concentration Account will be the sole and exclusive property of the
Collateral Agent, for the accounts of the Banks and the Agents, to be
applied in accordance withss.8.8(b) andss.8.9 as set forth therein.
11.15. Inventory Restrictions. The Borrower shall cause, and shall cause
each of its Subsidiaries to cause, Precious Metal and all other inventory to be
located at all times solely at Borrower Permitted Inventory Locations, Specified
Refiners and Sales Representative Inventory Locations (except for (a) samples
held in the ordinary course of business by sales representatives or at retail
locations, (b) Precious Metal in transit between the Borrower and a Specified
Refiner or Precious Metal or other inventory in transit between Borrower
Permitted Inventory Locations, (c) inventory in transit to be sold, transferred
or otherwise disposed of to the extent permitted by ss.12.5.2 hereof prior to
the transferee's taking title thereto, and (d) inventory in other locations
having a value not to exceed $2,000,000 at any time). The Borrower shall also
cause, and shall cause each of its Subsidiaries to cause, Precious Metal and all
other inventory, to be sold or otherwise disposed of in the ordinary course of
the Borrower's or such Subsidiary's business, consistent with past practices or
as required pursuant to the terms of this Credit Agreement.
11,16. Further Assurances. The Borrower will, and will cause each of its
Subsidiaries to, cooperate with the Banks, the Collateral Agent and the Agents
and execute such further instruments and documents as any of the Banks, the
Collateral Agent or the Agents shall reasonably reques s. to carry out the
transactions contemplated by this Credit Agreement and the other Loan Documents.
<PAGE>
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12. CERTAIN NEGATIVE COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that, so long as any Loan, Unpaid
Reimbursement Obligation, Letter of Credit, amount of Consigned Precious Metal
or Note is outstanding or any Bank has any obligation to make any Loans or
Consignments or the Dollar Agent has any obligation to issue, extend or renew
any Letters of Credit:
12.1. Restrictions on Indebtedness. The Borrower will not, and will not
permit any of its Subsidiaries to, create, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:
(a) Indebtedness to the Banks, the Agents and the Collateral Agent
arising under any of the Loan Documents;
(b) Indebtedness consisting of the guaranty by the Borrower of rental
payment obligations of the Mexican Subsidiary under real property leases so
long as the aggregate amount of rental payment obligations so guarantied by
the Borrower shall not exceed $200,000 in any fiscal year;
(c) Indebtedness in respect of taxes, assessments, environmental,
governmental or other regulatory charges, fines, penalties or levies and
claims for labor, materials and supplies to the extent that payment
therefor shall not at the time be required to be made in accordance with
the provisions ofss.11.8;
(d) Indebtedness in respect of judgments or awards not resulting in an
Event of Default underss.16.1(i) hereof, but only so long as execution is
not levied thereunder on any property the fair market value of which is
$250,000 or more in the aggregate or $150,000 or more in any single
instance;
(e) endorsements for collection, deposit or negotiation and warranties
of products or services (including without limitation product liability
claims), in each case incurred in the ordinary course of business;
(f) Indebtedness evidenced by the Subordinated Notes (including
without limitation any Liquidated Damages (as defined in the Indenture)
referred to in the Indenture);
(g) obligations under Capitalized Leases not exceeding $1,000,000 in
aggregate amount at any time outstanding;
(h) Indebtedness incurred in connection with the acquisition after the
date hereof of any real or personal property by the Borrower or such
Subsidiary, provided that the aggregate principal amount of such
Indebtedness of the Borrower and its Subsidiaries shall not exceed
the aggregate amount of $1,000,000 at any one time;
<PAGE>
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(i) Indebtedness existing on the date hereof and listed and described
on Schedule 12.1 hereto;
(j) Indebtedness (i) of any Subsidiary of the Borrower which is party
to the Guaranty owing to the Borrower or of the Borrower to such Subsidiary
of the Borrower, or (ii) of the Mexican Subsidiary owing to the Borrower or
of the Borrower owing to the Mexican Subsidiary in an aggregate amount for
all such Indebtedness of the Mexican Subsidiary to the Borrower (exclusive
of Indebtedness permitted by ss.12.1(b)), when combined with all other
Investments in the Mexican Subsidiary permitted by ss.12.3(f)(iii), not to
exceed $1,000,000 at any time outstanding;
(k) Indebtedness consisting of Permitted Employee Stock Repurchases
(including any promissory notes issued by the Borrower to repurchase common
stock of employees and sales representatives of the Borrower solely to the
extent permitted in the definition of Permitted Employee Stock
Repurchases);
(l) Indebtedness consisting of a Permitted Preferred Stock
Replacement;
(m) Indebtedness of the Borrower under Hedging Agreements entered into
by the Borrower in the ordinary course of business and not for speculative
purposes in order to fix or hedge the Borrower's currency risk in
connection with its purchase of foreign currencies so long as the Borrower
shall not enter into such Hedging Agreements to hedge in the aggregate at
any one time in excess of $4,000,000 worth of foreign currencies;
(n) Indebtedness of the Borrower under Hedging Agreements entered into
by the Borrower in the ordinary course of business and not for speculative
purposes in order to fix or hedge the Borrower's commodity risk in
connection with its purchase of Precious Metal so long as such Hedging
Agreements (i) consist of options or (ii) are entered into with the Gold
Agent or any of the Banks;
(o) Indebtedness consisting of guaranties of Indebtedness of employees
for moving, entertainment, travel and other similar expenses solely to the
extent permitted as Investments underss.12.3(h)
(p) Indebtedness consisting of guaranties of Indebtedness of sales
representatives to finance the acquisition of sales territories to the
extent permitted as Investments under ss.12.3(o);
(q) Indebtedness in respect of operating leases and in respect of the
payment of royalties or other similar obligations under license agreements
<PAGE>
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which license agreements are generally consistent with and related to the
past practices and business of the Borrower;
(r) Indebtedness in respect of employee benefits, whether current or
retired employees, including, without limitation, accrued expenses, pension
liabilities, deferred compensation, bonus plans, medical, dental and other
plans providing benefits for employees;
(s) Indebtedness arising out of or related to (i) the Acquisitions or
(ii) the consolidation of the businesses acquired from the Balfour Sellers
or the CJC Sellers pursuant to the Acquisitions (including without
limitation, increased severance payments, working capital adjustments, fees
and costs), in each case solely to the extent that such Indebtedness is not
related to the borrowing of money or the obtaining of credit;
(t) Indebtedness consisting of the CH Management Fee and any deferred
portion thereof to the extent permitted pursuant toss.12.4 and 12.12
hereof;
(u) Indebtedness consisting of accrued Permitted Preferred Stock
Dividends or accrued dividends on any Permitted Preferred Stock
Replacement;
(v) Indebtedness consisting of obligations to Specified Refiners
solely in respect of amounts of Precious Metal credited or consigned to the
Borrower in exchange for unrefined Precious Metal sent by the Borrower to
such Specified Refiners;
(w) Indebtedness in respect of performance, bid or advance payment
bonds incurred in connection with bids on school ring contracts in an
aggregate amount not to exceed $400,000 outstanding at any time;
(x) Indebtedness of the Borrower and its Subsidiaries other than that
permitted elsewhere in thisss.12.1 in an aggregate principal amount not to
exceed (i) at all times prior to January of 1999, $1,000,000 at any time
outstanding and (ii) at all times during and after January of 1999,
$5,000,000 at any time outstanding; and
(y) Indebtedness of the Borrower with respect to that certain Master
Lease Agreement, No. 136331, dated as of August 2, 1994, between Town &
Country Corporation and Computer Sales International, Inc. not to exceed
$225,000.
12.2. Restrictions on Liens. The Borrower will not, and will not permit any
of its Subsidiaries to, (i) create or incur or suffer to be created or incurred
or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or
other security interest
<PAGE>
-92-
of any kind upon any of its property or assets of any character whether now
owned or hereafter acquired, or upon the income or profits therefrom; (ii)
transfer any of such property or assets or the income or profits therefrom for
the purpose of subjecting the same to the payment of Indebtedness or performance
of any other obligation in priority to payment of its general creditors; (iii)
acquire, or agree or have an option to acquire, any property or assets upon
conditional sale or other title retention or purchase money security agreement,
device or arrangement; or (iv) except to the extent permitted in ss.12.5.2
hereof, sell, assign, pledge or otherwise transfer any accounts, contract
rights, general intangibles, chattel paper or instruments, with or without
recourse; provided that the Borrower and any of its Subsidiaries may create or
incur or suffer to be created or incurred or to exist:
(a) liens in favor of the Borrower on all or part of the assets of
Subsidiaries of the Borrower securing Indebtedness owing by Subsidiaries of
the Borrower to the Borrower, or liens in favor of a Subsidiary of the
Borrower (other than the Mexican Subsidiary) on all or part of the assets
of the Borrower securing Indebtedness owing by the Borrower to such
Subsidiary, in each case (i) to the extent such Indebtedness is permitted
by ss.12.1(j) and (ii) such indebtedness is subordinated to the Obligations
on terms and conditions reasonably satisfactory to the Agents;
(b) liens to secure taxes, assessments and other government charges in
respect of obligations not overdue or liens on properties to secure claims
for labor, material or supplies in respect of obligations not overdue;
(c) deposits or pledges made in connection with, or to secure payment
of, workmen's compensation, statutory obligations, trade contracts, leases,
insurance contracts, unemployment insurance, old age pensions or other
social security obligations, surety and appeal bonds and performance bonds
and other similar obligations, in each case arising in the ordinary course
of business and not involving the borrowing of money;
(d) liens on properties in respect of judgments or awards, the
Indebtedness with respect to which is permitted by ss.12.1(d);
(e) liens of carriers, warehousemen, mechanics and materialmen, and
other like liens, (i) in existence less than 120 days from the date of
creation thereof in respect of obligations not overdue or (ii) with respect
to which the obligations related thereto are contested by any of the
Borrower or its Subsidiaries in good faith or by appropriate proceedings
and the Borrower or such Subsidiary shall have set aside on its books
adequate reserves with respect thereto or the Borrower or such Subsidiary
will in good faith commence appropriate proceedings to contest such
obligation; provided that no proceedings in foreclosure or for the sale of
any property the fair market value of which is $250,000 or more in
aggregate or $150,000 or more in any
<PAGE>
-93-
single instance of the Borrower and its Subsidiaries on account of any such
liens shall have been commenced;
(f) encumbrances on Real Estate consisting of easements, rights of
way, zoning restrictions, restrictions on the use of real property and
defects and irregularities in the title thereto, landlord's or lessor's
liens under leases to which the Borrower or any of its Subsidiaries is a
party, and other minor liens or encumbrances none of which in the opinion
of the Borrower interferes materially with the use of the property affected
in the ordinary conduct of the business of the Borrower and its
Subsidiaries, which defects do not individually or in the aggregate have a
materially adverse effect on the business of the Borrower individually or
of the Borrower and its Subsidiaries on a consolidated basis;
(g) liens existing on the date hereof and listed on Schedule 12.2
hereto;
(h) purchase money security interests in or purchase money mortgages
on real or personal property acquired after the date hereof to secure
purchase money Indebtedness in an amount permitted by ss.12.1(h), incurred
in connection with the acquisition of such property, which security
interests or mortgages cover only the real or personal property so
acquired;
(i) liens and encumbrances on each Mortgaged Property as and to the
extent permitted by the Mortgage applicable thereto;
(j) liens in favor of the Collateral Agent, for the benefit of the
Banks, the Agents and the Collateral Agent, under the Loan Documents;
(k) any interest or title of a lessor of property leased to the
Borrower or such Subsidiary, or any encumbrance on any such interest or
title of such lessor, to the extent such lease is permitted hereby; and
(l) consignments of inventory by the Borrower entered into in the
ordinary course of business, consistent with past practices.
12.3. Restrictions on Investments. The Borrower will not, and will not
permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investment except Investments in:
(a) marketable direct or guaranteed obligations of the United States
of America or any agency or instrumentality thereof that mature within one
(1) year from the date of purchase by the Borrower or such Subsidiary;
(b) demand deposits, certificates of deposit, bankers acceptances and
time deposits of United States banks having total assets in excess of
$1,000,000,000;
<PAGE>
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(c) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America or any state thereof that at the time of purchase have been rated
and the ratings for which are not less than "P 1" if rated by Moody's
Investors Services, Inc., and not less than "A 1" if rated by Standard and
Poor's;
(d) repurchase agreements secured by any one or more of the
Investments permitted by paragraphs (a), (b) or (c) above, provided, that
the Borrower holds the underlying documents and such documents are pledged
to the Collateral Agent for the benefit of the Collateral Agent, the Banks
and the Agents as collateral security for the Obligations (or if such
repurchase agreements have been purchased for the account of the Borrower
by a financial institution, such financial institution enters into an
agency agreement with the Collateral Agent in form and substance
satisfactory to the Collateral Agent);
(e) Investments existing on the date hereof and listed on Schedule
12.3 hereto;
(f) Investments (i) with respect to Indebtedness permitted by
ss.12.1(j) so long as such entities remain Subsidiaries of the Borrower,
(ii) in Subsidiaries of the Borrower (other than the Mexican Subsidiary) so
long as such entities remain Subsidiaries of the Borrower, (iii) in the
Mexican Subsidiary which, when combined with the amount of Indebtedness of
the Mexican Subsidiary to the Borrower permitted by ss.12.1(j) hereof (but
exclusive of Indebtedness permitted by ss.12.1(b) hereof) shall not exceed
$1,000,000 in the aggregate at any time, and (iv) consisting of the
guaranty by the Borrower of rental payment obligations of the Mexican
Subsidiary to the extent permitted by ss.12.1(b) hereof;
(g) Investments consisting of the Guaranty;
(h) Investments consisting of loans, guaranties and advances to
employees for moving, entertainment, travel and other similar expenses in
the ordinary course of business not to exceed (i) $1,500,000 in the
aggregate or $250,000 in the case of any single employee at any time during
the period through the date which is eighteen months following the date
hereof and (ii) $500,000 in the aggregate or $250,000 in the case of any
single employee at any time thereafter;
(i) Investments consisting of Permitted Employee Stock Repurchases or
Permitted Common Stock Repurchases;
(j) Investments (including debt obligations, stock, securities and
other obligations) to the extent received in connection with the
bankruptcy, reorganization or workout of any suppliers or customers of the
Borrower or
<PAGE>
-95-
such Subsidiary in settlement of delinquent obligations of, and other
disputes with, such suppliers or customers arising in the ordinary course
of business;
(k) Investments consisting of the extension of trade credit by the
Borrower and its Subsidiaries in the ordinary course of business not
involving (i) the borrowing of money, or (ii) the obtaining of credit
except for credit on an open account basis customarily extended and in fact
extended in connection with normal sales of goods and services;
(l) Investments constituting Capital Expenditures solely to the extent
otherwise permitted by the terms of this Credit Agreement;
(m) Investments consisting of promissory notes and other similar
non-cash consideration received as proceeds of asset dispositions permitted
by ss.12.5.2;
(n) Investments consisting of Hedging Agreements entered into by the
Borrower to the extent permitted by ss.12.1 hereof;
(o) Investments consisting of guaranties of Indebtedness of, or loans
or advances to, sales representatives of the Borrower to finance the
acquisition of sales territories to the extent that the aggregate amount of
such Investments shall not exceed $1,000,000 at any time outstanding; and
(p) Investments consisting of the guaranty by Subsidiaries of the
Borrower of the Borrower's obligations in respect of the Subordinated
Notes, such guaranty being subordinated to the Obligations on the same
basis as the obligations of the Borrower in respect of the Subordinated
Notes.
12.4. Distributions. The Borrower will not make any Distributions except,
so long as no Event of Default shall have occurred and be continuing and none
would result from the making thereof, (a) payment of the CH Management Fee in an
aggregate amount not to exceed $1,500,000 during any fiscal year of the
Borrower, provided that any portion of such amount not paid during any fiscal
year may be paid in any subsequent fiscal year, (b) Permitted Employee Stock
Repurchases, (c) Permitted Preferred Stock Dividends, (d) any Permitted
Preferred Stock Replacement, and (e) any Permitted Common Stock Repurchases.
12.5. Merger, Consolidation and Disposition of Assets.
12.5.1. Mergers and Acquisitions. The Borrower will not, and will not
permit any of its Subsidiaries to, become a party to any merger or
consolidation (other than an agreement to effect any such merger or
consolidation, the closing of which is conditioned upon the payment in full
in cash of all of the Obligations), or agree to or effect any asset
acquisition or stock acquisition (other than the acquisition of assets in
the ordinary course of
<PAGE>
-96-
business consistent with past practices) except the merger or consolidation
of one or more of the Subsidiaries of the Borrower with and into the
Borrower, or the merger or consolidation of two or more Subsidiaries of the
Borrower.
12.5.2. Disposition of Assets. The Borrower will not, and will not
permit any of its Subsidiaries to, become a party to or agree to or effect
any disposition of assets, other than (a) dispositions of assets and
consignments for sale of inventory by the Borrower or such Subsidiary or
other title retention arrangements, in each case entered into in the
ordinary course of business, consistent with past practices of the Sellers;
(b) transfers of assets resulting from any casualty or condemnation of such
assets so long as the same could not reasonably be expected to have a
material adverse effect on the business or financial condition of the
Borrower and its Subsidiaries taken as a whole and such amounts are used to
purchase replacement assets subject to the Collateral Agent's security
interest; (c) an agreement to effect the disposition of all or
substantially all of the assets of the Borrower or such Subsidiary, the
closing of which is conditioned upon the payment in full in cash of all of
the Obligations; (d) the sale or discount of overdue accounts receivable
arising in the ordinary course of business, but only in connection with the
compromise or collection thereof and only to the extent that the Collateral
Agent's security interest in such accounts receivable continues to apply to
all proceeds from the sale of such accounts receivable; (e) the sale or
other disposition of any Investments permitted to be made by ss.12.3
hereof; (f) the sale of assets by the Borrower to the extent mandated by
the Federal Trade Commission, such assets having a fair market value not
exceeding $14,000,000 in the aggregate, so long as (i) the Borrower
receives cash proceeds from such sales (either from direct proceeds of such
sales or from escrow arrangements made in connection with the Acquisitions)
equal to the fair market value of such assets, and (ii) such proceeds are
used, within two (2) Business Days of receipt by the Borrower thereof, to
prepay the principal amount of the Term Loan, such prepayment to be applied
to the remaining installments on the Term Loan in the inverse order of
their maturity; (g) the licensing of intellectual property for terms not in
excess of five (5) years other than in connection with the sale of the
business of the Borrower or such Subsidiary that do not result in a
reduction in assets of the Borrower or such Subsidiary under generally
accepted accounting principles so long as such licensing shall not
substantially impair or affect the operation of the business of the
Borrower and its Subsidiaries as a whole, (h) the licensing or granting of
rights to sales representatives to sell products of the Borrower in the
ordinary course of the Borrower's business, (i) dispositions of obsolete or
worn out machinery and equipment of the Borrower and dispositions of
machinery and equipment in connection with the consolidation of the
businesses acquired by the Borrower pursuant to the Acquisitions, and (j)
the sale or other disposition of other assets having a fair market value
not to exceed (i) for all such asset dispositions undertaken during the
period prior to the first anniversary of the Closing Date, $500,000 in the
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aggregate and (ii) for all such asset dispositions undertaken during any
one year period after the first anniversary of the Closing Date from one
anniversary of the Closing Date to the next anniversary of the Closing
Date, $250,000 in the aggregate.
12.6. Sale and Leaseback. The Borrower will not, and will not permit any of
its Subsidiaries to, enter into any arrangement, directly or indirectly, whereby
the Borrower or any Subsidiary of the Borrower shall sell or transfer any
property owned by it in order then or thereafter to lease such property or lease
other property that the Borrower or any Subsidiary of the Borrower intends to
use for substantially the same purpose as the property being sold or
transferred.
12.7. Compliance with Environmental Laws. The Borrower will not, and will
not permit any of its Subsidiaries to, except, in each case, in compliance with
all applicable Environmental Laws (a) use any of the Real Estate or any portion
thereof for the handling, processing, storage or disposal of Hazardous
Substances, (b) cause or permit to be located on any of the Real Estate any
underground tank or other underground storage receptacle for Hazardous
Substances, (c) generate any Hazardous Substances on any of the Real Estate, (d)
conduct any activity at any Real Estate or use any Real Estate in any manner so
as to cause a release (i.e. releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, disposing or
dumping) or threatened release of Hazardous Substances on, upon or into the Real
Estate or (e) otherwise conduct any activity at any Real Estate or use any Real
Estate in any manner that would violate any Environmental Law or bring such Real
Estate in violation of any Environmental Law, in any case where the same could
reasonably be expected to have a material adverse effect on the business or
financial condition of the Borrower and its Subsidiaries taken as a whole.
12.8. Indenture and Subordinated Notes. The Borrower will not amend,
supplement or otherwise modify the terms of the Indenture or any of the
Subordinated Notes or prepay, redeem, cause the defeasance of or repurchase any
of the Subordinated Notes; provided, however, the Borrower may amend or modify
the Subordinated Notes or refinance, refund or replace the Subordinated Notes
with new notes (any such amended, modified or new notes resulting from any such
amendment, modification, refinancing, refunding or replacement being herein
referred to as the "New Notes") so long as (a) such New Notes are on
substantially identical terms as the Subordinated Notes (including without
limitation, terms relating to subordination and covenants), provided that such
New Notes may have a longer maturity, lower interest rates, less restrictive
covenants, slower sinking fund payments and lower prepayment premiums and (b)
the Agents shall have reviewed such New Notes prior to their issuance. The
Borrower will not, and will not permit its Subsidiaries to, incur any additional
Indebtedness which would constitute "Designated Senior Indebtedness" as such
term is defined in the Indenture.
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12.9. Employee Benefit Plans. The Borrower will not:t Plans.
(a) engage in any non-exempt "prohibited transaction" within the
meaning ofss.406 of ERISA orss.4975 of the Code which could reasonably be
expected to result in a material liability for the Borrower or any of its
Subsidiaries; or
(b) permit any Guaranteed Pension Plan to incur an "accumulated
funding deficiency", as such term is defined inss.302 of ERISA, whether or
not such deficiency is or may be waived; or
(c) fail, or permit any ERISA Affiliate to fail, to contribute to any
Guaranteed Pension Plan to an extent which, or terminate any Guaranteed
Pension Plan in a manner which, could reasonably be expected to result in
the imposition of a lien or encumbrance on the assets of the Borrower or
any of its Subsidiaries pursuant toss.302(f) orss.4068 of ERISA; or
(d) amend, or permit any ERISA Affiliate to amend, any Guaranteed
Pension Plan in circumstances requiring the posting of security pursuant to
ss.307 of ERISA or ss.401(a)(29) of the Code; or
(e) permit or take any action which would result in the aggregate
benefit liabilities (with the meaning ofss.4001 of ERISA) of all Guaranteed
Pension Plans exceeding the value of the aggregate assets of such Plans,
disregarding for this purpose the benefit liabilities and assets of any
such Plan with assets in excess of benefit liabilities, by more than
$500,000.00.
12.10. Bank Accounts. The Borrower will not, and will not permit any of its
Subsidiaries (other than the Mexican Subsidiary) to, (a) establish any bank
accounts other than those listed on Schedule 10.20 (as such may be amended from
time to time to include new depository accounts with existing or new depository
institutions acceptable to the Agents which have executed and delivered Agency
Account Agreements in the form of Exhibit A hereto covering such new depository
accounts) without the Agents' prior written consent, (b) violate directly or
indirectly any bank agency or lock box agreement in favor of the Collateral
Agent for the benefit of the Banks, the Agents and the Collateral Agent with
respect to such account.
12.11. Consignment Transactions. Except pursuant to this Credit Agreement,
the Borrower will not, nor will the Borrower permit or suffer any of its
Subsidiaries to, enter into any consignment transactions as the consignee or
buyer thereunder, including consignments of Precious Metal, except for (a)
deliveries of diamonds to the Borrower on "approval" in the ordinary course of
business and (b) deliveries by Specified Refiners of refined Precious Metal to
the Borrower as credits against amounts of unrefined Precious Metal sent by the
Borrower to such Specified Refiners for refining in the ordinary course of
business to the extent such delivery of Precious Metal to the Borrower is deemed
to be done on a consignment basis.
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12.12. Transactions with Affiliates. The Borrower will not, nor will the
Borrower permit or suffer any of its Subsidiaries to, conduct any transactions
among themselves or with any Affiliates of the Borrower, other than (a) so long
as no Event of Default shall have occurred and be continuing and none would
result from the making thereof, payment of the CH Management Fee in an aggregate
amount not to exceed $1,500,000 during any fiscal year of the Borrower, provided
that any portion of such amount not paid during any fiscal year may be paid in
any subsequent fiscal year, (b) transactions with Oakley Insurance Group
regarding the Borrower's insurance policies and coverage upon terms not
materially less favorable to the Borrower or such Subsidiary than it could
obtain in a comparable arm's-length transaction with a party other than Oakley
Insurance Group, (c) a Permitted Preferred Stock Replacement, (d) transactions
among the Borrower and its Subsidiaries, (e) any Permitted Employee Stock
Repurchases, (f) any Permitted Common Stock Repurchase, (g) transactions
constituting Investments permitted by ss.ss.12.3(h) or (o) hereof, and (h)
transactions in the ordinary course of the Borrower's or such Subsidiary's
business, consistent with past practices, and upon terms not materially less
favorable to the Borrower or such Subsidiary than it could obtain in a
comparable arm's-length transaction with a party other than the Borrower, such
Subsidiary or such Affiliate.
12.13. Subsidiaries. The Borrower will not create any Subsidiaries in
addition to the existing Subsidiaries listed on Schedule 10.19 hereto.
12.14. Limitations on Mexican Subsidiary. The Borrower will not permit the
Mexican Subsidiary to own assets having an aggregate book value in excess of
$1,000,000.
13. FINANCIAL COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that, so long as any Loan, Unpaid
Reimbursement Obligation, Letter of Credit, amount of Consigned Precious Metal
or Note is outstanding or any Bank has any obligation to make any Loans or
Consignments or the Dollar Agent has any obligation to issue, extend or renew
any Letters of Credit:
13.1. Senior Funded Debt to EBITDA. The Borrower will not permit the ratio
of (a) Consolidated Senior Funded Debt for any period of (i) four consecutive
complete fiscal quarters occurring after the Closing Date and ending during any
period set forth in the table below or (ii) if shorter, the period since the
Closing Date ending on a fiscal quarter ending date occurring during any period
set forth in the table below, to (b) Consolidated EBITDA for any period of four
consecutive fiscal quarters then ended to exceed the ratio set forth opposite
such period in such table:
Period Ratio
------ -----
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2/28/97 - 8/31/97 3.00:1.00
11/30/97 - 2/28/98 2.75:1.00
5/31/98 - 2/28/99 2.50:1.00
5/31/99 and thereafter 2.25:1.00
13.2. Consolidated EBITDA. The Borrower will not permit Consolidated
EBITDA for any period of four consecutive fiscal quarters ending during any
period set forth in the table below to be less than the amount set forth
opposite such period in such table:
Period Amount
------ ------
2/28/97 - 8/31/97 $15,750,000
11/30/97 $19,000,000
2/28/98 $20,000,000
5/31/98 - 8/31/98 $20,600,000
11/30/98 $21,500,000
2/28/98 - 8/31/99 $22,000,000
11/30/99 - 8/31/00 $22,700,000
11/30/00 - 8/31/01 $23,500,000
11/30/01 - 8/31/02 $24,000,000
11/30/02 - 8/31/03 $24,500,000
11/30/03 and thereafter $25,000,000
13.3. Capital Expenditures. The Borrower will not make, or permit any
Subsidiary of the Borrower to make, Capital Expenditures during any fiscal year
set forth in the table below (or the portion thereof, in the case of the fiscal
year in which the Closing Date occurs) that exceed, the aggregate, the amount
set forth opposite such fiscal year in such table:
Fiscal Year Amount
----------- ------
1997 $4,395,000
1998 $3,700,000
1999 $3,500,000
2000 $3,500,000
2001 $3,500,000
2002 $3,500,000
2003 $3,500,000
2004 $3,500,000
13.4. Interest Coverage. The Borrower will not permit the ratio of (i)
Consolidated EBITDA (excluding amortization of deferred financing costs incurred
in connection with the closing of the transactions contemplated by the Loan
Documents and the Acquisition Documents) for any period of four consecutive
fiscal quarters ending during any period set forth in the table below, to (ii)
Consolidated Total Interest Expense (excluding amortization of deferred
financing costs incurred in connection with the closing of the transactions
contemplated by the Loan Documents
2
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and the Acquisition Documents) for such period, to be less than the ratio set
forth opposite such period in such table:
Period Ratio
------ -----
2/28/97 - 8/31/97 1.00:1.00
11/30/97 1.20:1.00
2/28/98 - 8/31/98 1.30:1.00
11/30/98 1.40:1.00
2/28/99 - 8/31/00 1.50:1.00
11/30/00 - 8/31/01 1.60:1.00
11/30/01 and thereafter 1.75:1.00
14. CLOSING CONDITIONS.
The obligations of the Applicable Banks to make the initial Revolving
Credit Loans, the initial Gold Loans, the initial Consignments and the Term Loan
and of the Dollar Agent to issue any initial Letters of Credit shall be subject
to the satisfaction of the following conditions precedent on or prior to
December 31, 1996:
14.1. Loan Documents, etc. Each of the Loan Documents shall have been duly
executed and delivered by the respective parties thereto, shall be in full force
and effect and shall be in form and substance satisfactory to each of the Banks.
Each Bank shall have received a fully execute copy of each such document.
14.2. Certified Copies of Charter Documents. Each of the Banks shall have
received from the Borrower and each of its Subsidiaries a copy, certified by a
duly authorized officer of such Person to be true and complete on the Closing
Date, of each of (a) its charter or other incorporation documents as in effect
on such date of certification, and (b) its by-laws as in effect on such date.
14.3. Corporate Action. All corporate action necessary for the valid
execution, delivery and performance by the Borrower and each of its Subsidiaries
of this Credit Agreement and the other Loan Documents to which it is or is to
become a party shall have been duly and effectively taken, and evidence thereof
satisfactory to the Banks shall have been provided to each of the Banks.
14.4. Incumbency Certificate. Each of the Banks shall have received from
the Borrower and each of its Subsidiaries an incumbency certificate, dated as of
the Closing Date, signed by a duly authorized officer of the Borrower or such
Subsidiary, and giving the name and bearing a specimen signature of each
individual who shall be authorized: (a) to sign, in the name and on behalf of
the Borrower or such Subsidiary, each of the Loan Documents to which the
Borrower or such Subsidiary is or is to become a party; (b) in the case of the
Borrower, to make Loan Requests, Consignment Requests, Conversion Requests and
Consignment Conversion Requests and to apply for Letters of Credit; and (c) to
give notices and to take other action on its behalf under the Loan Documents.
3
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14.5. Validity of Liens. The Security Documents shall be effective to
create in favor of the Collateral Agent a legal, valid and enforceable first
(except for Permitted Liens entitled to priority under applicable law) security
interest in and lien upon the Collateral. All filings, recordings, deliveries of
instruments and other actions necessary or desirable in the opinion of the
Collateral Agent and the Agents to protect and preserve such security interests
shall have been duly effected including, without limitation, all notices
required to be filed under Section 9-114 or Section 9-312(3) of the Uniform
Commercial Code in effect in the Commonwealth of Massachusetts or any then
applicable jurisdiction. The Collateral Agent shall have received evidence
thereof in form and substance satisfactory to the Collateral Agent, the Agent
and the Banks.
14.6. Perfection Certificate and UCC Search Results. The Collateral Agent
shall have received from each of the Borrower and its Subsidiaries a completed
and fully executed Perfection Certificate and the results of current UCC
searches with respect to the Collateral, indicating no liens other than
Permitted Liens and otherwise in form and substance satisfactory to the
Collateral Agent, the Agent and the Banks. The Agents shall have received and
shall be satisfied with the form and substance of all consignment financing
statements filed or to be filed on behalf of trade vendors as consignors.
14.7. Certificates of Insurance. The Agents shall have received (a) a
certificate of insurance from an independent insurance broker dated as of the
Closing Date, identifying insurers, types of insurance, insurance limits, and
policy terms, and otherwise describing the insurance obtained in accordance with
the provisions of the Security Agreement and (b) certified copies of all
policies evidencing such insurance (or certificates therefore signed by the
insurer or an agent authorized to bind the insurer).
14.8. FNBB Concentration Accounts; Agency Account Agreements. The Borrower
shall have established the FNBB Concentration Accounts, and the Agents shall
have received an Agency Account Agreement, in form and substance reasonably
satisfactory to the Agents, from each Depository Bank, in each case concerning
the Collateral Agent's interest for the benefit of the Banks, the Agents and the
Collateral Agent, in the depository accounts maintained by the Borrower with
such Depository Banks.
14.9. Borrowing Base Report; Consigned Precious Metal Report; Monthly
Inventory Report. The Agents shall have received from the Borrower the initial
Borrowing Base Report and the initial Consigned Precious Metal Report, in each
case prepared on the basis of the best available data (taking into account that
the Acquisitions are bein ortr; Consigned Precious Metal Report; Monthly
Inventory Report. consummated simultaneously with the closing of the
transactions contemplated hereby), each dated as of the Closing Date.
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14.10. Accounts Receivable Aging Report. The Agents shall have received
from the Borrower the most recent Accounts Receivable aging report of the
Borrower dated as of a date which shall be no more than thirty (30) days prior
to the Closing Date and the Borrower shall have notified the Agents in writing
on the Closing Date of any material deviation from the Accounts Receivable
values reflected in such Accounts Receivable aging report and shall have
provided the Agents with such supplementary documentation as the Agents may
reasonably request.
14.11. Opinions of Counsel. Each of the Banks, the Collateral Agent and the
Agents shall have received (a) a favorable legal opinion addressed to the Banks,
the Collateral Agent and the Agents, dated as of the Closing Date, in form and
substance satisfactory to the Banks and the Agents, from Schulte, Roth & Zabel,
counsel to the Borrower and its Subsidiaries; and (b) copies of each of all
legal opinions delivered upon the consummation of the Acquisitions by counsel to
the respective parties to the Acquisition Documents, each in form and substance
satisfactory to the Banks and the Administrative Agent, and each accompanied by
a reliance letter with respect thereto in favor of the Banks, the Collateral
Agent and the Agents.
14.12. Payment of Fees. The Borrower shall have paid to the Banks or the
Agents, as appropriate, the closing fee, and the Agents' fee pursuant to
ss.ss.8.10 and 8.11.
14.13. Payoff Letters. The Agents shall have received a payoff letter from
each of (a) State Street Bank and Trust Company, as successor to The Connecticut
Bank and Trust Company, National Association, and V. Kreuscher (the "Trustees"),
as trustees under a Trust Agreement securing an aggregate principal amount of
$130,000,000 and payable to Texas Commerce Bank, (b) Foothill Capital
Corporation ("Foothill") and (c) Fleet Bank, indicating the amount of the loan
and consignment obligations of the CJC Sellers and the Balfour Sellers,
respectively, to such parties to be discharged on the Closing Date and an
acknowledgment by each of such parties that upon receipt of such funds they will
forthwith execute and deliver evidence to the Agents of the filing of all
termination statements and take such other actions as may be necessary to
discharge all mortgages, deeds of trust and security interests and consignment
rights granted by the CJC Sellers and the Balfour Sellers, respectively, in
favor of such parties.
14.14. Consummation of Equity Investment and Subordinated Note Issuance.
The stockholders of the Borrower shall have contributed an aggregate amount of
equity to the Borrower not less than $50,000,000 in connection with the
Acquisitions and the initial capitalization of the Borrower. The Borrower shall
also have issued the Subordinated Notes, and such issuance shall have yielded
net cash proceeds to the Borrower in an aggregate amount of $83,000,000. The
Subordinated Notes shall have been issued on terms and conditions satisfactory
in all respects to the Agents and the Banks.
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14.15. Financial Statements. The Agents and the Banks shall have received
the financial statements required to be delivered to them by ss.10.4.
14.16. Survey and Taxes; Appraisal. The Collateral Agent shall have
received (i) updated Surveys of the Mortgaged Properties (other than the
Borrower's Kentucky facility) together with a Surveyor Certificate relating
thereto and (ii) evidence of payment of real estate taxes and municipal charges
on all Real Estate not delinquent on or before the Closing Date. The Agents
shall have received an appraisal in form and substance satisfactory to them from
an appraiser satisfactory to them with respect to the Sellers' machinery and
equipment and with respect to the Borrower's facilities located on Lots 1-8
Lenox Industrial Park Subdivision in Austin, Texas.
14.17. Title Insurance. The Collateral Agent shall have received Title
Policies covering the Mortgaged Properties (or commitments to issue such
policies, with all conditions to issuance of each Title Policy deleted by an
authorized agent of the Title Insurance Company) together with proof of payment
of all fees and premiums for such policies, from the Title Insurance Company and
in amounts satisfactory to the Collateral Agent, insuring the interest of the
Collateral Agent and each of the Banks as mortgagee under the Mortgages.
14.18. Environmental Reports. The Agents shall have received, for the
purpose of assessing and ensuring the value of any Mortgaged Property, the
Environmental Reports.
14.19. Landlord Consents. The Borrower and its Subsidiaries shall have
delivered to the Collateral Agent all consents required for the Collateral Agent
to receive, as part of the Security Documents, a collateral assignment of each
material leasehold of personal property, and a mortgage of the Borrower's
leasehold interest in the real property located at 7101 Intermodal Drive,
Louisville, Kentucky, together with such estoppel certificates or landlord's
consents with respect to each material leasehold of real property of the
Borrower as the Collateral Agent may request. Except for a landlord's consent
and estoppel, it is understood that in no event shall any other consents or
documents be required, including without limitation, any other collateral
assignment or mortgage be required in respect of any property of the Borrower
located in Massachusetts.
14.20. Closing of Acquisitions. Each of the Acquisition Documents shall
have been duly executed and delivered by the respective parties thereto, shall
be in full force and effect and shall be in form and substance reasonably
satisfactory to each of the Agents and the Banks. The Agents shall have received
a fully executed copy of each such document. The Acquisitions shall have been
duly consummated on or prior to the Closing Date in accordance with the terms of
the Acquisition Documents. The Agents shall have received evidence, reasonably
satisfactory to them, of the completion by the parties to the Acquisition
Documents of all actions to be taken prior to or concurrently with the closing
of the transactions contemplated thereby
6
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pursuant to the terms thereof, including without limitation, the satisfaction
or, to the extent consented to in writing by the Agents, waiver, of all
conditions to closing set forth in the Acquisition Documents and the payment by
each applicable party thereto of all amounts required to be paid at closing. The
Agents shall have received evidence, reasonably satisfactory to them, that all
consents and approvals necessary to complete the Acquisitions shall have been
obtained and such consents and approvals shall be in form and substance
reasonably satisfactory to the Agents. Without limiting the foregoing, the
Agents shall have received evidence, reasonably satisfactory to them, of the
receipt of all necessary governmental or regulatory approvals, including,
without limitation, the satisfaction of all requirements under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
regulations promulgated thereunder.
14.21. Consolidated EBITDA. The Sellers shall have had Consolidated EBITDA,
on a pro forma basis for the period of twelve months ending on the last day of
the October 1996 fiscal month equal to at least $18,000,000.
14.22. Governmental Regulation. Each Bank shall have received such
statements in substance and form reasonably satisfactory to such Bank as such
Bank shall require for the purpose of compliance with any applicable regulations
of the Comptroller of the Currency or the Board of Governors o ations. the
Federal Reserve System.
14.23. Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Credit Agreement, the other Loan Documents and
all other documents incident thereto shall be satisfactory in substance and in
form to the Banks and to the Agents and the Agents' Special Counsel, and the
Banks, the Agents and such counsel shall have received all information and such
counterpart originals or certified or other copies of such documents as the
Agents or such Banks may reasonably request.
15. CONDITIONS TO ALL BORROWINGS.
The obligations of the Applicable Banks to make any Loans, including the
initial Revolving Credit Loans, Gold Loans and the Term Loan, or any
Consignments, including the initial Consignments, and of the Dollar Agent to
issue, extend or renew any Letter of Credit, in each case whether on or after
the Closing Date, shall also be subject to the satisfaction of the following
conditions precedent:
15.1. Representations True; No Event of Default. Each of the
representations and warranties of any of the Borrower and its Subsidiaries
contained in this Credit Agreement, the other Loan Documents or in any document
or instrument delivered pursuant to or in connection with this Credit Agreement
shall be true in all material respects as of the date as of which they were made
and shall also be true in all material respects at and as of the time of the
making of such Loan or
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Consignment or the issuance, extension or renewal of such Letter of Credit, with
the same effect as if made at and as of that time (except to the extent of
changes resulting from transactions contemplated or permitted by this Credit
Agreement and the other Loan Documents and changes occurring in the ordinary
course of business that singly or in the aggregate are not materially adverse,
and to the extent that such representations and warranties relate expressly to
an earlier date) and no Default or Event of Default shall have occurred and be
continuing.
15.2. Borrowing Base Report; Consigned Precious Metal Report. The Agents
and the Banks shall have received the most recent Borrowing Base Report required
to be delivered to the Agents and the Banks in accordance with ss.11.4(f) and
the most recent Consigned Precious Metal Report required to be delivered to the
Agents and the Banks in accordance with ss.11.4(f), and if requested by the
Applicable Agent, updates to such most recent Borrowing Base Report or, as the
case may be, Consigned Precious Metal Report which solely provide information as
to updated sales and receipts as of a date within five (5) days of the Drawdown
Date or, as the case may be, the Gold Drawdown Date of such Loan or such
Consignment or of the date of issuance, extension or renewal of such Letter of
Credit. It is understood and agreed that the Borrower may furnish to the Agents
and the Banks from time to time an updated Borrowing Base Report or Consigned
Precious Metal Report, in which case availability under the Dollar Facility
and/or the Gold Facility shall be determined based upon such updated reports.
16. EVENTS OF DEFAULT; ACCELERATION; ETC.
16.1. Events of Default and Acceleration. If any of the following events
("Events of Default" or, if the giving of notice or the lapse of time or both is
required, then, prior to such notice or lapse of time, "Defaults") shall occur:
(a) the Borrower shall fail to pay any principal of the Loans or any
Reimbursement Obligation or fail to purchase and pay for or Redeliver
Consigned Precious Metal when the same shall become due and payable or
required, whether at the stated date of maturity or any accelerated date of
maturity or at any other date fixed for payment or Redelivery;
(b) the Borrower or any of its Subsidiaries shall fail to pay any
interest on the Loans or Consignment Fees or Gold Fronting Fees or
Consignment Premiums on Consigned Precious Metal, the commitment fees, any
Letter of Credit Fee, the Agents' fee, or other sums due hereunder or under
any of the other Loan Documents, within one (1) Business Day after the same
shall become due and payable, whether at the stated date of maturity or any
accelerated date of maturity or at any other date fixed for payment;
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(c) the Borrower shall fail to comply with any of its covenants
contained inss.ss.11.4(a), (b), (c), (d), (f), (g), (h), or (i)
orss.ss.11.5.1, 11.6(a), 11.12, 11.14, 11.15, 12 or 13;
(d) the Borrower or any of its Subsidiaries shall fail to perform any
material term, covenant or agreement contained herein or in any of the
other Loan Documents (other than those specified elsewhere in thisss.16.1)
for thirty (30) days after written notice of such failure has been given to
the Borrower by the Agents;
(e) any material representation or warranty of the Borrower or any of
its Subsidiaries in this Credit Agreement or any of the other Loan
Documents or in any other document or instrument delivered pursuant to or
in connection with this Credit Agreement shall prove to have been false in
any material respect upon the date when made or deemed to have been made or
repeated;
(f) the Borrower or any of its Subsidiaries shall (i) fail to pay at
maturity, or within any applicable period of grace, (A) any obligation in
respect of the Subordinated Notes or (B) any other obligation for borrowed
money or credit received or in respect of any Capitalized Leases, in each
case under this clause (B) in excess of $1,000,000.00, or (ii) fail to
observe or perform any material term, covenant or agreement contained (A)
in the Indenture or the Subordinated Notes or (B) in any agreement by which
it is bound, evidencing or securing borrowed money or credit received or in
respect of any Capitalized Leases, in each case under this clause (B) in
excess of $1,000,000.00, for such period of time as would permit (assuming
the giving of appropriate notice if required) the holder or holders thereof
or of any obligations issued thereunder to accelerate the maturity thereof;
(g) the Borrower or any of its Subsidiaries (other than the Mexican
Subsidiary) shall make an assignment for the benefit of creditors, or admit
in writing its inability to pay or generally fail to pay its debts as they
mature or become due, or shall petition or apply for the appointment of a
trustee or other custodian, liquidator or receiver of the Borrower or any
of its Subsidiaries (other than the Mexican Subsidiary) or of any
substantial part of the assets of the Borrower or any of its Subsidiaries
(other than the Mexican Subsidiary) or shall commence any case or other
proceeding relating to the Borrower or any of its Subsidiaries (other than
the Mexican Subsidiary) under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law
of any jurisdiction, now or hereafter in effect, or shall take any action
to authorize or in furtherance of any of the foregoing, or if any such
petition or application shall be filed or any such case or other proceeding
shall be commenced against the Borrower or any of its Subsidiaries (other
than the Mexican Subsidiary) and the Borrower or any of its Subsidiaries
(other than the Mexican Subsidiary) shall indicate its approval thereof,
consent
<PAGE>
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thereto or acquiescence therein or such petition or application shall not
have been dismissed within forty-five (45) days following the filing
thereof;
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Borrower or any of
its Subsidiaries (other than the Mexican Subsidiary) bankrupt or insolvent,
or approving a petition in any such case or other proceeding, or a decree
or order for relief is entered in respect of the Borrower or any Subsidiary
of the Borrower (other than the Mexican Subsidiary) in an involuntary case
under federal bankruptcy laws as now or hereafter constituted;
(i) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days, whether or not consecutive, any final
judgment against the Borrower or any of its Subsidiaries that, with other
outstanding final judgments, undischarged, against the Borrower or any of
its Subsidiaries exceeds in the aggregate $1,000,000.00;
(j) if any of the Loan Documents shall be cancelled, terminated,
revoked or rescinded or the Collateral Agent's security interests,
mortgages or liens in a substantial portion of the Collateral shall cease
to be perfected, or shall cease to have the priority contemplated by the
Security Documents, in each case otherwise than in accordance with the
terms thereof or with the express prior written agreement, consent or
approval of the Banks, or any action at law, suit or in equity or other
legal proceeding to cancel, revoke or rescind any of the Loan Documents
shall be commenced by or on behalf of the Borrower or any of its
Subsidiaries party thereto or any of their respective stockholders, or any
court or any other governmental or regulatory authority or agency of
competent jurisdiction shall make a determination that, or issue a
judgment, order, decree or ruling to the effect that, any one or more of
the Loan Documents is illegal, invalid or unenforceable in accordance with
the terms thereof;
(k) if the Borrower or any ERISA Affiliate shall incur any liability
to the PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA in
an aggregate amount exceeding $1,000,000; if the Borrower or any ERISA
Affiliate shall be assessed withdrawal liability pursuant to Title IV of
ERISA by a Multiemployer Plan requiring aggregate annual payments exceeding
$1,000,000, or if any of the following shall occur with respect to a
Guaranteed Pension Plan: (i) an ERISA Reportable Event, or a failure to
make a required installment or other payment (within the meaning of
ss.302(f)(1) of ERISA), provided the Agents determine in their reasonable
discretion that such event (A) could be expected to result in liability of
the Borrower to the PBGC or the Plan in an aggregate amount exceeding
$1,000,000 and (B) could constitute grounds for the termination of such
Plan by the PBGC, for the appointment by the appropriate United States
District Court of a trustee to administer such
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Plan or for the imposition of a lien in favor of the Guaranteed Pension
Plan; (ii) the appointment by a United States District Court of a trustee
to administer such Plan; or (iii) the institution by the PBGC of
proceedings to terminate such Plan;
(l) the Borrower or any of its Subsidiaries (other than the Mexican
Subsidiary) shall be enjoined, restrained or in any way prevented by the
order of any court or any administrative or regulatory agency from
conducting any material part of its business and such order shall continue
in effect for more than thirty (30) days; or
(m) Castle Harlan Partners II L.P. and its affiliates shall at any
time, legally or beneficially own less than 51% of the shares of the Voting
Stock of the Borrower or shall at any time cease to be able to elect at
least a majority of the members of the board of directors of the Borrower;
then, and in any such event (i) the Borrower shall purchase all Consigned
Precious Metal in accordance with the provisions of ss.5.4 hereof and (ii) so
long as the same may be continuing, the Agents may, and upon the request of the
Majority Banks shall, by notice in writing to the Borrower declare all amounts
owing with respect to this Credit Agreement, the Notes and the other Loan
Documents and all Reimbursement Obligations to be, and they shall thereupon
forthwith become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived by
the Borrower; provided that in the event of any Event of Default specified in
ss.ss.16.1(g) or 16.1(h), all such amounts shall become immediately due and
payable automatically and without any requirement of notice from the Agents or
any Bank.
16.2. Termination of Commitments. If any one or more of the Events of
Default specified in ss.16.1(g) or ss.16.1(h) shall occur, any unused portion of
the credit hereunder shall forthwith terminate and each of the Banks shall be
relieved of all further obligations to make Loans and Consignments to the
Borrower and the Dollar Agent shall be relieved of all further obligations to
issue, extend or renew Letters of Credit. If any other Event of Default shall
have occurred and be continuing, the Agents may and, upon the request of the
Majority Banks, shall, by notice to the Borrower, terminate the unused portion
of the credit hereunder, and upon such notice being given such unused portion of
the credit hereunder shall terminate immediately and each of the Banks shall be
relieved of all further obligations to make Loans and Consignments and the
Dollar Agent shall be relieved of all further obligations to issue, extend or
renew Letters of Credit. No termination of the credit hereunder shall relieve
the Borrower or any of its Subsidiaries of any of the Obligations.
16.3. Remedies. In case any one or more of the Events of Default shall have
occurred and be continuing, and whether or not the Banks shall have accelerated
the maturity of the Loans pursuant to ss.16.1, each Bank, if owed any amount
with respect
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to the Loans, Consignments or the Reimbursement Obligations, may, with the
consent of the Majority Banks but not otherwise, proceed to protect and enforce
its rights by suit in equity, action at law or other appropriate proceeding,
whether for the specific performance of any covenant or agreement contained in
this Credit Agreement and the other Loan Documents or any instrument pursuant to
which the Obligations to such Bank are evidenced, including as permitted by
applicable law the obtaining of the ex parte appointment of a receiver, and, if
such amount shall have become due, by declaration or otherwise, proceed to
enforce the payment thereof or any other legal or equitable right of such Bank.
No remedy herein conferred upon any Bank or the Agents or the holder of any Note
or of any rights in the Consigned Precious Metal or the purchaser of any Letter
of Credit Participation is intended to be exclusive of any other remedy and each
and every remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or any other provision of law.
17. SETOFF.
Regardless of the adequacy of any collateral, during the continuance of any
Event of Default, any deposits or other sums credited by or due from any of the
Banks to the Borrower and any securities or other property of the Borrower in
the possession of such Bank may, upon notice thereof given to the Borrower, be
applied to or set off by such Bank against the payment of Obligations and any
and all other liabilities, direct, or indirect, absolute or contingent, due or
to become due, now existing or hereafter arising, of the Borrower to such Bank.
Each of the Banks agrees with each other Bank that (a) if an amount to be set
off is to be applied to Indebtedness of the Borrower to such Bank, other than
Indebtedness evidenced by the Notes held by such Bank or constituting
Reimbursement Obligations owed to, or, as the case may be, constituting
obligations in respect of Consigned Precious Metal owed to, such Bank, such
amount shall be applied ratably to such other Indebtedness and to the
Indebtedness evidenced by all such Notes held by such Bank or constituting
Reimbursement Obligations owed to, or, as the case may be, constituting
obligations in respect of Consigned Precious Metal owed to, such Bank, and (b)
if such Bank shall receive from the Borrower, whether by voluntary payment,
exercise of the right of setoff, counterclaim, cross action, enforcement of the
claim evidenced by the Notes held by, or constituting Reimbursement Obligations
owed to, or, as the case may be, constituting obligations in respect of
Consigned Precious Metal owed to, such Bank by proceedings against the Borrower
at law or in equity or by proof thereof in bankruptcy, reorganization,
liquidation, receivership or similar proceedings, or otherwise, and shall retain
and apply to the payment of the Note or Notes held by, or Reimbursement
Obligations owed to, or, as the case may be, constituting obligations in respect
of Consigned Precious Metal owed to, such Bank any amount in excess of its
ratable portion of the payments received by all of the Applicable Banks with
respect to the Notes held by, and Reimbursement Obligations owed to, or, as the
case may be, constituting obligations in respect of Consigned Precious Metal
owed to, all of the Applicable Banks, such Bank will make such disposition and
arrangements with
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the other Banks with respect to such excess, either by way of distribution, pro
tanto assignment of claims, subrogation or otherwise as shall result in each
Bank receiving in respect of the Notes held by it or Reimbursement obligations
owed it, or, as the case may be, obligations in respect of Consigned Precious
Metal owed to it, its proportionate payment as contemplated by this Credit
Agreement; provided that if all or any part of such excess payment is thereafter
recovered from such Bank, such disposition and arrangements shall be rescinded
and the amount restored to the extent of such recovery, but without interest.
18. THE AGENTS.
18.1. Authorization.
(a) Each of the Agents and the Collateral Agent is authorized to take
such action on behalf of each of the Applicable Banks and to exercise all
such powers as are hereunder and under any of the other Loan Documents and
any related documents delegated to such Agent or Collateral Agent, together
with such powers as are reasonably incident thereto, provided that no
duties or responsibilities not expressly assumed herein or therein shall be
implied to have been assumed by the Agents or the Collateral Agent.
(b) The relationship between the Agents and each of the Banks is that
of an independent contractor. The use of the terms "Agent" and "Collateral
Agent" is for convenience only and is used to describe, as a form of
convention, the independent contractual relationship between the Agents and
each of the Banks. Nothing contained in this Credit Agreement nor the other
Loan Documents shall be construed to create an agency, trust or other
fiduciary relationship between the Agents and any of the Banks.
(c) As independent contractors empowered by the Banks to exercise
certain rights and perform certain duties and responsibilities hereunder
and under the other Loan Documents, each of the Agents and the Collateral
Agent is nevertheless a "representative" of the Banks, as that term is
defined in Article 1 of the Uniform Commercial Code, for purposes of
actions for the benefit of the Banks, the Collateral Agent and the Agents
with respect to all collateral security and guaranties contemplated by the
Loan Documents. Such actions include the designation of the Collateral
Agent as "secured party", "mortgagee" or the like on all financing
statements and other documents and instruments, whether recorded or
otherwise, relating to the attachment, perfection, priority or enforcement
of any security interests, mortgages or deeds of trust in collateral
security intended to secure the payment or performance of any of the
Obligations, all for the benefit of the Banks, the Agents and the
Collateral Agent.
<PAGE>
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18.2. Employees and Agents. The Agents may exercise their powers and
execute its duties by or through employees or agents and shall be entitled to
take, and to rely on, advice of counsel concerning all matters pertaining to its
rights and duties under this Credit Agreement and the other Loan Documents. The
Agents may utilize the services of such Persons as the Agents in their sole
discretion may reasonably determine, and all reasonable fees and expenses of any
such Persons shall be paid by the Borrower.
18.3. No Liability. Neither the Agents nor any of their shareholders,
directors, officers or employees nor any other Person assisting them in their
duties nor any agent or employee thereof, shall be liable for any waiver,
consent or approval given or any action taken, or omitted to be taken, in good
faith by them hereunder or under any of the other Loan Documents, or in
connection herewith or therewith, or be responsible for the consequences of any
oversight or error of judgment whatsoever, except that the Agents or such other
Person, as the case may be, may be liable for losses due to its willful
misconduct or gross negligence.
18.4. No Representations. The Agents shall not be responsible for the
execution or validity or enforceability of this Credit Agreement, the Notes, the
Letters of Credit, any of the other Loan Documents or any instrument at any time
constituting, or intended to constitute, collateral security for the Notes or
the obligations in respect of Consigned Precious Metal, or for the value of any
such collateral security or for the validity, enforceability or collectability
of any such amounts owing with respect to the Notes or the obligations in
respect of Consigned Precious Metal, or for any recitals or statements,
warranties or representations made herein or in any of the other Loan Documents
or in any certificate or instrument hereafter furnished to it by or on behalf of
the Borrower or any of its Subsidiaries, or be bound to ascertain or inquire as
to the performance or observance of any of the terms, conditions, covenants or
agreements herein or in any instrument at any time constituting, or intended to
constitute, collateral security for the Notes or the obligations in respect of
Consigned Precious Metal or to inspect any of the properties, books or records
of the Borrower or any of its Subsidiaries. The Agents shall not be bound to
ascertain whether any notice, consent, waiver or request delivered to it by the
Borrower or any holder of any of the Notes or of any right in respect of
Consigned Precious Metal shall have been duly authorized or is true, accurate
and complete. The Agents have not made nor do they now make any representations
or warranties, express or implied, nor do they assume any liability to the
Banks, with respect to the credit worthiness or financial conditions of the
Borrower or any of its Subsidiaries. Each Bank acknowledges that it has,
independently and without reliance upon either of the Agents or any other Bank,
and based upon such information and documents as it has deemed appropriate, made
its own credit analysis and decision to enter into this Credit Agreement.
18.5. Payments.
<PAGE>
Exhibit 10.2
EXECUTION COPY
================================================================================
$90,000,000
SCHOLASTIC BRANDS, INC.
11% Senior Subordinated Notes Due 2007
PURCHASE AGREEMENT
December 10, 1996
================================================================================
<PAGE>
$90,000,000
SCHOLASTIC BRANDS, INC.
11% Senior Subordinated Notes due 2007
PURCHASE AGREEMENT
December 10, 1996
Lehman Brothers Inc.
BT Securities Corporation
c/o Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285
Dear Sirs:
SCHOLASTIC BRANDS, INC., a Delaware corporation ("SBI"), proposes to issue
and sell to you, as the initial purchasers (the "Initial Purchasers"),
$90,000,000 aggregate principal amount of its 11% Senior Subordinated Notes Due
2007 (the "Senior Subordinated Notes"). As used herein, the term the "Company"
means (i) prior to consummation of the Acquisitions (as defined below), SBI and
(ii) following consummation of the Acquisitions, SBI including ArtCarved (as
defined below) and Balfour (as defined below). The payment of principal,
Redemption Price, Purchase Price, interest and Liquidated Damages, if any, on
the Senior Subordinated Notes and the Company's 11% Senior Subordinated Notes
due 2007 to be issued in the Exchange Offer referred to below (the "New Senior
Subordinated Notes" and, together with the Senior Subordinated Notes, the
"Notes") may, under certain circumstances, be unconditionally guaranteed by
certain subsidiaries of the Company of the Company as set forth in the Indenture
(as defined below). The Senior Subordinated Notes will be issued pursuant to an
Indenture to be dated as of December 16, 1996 (the "Indenture"), between the
Company and Marine Midland Bank, as trustee (the "Trustee").
Capitalized terms used herein and not otherwise defined are used as defined
in the Offering Memorandum (as defined below) or the Indenture.
Upon original issuance thereof, and until such time as the Company
determines (based upon an opinion of counsel, if the Company so requests) it to
be no longer required under the applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), the Senior Subordinated Notes (and all
securities issued in exchange therefor or in substitution thereof) shall bear
the following legend:
"THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY
<PAGE>
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT
OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE.
BY ITS ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT)
("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES
THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO THE COMPANY AND MARINE MIDLAND BANK, AS TRUSTEE
(OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM
SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED
STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH
CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY
OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS
PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE COMPANY AND MARINE MIDLAND BANK, AS TRUSTEE (OR A
SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT."
The Senior Subordinated Notes will be offered and sold to the Initial
Purchasers without being registered under the Securities Act in reliance on an
exemption therefrom. SBI has prepared a Preliminary Offering Memorandum, dated
November 22, 1996 (the "Preliminary Offering Memorandum"), and will prepare a
Final Offering Memorandum dated the date hereof (the "Final Offering Memorandum"
and, together with the Preliminary Offering Memorandum, the "Offering
Memorandum"), setting forth or including a description of the terms of the
Senior Subordinated Notes, the terms of the offering and a description of the
Company. Copies of the Preliminary Offering Memorandum have been, and copies of
the Final Offering Memorandum will be, delivered by SBI to the Initial
Purchasers pursuant to the terms of this Agreement. Any references herein to the
Preliminary Offering Memorandum, the Final Offering Memorandum and the Offering
Memorandum shall be deemed to include all amendments and supplements
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<PAGE>
thereto and all documents incorporated therein by reference. SBI hereby confirms
that it has authorized the use of the Offering Memorandum in connection with the
offering and resale of the Senior Subordinated Notes by the Initial Purchasers
in accordance with Section 3 hereof.
It is understood by the parties hereto that on or prior to the Closing Date
SBI will enter into the Bank Credit Facility (as such terms are defined in the
Final Offering Memorandum), the proceeds of which, together with the proceeds
from the sale of the Senior Subordinated Notes, will be applied by SBI to
finance (i) the acquisition of certain assets and operations of CJC Holdings,
Inc. (the "ArtCarved Acquisition") and (ii) the acquisition of certain assets
and operations of L.G. Balfour Company, Inc. (the "Balfour Acquisition" and,
collectively with the ArtCarved Acquisition, the "Acquisitions") and for certain
other uses as contemplated by the Offering Memorandum. The assets and operations
to be acquired by SBI in the ArtCarved Acquisition are referred to herein as
"ArtCarved" and the assets and operations to be acquired by SBI in the Balfour
Acquisition are referred to herein as "Balfour." The ArtCarved Purchase
Agreement (as defined in the Offering Memorandum) and the Balfour Purchase
Agreement (as defined in the Offering Memorandum) are, collectively, referred to
herein as the "Acquisition Agreements."
The Initial Purchasers and their direct and indirect transferees will be
entitled to the benefits of the Registration Rights Agreement, substantially in
the form attached hereto as Exhibit A, pursuant to which the Company will agree
to use its best efforts to commence an offer to exchange the Senior Subordinated
Notes for New Senior Subordinated Notes that have been registered under the
Securities Act, and that otherwise are identical in all material respects to the
Senior Subordinated Notes, or, in certain circumstances, to cause a shelf
registration statement to become effective under the Securities Act and to
remain effective for the period designated in such Registration Rights
Agreement.
Section 1. Representations, Warranties and Agreements of the Company. The
Company represents and warrants and agrees that:
(a) Each of the Preliminary Offering Memorandum and the Final Offering
Memorandum as of its date did not, and the Final Offering Memorandum as of
the Closing Date will not, contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representation or
warranty as to information contained in or omitted from the Preliminary
Offering Memorandum or the Final Offering Memorandum, as amended or
supplemented, in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Initial Purchasers
specifically for inclusion in the Preliminary Offering Memorandum or the
Final Offering Memorandum.
(b) Each of the Company and each entity that will be a subsidiary of
the Company (the "Subsidiaries") has been duly organized and is and,
immediately after the Acquisitions, will be, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation,
and is and, immediately after the Acquisitions,
-3-
<PAGE>
will be, duly qualified or licensed as a foreign corporation to do business
and is and, immediately after the Acquisitions, will be, in good standing
as a foreign corporation in each jurisdiction in which its ownership or
leasing of property or the conduct of its business as currently conducted
requires such qualification (except where the failure to be so qualified
and in good standing would not have a Material Adverse Effect), and has
and, immediately after the Acquisitions, will have all power and authority
necessary to own or hold its properties and to conduct the business in
which it is now, or upon consummation of the Acquisitions will be, engaged.
None of the Subsidiaries is or, immediately after the Acquisitions, will be
a "significant subsidiary," as such term is defined in Rule 405 promulgated
under the Securities Act. As used herein, "Material Adverse Effect" means a
material adverse effect on the condition (financial or otherwise), results
of operations, business or prospects of the Company and the Subsidiaries,
taken as a whole.
(c) Assuming the Senior Subordinated Notes are issued, sold and
delivered under the circumstances contemplated by the Offering Memorandum
and this Agreement, that the representations and warranties and covenants
of the Initial Purchasers contained in Section 3 hereof are true, correct
and complete, and that the Initial Purchasers comply with their covenants
in Section 3 hereof, (i) registration under the Securities Act of the
Senior Subordinated Notes or qualification of the Indenture in respect of
the Notes under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), is not required in connection with the offer and sale of
the Senior Subordinated Notes to the Initial Purchasers in the manner
contemplated by the Offering Memorandum or this Agreement, and (ii) initial
resales of the Senior Subordinated Notes by the Initial Purchasers on the
terms and in the manner set forth in the Offering Memorandum and Section 3
hereof are exempt from the registration requirements of the Securities Act.
(d) The Company has an authorized capitalization as set forth in the
Final Offering Memorandum, and all of the issued shares of capital stock of
the Company and all of the shares of capital stock to be issued pursuant to
the Castle Harlan Investment (as defined in the Offering Memorandum) have
been duly and validly authorized and have been (or, in the case of the
shares of capital stock to be issued in connection with the Castle Harlan
Investment, will be as of the Closing Date), duly and validly issued, fully
paid and non-assessable, and all of the issued shares of capital stock of
each Subsidiary have been duly and validly authorized and issued and are
fully paid and non-assessable and (except (i) as set forth in the Final
Offering Memorandum or (ii) with respect to Pulidos de Juarez, S.A. de
C.V., shares required by law to be owned by persons other than the
Company), upon consummation of the Acquisitions, will be owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims (except for liens arising under the Bank Credit
Facility). There are no, and immediately after the Acquisitions, there will
not be any, outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, the shares of capital
stock of any of the Subsidiaries.
-4-
<PAGE>
(e) This Agreement has been duly authorized, executed and delivered by
the Company and (assuming the due execution and delivery thereof by the
Initial Purchasers) is a legally valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally and to general equitable principles (whether
considered in a proceeding in equity or at law).
(f) The Indenture has been duly authorized, and, when duly executed by
the proper officers of the Company and delivered by the Company (assuming
the due execution and delivery thereof by the Trustee), will be a legally
valid and binding agreement of the Company, enforceable against the Company
in accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally and to
general equitable principles (whether considered in a proceeding in equity
or at law).
(g) The Senior Subordinated Notes have been duly authorized, and, when
duly executed, issued and authenticated, and delivered by the Trustee in
accordance with the Indenture against payment therefor as provided herein,
will be validly issued and outstanding, and will constitute the legally
valid and binding obligations of the Company, entitled to the benefits of
the Indenture and enforceable against the Company in accordance with their
terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally and to general equitable
principles (whether considered in a proceeding in equity or at law).
(h) The New Senior Subordinated Notes have been duly authorized, and,
when duly executed, issued and authenticated, and delivered by the Trustee
in accordance with the Indenture, will be validly issued and outstanding,
and will constitute the legally valid and binding obligations of the
Company, entitled to the benefits of the Indenture and enforceable against
the Company in accordance with their terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws relating to or affecting creditors' rights generally
and to general equitable principles (whether considered in a proceeding in
equity or at law).
(i) The Registration Rights Agreement has been duly authorized by the
Company, and when duly executed and delivered by the Company (assuming the
due execution and delivery thereof by the other parties thereto), will
constitute the legally valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, subject to
the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally and to general equitable principles (whether
considered in a proceeding in equity or at law).
-5-
<PAGE>
(j) The Bank Credit Facility has been duly authorized by the Company,
and when duly executed and delivered by the Company (assuming the due
execution and delivery thereof by the other parties thereto), will
constitute the legally valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, subject to
the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally and to general equitable principles (whether
considered in a proceeding in equity or at law).
(k) The Acquisition Agreements have been duly authorized, executed and
delivered by the Company and constitute the legally valid and binding
agreement of the Company, enforceable against the Company in accordance
with their respective terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally and to
general equitable principles (whether considered in a proceeding in equity
or at law).
(l) The Notes, the Indenture, the Registration Rights Agreement, the
Bank Credit Facility and the Acquisition Agreements conform, as applicable,
in all material respects to the description thereof contained in the
Offering Memorandum.
(m) The execution, delivery and performance of this Agreement, the
Indenture, the Bank Credit Facility, the Acquisition Agreements and the
Registration Rights Agreement by the Company, and the consummation of the
transactions contemplated hereby and thereby (including the Acquisitions),
and the issuance and sale of the Notes by the Company, will not (i)
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan or credit agreement or other agreement or instrument to
which the Company or any of the Subsidiaries is, or immediately after the
Acquisitions will be, a party or by which the Company or any of the
Subsidiaries is, or immediately after the Acquisitions will be, bound or to
which any of the property or assets of the Company or any of the
Subsidiaries is, or immediately after the Acquisitions will be, subject,
which conflict, breach, violation or default has had or could reasonably be
expected to have a Material Adverse Effect, or (ii) result in any violation
of the provisions of the charter or by-laws of the Company or any of the
Subsidiaries or (iii) result in any violation of the provisions of any
applicable statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of
the Subsidiaries or any of their properties or assets (or the properties or
assets to be acquired by the Company in the Acquisitions), which violation
has had or could reasonably be expected to have a Material Adverse Effect;
and except for such consents, approvals, authorizations, registrations or
qualifications as may be required under applicable state or foreign
securities laws in connection with the purchase and distribution of the
Senior Subordinated Notes by the Initial Purchasers, as set forth in the
Registration Rights Agreement, no consent, approval, authorization or order
of, or filing or registration with, any such court or governmental agency
or body is required for the execution, delivery and performance of this
Agreement, the Indenture, the Bank Credit Facility, the Acquisition
Agreements and
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<PAGE>
the Registration Rights Agreement by the Company, the consummation of the
transactions contemplated hereby and thereby (including the Acquisitions),
and the issuance and sale of the Notes by the Company, which has not been
obtained or made other than those which if not obtained or made could not
reasonably be expected to have a Material Adverse Effect.
(n) Neither the Company nor any of the Subsidiaries (i) is, or
immediately after the Acquisitions will be, in violation of its charter or
by-laws, (ii) is, or immediately after the Acquisitions will be, in default
in any material respect, and no event has occurred which, with notice or
lapse of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition contained in
any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which it is, or immediately after the Acquisitions will
be, a party or by which it is, or immediately after the Acquisitions will
be, bound or to which any of its properties or assets is, or immediately
after the Acquisitions will be, subject, or (iii) is, or immediately after
the Acquisitions will be, in violation in any material respect of any
applicable law, ordinance, governmental rule, regulation or court decree to
which it or its property or assets may be subject or has failed to obtain
any license, permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its property (or the
property that it will own immediately after the Acquisitions) or to the
conduct of its business, except as may be described in the Offering
Memorandum or, in the case of (ii) and (iii) above, as could not reasonably
be expected to have a Material Adverse Effect.
(o) Except as described in the Offering Memorandum, there are no legal
or governmental proceedings pending to which the Company or any of the
Subsidiaries is or, immediately after the Acquisitions, will be, a party or
of which any property or assets of the Company or any of the Subsidiaries
(or any of the properties or assets to be acquired by the Company in the
Acquisitions) is or, immediately after the Acquisitions will be the subject
which, if determined adversely to the Company or any of the Subsidiaries,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect; and to the best of the Company's knowledge, except
as described in the Offering Memorandum, no such proceedings are threatened
or contemplated by governmental authorities or threatened by others.
(p) Except as set forth in the Registration Rights Agreement or in the
Offering Memorandum, there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Securities
Act with respect to any securities owned or to be owned by such person or
to require the Company to include such securities in any securities being
registered pursuant to any registration statement filed by the Company
under the Securities Act.
(q) None of the Company, the Subsidiaries, ArtCarved or Balfour has
sustained, since August 31, 1996, with respect to ArtCarved, or August 25,
1996, with respect to Balfour, any material losses or interferences with
its business from fire,
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<PAGE>
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Offering Memorandum;
and, since such dates, there have not been any material changes in the
capital stock or long-term debt of the Company or any of the Subsidiaries
or any material adverse changes in the condition (financial or otherwise),
results of operations, business or prospects of the Company, the
Subsidiaries or any of the assets or operations to be acquired by the
Company in the Acquisitions, taken as a whole (a "Material Adverse
Change"), or any developments that could reasonably be expected to involve
a prospective Material Adverse Change, otherwise than as set forth or
contemplated in the Offering Memorandum.
(r) The financial statements (including the related notes) of the
class ring business of CJC Holdings, Inc. and L.G. Balfour Company, Inc.
which appear in the Offering Memorandum comply as to form in all material
respects with the requirements of the Securities Act, fairly present the
financial condition and results of operations of such entities purported to
be shown thereby, at the dates and for the periods indicated, and have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved, except as
described in the notes thereto, and except, with respect to interim
periods, for year-end audit adjustments.. The pro forma financial
information and statistical data included in the Offering Memorandum (the
"Pro Forma Information") have been prepared on a basis consistent with the
audited historical financial statements of the class ring business of CJC
Holdings, Inc. and L.G. Balfour Company, Inc. included in the Offering
Memorandum, except for (i) the pro forma adjustments specified therein
including the Annual Cost Savings (as defined in the Offering Memorandum)
and (ii) except for changes in methods of presentation which are permitted
under generally accepted accounting principles, and gives effect to
assumptions made on a reasonable basis to give effect to historical and
proposed transactions and events described in the Offering Memorandum.
(s) Arthur Andersen LLP who has (i) certified certain financial
statements of CJC Holdings, Inc. and L.G. Balfour Company, Inc., and whose
reports appear in the Preliminary Offering Memorandum and the Final
Offering Memorandum and (ii) reviewed the Pro Forma Information included in
the Preliminary Offering Memorandum and the Final Offering Memorandum, were
independent public accountants under Rule 101 of AICPA's Code of
Professional Conduct and its interpretations and rulings during the periods
covered by the financial statements on which they reported contained in the
Preliminary Offering Memorandum and the Final Offering Memorandum.
(t) The Company and each of the Subsidiaries will, upon consummation
of the Acquisitions, have good and marketable title in fee simple to all
real property and good title to all personal property described in the
Offering Memorandum as being owned by them or necessary for the conduct of
their respective businesses in each case free and clear of all liens,
encumbrances and defects except (i) such as arise under the Bank Credit
Facility, (ii) such as are described in the Offering Memorandum or (iii)
such as have not had and could not reasonably be expected to have a
Material Adverse Effect; and all real
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property and buildings described in the Offering Memorandum as being held
under lease by the Company and each of the Subsidiaries will, upon
consummation of the Acquisitions, be held by them under valid, subsisting
and enforceable leases, with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and the Subsidiaries. No consent need be obtained
from any person with respect to any material lease in connection with the
transactions contemplated hereby and in the Offering Memorandum, except for
such as have been obtained. Except for such assets, plants and facilities
as are not material singly or in the aggregate to the business of the
Company and the Subsidiaries, taken as a whole, as described in the
Offering Memorandum, all tangible assets, plants and facilities to be
acquired by the Company in the Acquisitions are in good condition and
repair (ordinary wear and tear excepted) and are adequate for the uses to
which they are being put or would be put in the ordinary course of
business.
(u) Upon consummation of the Acquisitions, the Company and the
Subsidiaries will have in force for their respective benefits such
insurance as may be required by law and such other insurance, to such
extent and against such hazards and liabilities, as is customarily
maintained by companies similarly situated.
(v) Except as disclosed in the Offering Memorandum, the Company and
each of the Subsidiaries possess or immediately after the Acquisitions,
will possess, such certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct their respective businesses, as described in the
Offering Memorandum, except where the failure to possess such certificates,
authorizations or permits would not be reasonably expected to have a
Material Adverse Effect and neither the Company nor, to the best of the
Company's knowledge, any other person has received any notice of
proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singularly or in the aggregate,
if the subject of an unfavorable decision, ruling, or finding, would
reasonably be expected to have a Material Adverse Effect.
(w) Upon consummation of the Acquisitions, the Company and each of the
Subsidiaries will own or possess adequate rights to use all material
patents, patent applications, trademarks, service marks, tradenames,
trademark registrations, service mark registrations, copyrights and
licenses necessary for the conduct of their businesses, and to the
Company's knowledge, the conduct of their businesses will not conflict
with, and neither the Company nor, to the best of the Company's knowledge,
any other person has received any notice of any claim of conflict with, any
such rights of others which if determined adversely to the Company could
reasonably be expected to have a Material Adverse Effect.
(x) No labor disturbance by the employees of the Company, any of the
Subsidiaries or any assets or operations being acquired in the Acquisitions
exists or, to the knowledge of the Company, is imminent which could
reasonably be expected to have a Material Adverse Effect.
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(y) The assets and operations being acquired in the Acquisitions are,
and, upon consummation of the Acquisitions, the Company and each of the
Subsidiaries will be, in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company or any of the Subsidiaries would have any
liability; none of the Company, the Subsidiaries or any of the assets or
operations being acquired in the Acquisitions have incurred or expects to
incur liability under (i) Title IV of ERISA with respect to termination of,
or withdrawal from, any "pension plan" or (ii) Section 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company or any of the Subsidiaries would have any liability
that is intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such
qualification.
(z) The Company and each of the Subsidiaries have filed all federal,
state and local income and franchise tax returns required to be filed
through the date hereof and have paid, or made adequate reserve or
provision for the payment of, all taxes shown as due thereon, and the
Company has no knowledge of any tax deficiency that has had (or could
reasonably be expected to have) a Material Adverse Effect.
(aa) Since the date as of which information is given in the Offering
Memorandum through the date hereof, and except as may otherwise be
disclosed in the Offering Memorandum, neither the Company nor any of the
Subsidiaries have (i) issued or granted any securities (other than under
plans, agreements and arrangements disclosed in, and in effect on the date
of, the Offering Memorandum), (ii) incurred any liability or obligation,
direct or contingent, other than liabilities and obligations which were
incurred in the ordinary course of business, (iii) entered into any
transaction not in the ordinary course of business or (iv) declared or paid
any dividend on their respective capital stock.
(bb) Neither the Company nor any of the Subsidiaries, nor, to the
Company's knowledge, any director, officer, agent, employee or other person
associated with or acting on behalf of the Company nor any of the
Subsidiaries, has used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expense relating to political
activity; made any unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977; or made any
bribe, rebate, payoff, influence payment, kickback or other unlawful
payment, except for any such actions which could not reasonably be expected
to have a Material Adverse Effect.
(cc) Except as otherwise disclosed in the Final Offering Memorandum,
(i) there has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous
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substances by the Company, any of the Subsidiaries or any of the assets or
operations being acquired in the Acquisitions (or, to the knowledge of the
Company, any of their predecessors in interest) at, upon or from any of the
property now or previously owned or leased (or to be owned or leased
immediately after the Acquisitions) by the Company or any of the
Subsidiaries in violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or which would require
remedial action under any applicable law, ordinance, rule, regulation,
order, judgment, decree or permit, except for any violation or remedial
action which would not have, or could not be reasonably likely to have,
individually or in the aggregate with all such violations and remedial
actions, a Material Adverse Effect; and (ii) there has been no material
spill, discharge, leak, emission, injection, escape, dumping or release of
any kind onto such property or into the environment surrounding such
property of any toxic wastes, medical wastes, solid wastes, hazardous
wastes or hazardous substances due to or caused by the Company or any of
the Subsidiaries or any of the assets or operations being acquired in the
Acquisitions or with respect to which the Company or any of the
Subsidiaries have knowledge, except for any such spill, discharge, leak,
emission, injection, escape, dumping or release which would not have or
would not be reasonably likely to have, individually or in the aggregate
with all such spills, discharges, leaks, emissions, injections, escapes,
dumpings and releases, a Material Adverse Effect; and the terms "hazardous
wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall
have the meanings specified in any applicable local, state, federal and
foreign laws or regulations with respect to environmental protection.
(dd) Immediately after the Acquisitions, the fair saleable value of
the assets of the Company and the Subsidiaries will exceed the amount that
will be required to be paid on or in respect of their respective debts and
other liabilities (including, without limitation, contingent liabilities)
as they become absolute and matured. The assets of the Company and the
Subsidiaries immediately after the Acquisitions will not constitute
unreasonably small capital to carry out their businesses as conducted or as
proposed to be conducted. The Company and the Subsidiaries do not intend
to, nor do they believe that they will, incur debts beyond their ability to
pay such debts as they mature. Upon the issuance of the Senior Subordinated
Notes and immediately after the Acquisitions, the present fair saleable
value of the assets of the Company and the Subsidiaries, as the case may
be, will exceed the respective amounts that will be required to be paid on
or in respect of their respective existing debts and other liabilities
(including, without limitation, contingent liabilities) as they become
absolute and matured. The assets of the Company and the Subsidiaries, upon
issuance of the Senior Subordinated Notes and immediately after the
Acquisitions, will not constitute unreasonably small capital to carry out
their respective businesses as now conducted, including, without
limitation, their respective capital needs, taking into account their
respective capital requirements and capital availability.
(ee) Neither the Company nor any of the Subsidiaries is or,
immediately after the transactions contemplated hereby, will be (i) an
"investment company" within the meaning of the Investment Company Act of
1940, as amended, or (ii) a "holding
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company" or a "subsidiary company" or an "affiliate" of a holding company
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
(ff) No securities of the Company of the same class (within the
meaning of Rule 144A(d)(3) under the Securities Act) as the Senior
Subordinated Notes are listed on any national securities exchange
registered under Section 6 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or quoted on an automated inter-dealer
quotation system.
(gg) None of the Company, its affiliates (as defined in Rule 501(b) of
Regulation D under the Securities Act ("Regulation D")) or any person
acting on its behalf has, directly or through any agent (provided that no
representation is made as to the Initial Purchasers or any person acting on
their behalf), (i) sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of any security (as defined in the
Securities Act) that is or will be integrated with the offering and sale of
the Senior Subordinated Notes in a manner that would require the
registration of the Senior Subordinated Notes under the Securities Act or
(ii) engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offering of the
Senior Subordinated Notes.
(hh) Neither the Company nor any of the Subsidiaries has taken, nor
will any of them take, directly or indirectly, any action designed to, or
that could reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Senior Subordinated Notes.
(ii) The Offering Memorandum and each amendment or supplement thereto,
as of its date, contains the information specified in Rule 144A(d)(4) under
the Securities Act.
(jj) None of the Company or any of the Subsidiaries has taken, and
none of them will take, any action that might cause this Agreement or the
issuance or sale of the Notes to violate Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System or analogous foreign laws
and regulations.
(kk) None of the Company, its affiliates or any person acting on its
or their behalf (provided that no representation is made as to the Initial
Purchasers or any person acting on their behalf), has engaged in any
directed selling efforts (as that term is defined in Regulation S under the
Securities Act ("Regulation S")) with respect to the Notes and the Company
and its affiliates and any person acting on its or their behalf (provided
that no representation is made as to the Initial Purchasers or any person
acting on their behalf), have complied with the offering restriction
requirement of Regulation S.
(ll) Upon consummation of the Acquisitions, the Company and each of
the Subsidiaries will (i) make and keep accurate books and records and (ii)
maintain internal accounting controls which provide reasonable assurance
that (A) transactions are executed in accordance with management's specific
authorization, (B) transactions are
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recorded as necessary to permit preparation of their consolidated financial
statements and to maintain accountability for their assets, (C) access to
their assets is permitted only in accordance with management's specific
authorization and (D) the reported accountability for their assets is
compared with existing assets at reasonable intervals.
Section 2. Purchase of the Notes by the Initial Purchaser.
(a) On the basis of the representations and warranties contained in,
and subject to the terms and conditions of, this Agreement, the Company
agrees to sell to the Initial Purchasers and each of the Initial
Purchasers, severally and not jointly, agrees to purchase from the Company,
the principal amount of the Senior Subordinated Notes as set forth opposite
each Initial Purchaser's name on Schedule 1 hereto, at a purchase price
equal to 97% of their principal amount.
(b) The Company shall not be obligated to deliver any of the Senior
Subordinated Notes, except upon payment for all the Senior Subordinated
Notes to be purchased as hereinafter provided.
Section 3. Sale and Resale of the Notes by the Initial Purchasers.
(a) You have advised the Company that you will offer the Senior
Subordinated Notes for resale only upon the terms and conditions set forth
in this Agreement and in the Offering Memorandum. You hereby represent and
warrant to the Company that you (i) are purchasing the Senior Subordinated
Notes pursuant to a private sale exempt from registration under the
Securities Act, (ii) have not solicited and will not solicit offers for, or
offer or sell, the Senior Subordinated Notes by means of any form of
general solicitation or general advertising within the meaning of
Regulation D or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act, and (iii) will solicit
offers for the Senior Subordinated Notes only from, and will offer, sell or
deliver the Senior Subordinated Notes, as part of their initial offering,
only to (A) in the case of offers inside the United States, persons in the
United States whom you reasonably believe to be qualified institutional
buyers ("Qualified Institutional Buyers") as defined in Rule 144A under the
Securities Act, as such rule may be amended from time to time ("Rule
144A"), or, if any such person is buying for one or more institutional
accounts for which such person is acting as fiduciary or agent, only when
such person has represented to you that each such account is a Qualified
Institutional Buyer, to whom notice has been given that such sale or
delivery is being made in reliance on Rule 144A, and (B) to a limited
number of other institutional accredited investors ("Accredited Investors")
as defined in Rule 501(a)(1), (2), (3) or (7) under Regulation D, in the
case of (A) and (B), in transactions under Rule 144A or Regulation D in
private sales exempt from registration under the Securities Act and (C)
outside the United States to persons other than U.S. persons (as defined in
Regulation S) in reliance upon Regulation S.
(b) Each Initial Purchaser represents, warrants and agrees with
respect to offers and sales outside the United States in reliance on
Regulation S that:
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(i) the Senior Subordinated Notes have not been and will not be
registered under the Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S.
persons (as defined in Regulation S) except in accordance with
Regulation S or pursuant to an exemption from the registration
requirements of the Securities Act;
(ii) such Initial Purchaser has offered the Senior Subordinated
Notes and will offer and sell the Senior Subordinated Notes (A) as
part of its distribution at any time and (B) otherwise until 40 days
after the later of the commencement of the offering and the Closing
Date, only in accordance with Rule 903 of Regulation S. Accordingly,
neither such Initial Purchaser, its affiliates nor any persons acting
on its or their behalf have engaged or will engage in any directed
selling efforts (within the meaning of Regulation S) with respect to
the Senior Subordinated Notes, and such Initial Purchaser, its
Affiliates and any such persons have complied and will comply with the
offering restrictions requirement of Regulation S;
(iii) it understands that no action has been or will be taken in
any jurisdiction by the Company that would permit a public offering of
the Senior Subordinated Notes, or possession or distribution of the
Offering Memorandum or any other offering or publicity material
relating to the Senior Subordinated Notes in any country or
jurisdiction where action for that purpose is required;
(iv) it will comply with all applicable laws and regulations in
each jurisdiction in which it acquires, offers, sells or delivers
Senior Subordinated Notes or has in its possession or distributes the
Offering Memorandum or any such other material, in all cases at its
own expense, except, with respect to expenses, as otherwise provided
herein; and
(v) it agrees that, at or prior to confirmation of sales of the
Senior Subordinated Notes, it will have sent to each distributor,
dealer or person receiving a selling concession, fee or other
remuneration that purchases Senior Subordinated Notes from it during
the restricted period a confirmation or notice to substantially the
following effect:
"The Securities covered hereby have not been registered
under the U.S. Securities Act of 1933 (the "Securities Act") and
may not be offered and sold within the United States or to, or
for the account or benefit of, U.S. persons (i) as part of their
distribution at any time or (ii) otherwise until 40 days after
the later of the commencement of the offering and the closing
date, except in either case in accordance with Regulation S (or
Rule 144A if available) under the Securities Act. Terms used
above have the meaning given to them by Regulation S."
Terms used in this Section 3 and not otherwise defined in this Agreement
have the meanings given to them by Regulation S.
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Section 4. Delivery of and Payment for the Notes.
(a) Delivery of and payment for the Senior Subordinated Notes shall be
made at the office of Schulte Roth & Zabel LLP, 900 Third Avenue, New York,
NY, at 9:00 A.M., New York City time, on December 16, 1996 or at such other
date or place as shall be determined by agreement between you and the
Company. This date and time are sometimes referred to as the "Closing
Date."
(b) On the Closing Date, payment shall be made to the Company in
same-day funds by wire transfer to such account or accounts as the Company
shall specify two full business days prior to the Closing Date against
delivery to you of the certificates evidencing the Senior Subordinated
Notes. Upon delivery, the Senior Subordinated Notes shall be registered in
such names and in such denominations as you shall request in writing not
less than two full business days prior to the Closing Date. For the purpose
of expediting the checking and packaging of certificates evidencing the
Senior Subordinated Notes, the Company agrees to make such certificates
available for inspection not later than 10:00 A.M., New York City time, on
the business day prior to the Closing Date.
Section 5. Further Agreements of the Company. The Company agrees:
(a) To furnish to you, without charge, as many copies of the
Preliminary Offering Memorandum and the Final Offering Memorandum and any
supplements and amendments thereto as you may reasonably request.
(b) Prior to making any amendment or supplement to the Offering
Memorandum, the Company shall furnish a copy thereof to you and your
counsel and will not effect any such amendment or supplement to which you
shall reasonably object by notice to the Company after a reasonable period
to review, which shall not in any case be longer than five business days
after receipt of such copy.
(c) If, at any time prior to completion of the distribution of the
Senior Subordinated Notes by you to purchasers, any event shall occur or
condition exist as a result of which it is necessary, in the opinion of
your counsel or counsel for the Company, to amend or supplement the
Offering Memorandum in order that the Offering Memorandum will not include
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in light
of the circumstances existing at the time it is delivered to a purchaser,
or if it is necessary to amend or supplement the Offering Memorandum to
comply with applicable law, to promptly prepare such amendment or
supplement as may be necessary to correct such untrue statement or omission
or so that the Offering Memorandum, as so amended or supplemented, will
comply with applicable law and to furnish you such number of copies as you
may reasonably request.
(d) So long as any Senior Subordinated Notes are outstanding and are
"Restricted Securities" within the meaning of Rule 144(a)(3) under the
Securities Act, to furnish to holders of the Senior
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Subordinated Notes and prospective purchasers of Senior Subordinated Notes
designated by such holders, upon request of such holders or such
prospective purchasers, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
(e) For a period of five years following the Closing Date, to furnish
to you copies of any annual reports, quarterly reports and current reports
filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other
similar forms as may be designated by the Commission, and such other
documents, reports and information as shall be furnished by the Company to
the Trustee or to the holders of the Notes pursuant to the Indenture.
(f) To use its reasonable best efforts to qualify the Senior
Subordinated Notes for sale under the securities or Blue Sky laws of such
jurisdictions as you reasonably designate and to continue such
qualifications in effect so long as required for the distribution of the
Senior Subordinated Notes. The Company will also arrange for the
determination of the eligibility for investment of the Senior Subordinated
Notes under the laws of such jurisdictions as you may reasonably request.
Notwithstanding the foregoing, the Company shall not be obligated to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified or to file a general consent to service of process in any
jurisdiction.
(g) To use its best efforts to permit the Senior Subordinated Notes to
be designated Private Offerings, Resales and Trading through Automated
Linkages Market ("PORTAL") securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers, Inc.
relating to trading in the PORTAL Market and to permit the Senior
Subordinated Notes to be eligible for clearance and settlement through the
Depository Trust Company (the "DTC").
(h) Not to, and will cause its affiliates not to, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in the Securities Act) which could be integrated with the sale
of the Senior Subordinated Notes in a manner which would require the
registration under the Securities Act of the Senior Subordinated Notes.
(i) Except following the effectiveness of the Registration Statement
(as defined in the Registration Rights Agreement), not to, and will cause
its affiliates not to, solicit any offer to buy or offer to sell the Senior
Subordinated Notes by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities
Act) or in any manner involving a public offering within the meaning of
Section 4(2) of the Securities Act.
(j) To apply the net proceeds from the sale of the Senior Subordinated
Notes as set forth in the Offering Memorandum.
(k) To use its best efforts to ensure that neither the Company nor any
of the Subsidiaries shall become an "investment company" within the meaning
of such term
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under the Investment Company Act and the rules and regulations of the
Commission thereunder.
Section 6. Payment of Expenses. The Company agrees to pay (a) the costs in
connection with the authorization, issuance, sale and delivery of the Notes and
any taxes payable in that connection, (b) the costs incident to the preparation
and printing of the Offering Memorandum and any amendments or supplements
thereto, (c) the costs of distributing the Preliminary Offering Memorandum and
the Final Offering Memorandum and any amendments or supplements thereto, (d) the
costs incident to the preparation, printing and delivery of any certificates
representing the Notes, including stamp duties and stock transfer taxes, if any,
payable upon issuance of any of the Notes, (e) the fees and disbursements of the
Company's counsel and accountants, (f) any fees charged by rating agencies for
rating the Notes, (g) the fees and expenses of qualifying the Notes under
securities laws of the several jurisdictions as provided in Section 5(f) and of
preparing, printing and distributing a Blue Sky memorandum (including any
related fees and expenses of Willkie Farr & Gallagher, counsel to the Initial
Purchasers, in connection with such qualification or memorandum), (h) the fees
and expenses of the Trustee and any agent of the Trustee and the fees and
disbursements of any counsel for the Trustee in connection with the Indenture
and the Notes; (i) the costs and expenses of DTC and its nominee, including its
book-entry system; (j) all expenses and listing fees incurred in connection with
the application for quotation of the Senior Subordinated Notes on the PORTAL
Market, and (k) all other costs and expenses incident to the performance of the
Company's obligations hereunder which are not otherwise specifically provided
for in this Section; provided, however that except as otherwise provided in this
Section 6 and Section 10 hereof the Initial Purchasers shall pay their own costs
and expenses, including the costs and expenses of their counsel.
Section 7. Conditions of Initial Purchasers' Obligations. The respective
obligations of the Initial Purchasers hereunder are subject to each of the
following terms and conditions:
(a) No Initial Purchaser shall have discovered and disclosed to the
Company on or prior to such Closing Date that the Preliminary Offering
Memorandum or the Final Offering Memorandum or any amendment or supplement
thereto contains an untrue statement of a fact which, in the opinion of
Willkie Farr & Gallagher, counsel for the Initial Purchasers, is material
or omits to state a fact which, in the opinion of such counsel, is material
and is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) All of the representations and warranties of the Company contained
in this Agreement shall be true and correct on the date hereof and on the
Closing Date with the same force and effect as if made on and as of the
date hereof and the Closing Date, respectively. The Company shall have
performed or complied with all of the agreements herein contained and
required to be performed or complied with by it at or prior to the Closing
Date.
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(c) The Offering Memorandum shall have been printed and copies
distributed to the Initial Purchasers not later than 10:00 a.m., New York
City time, on the day following the date of this Agreement or at such later
date and time as to which the Initial Purchasers may agree, and no stop
order suspending the qualification or exemption from qualification of the
Senior Subordinated Notes in any jurisdiction referred to in Section 5(f)
shall have been issued and no proceeding for that purpose shall have been
commenced or shall be pending or threatened.
(d) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental
agency which would, as of the Closing Date, have a Material Adverse Effect;
no action, suit or proceeding shall have been commenced and be pending
against or affecting or, to the best knowledge of the Company, threatened
against, the Company or any of the Subsidiaries or any of the assets or
operations to be acquired in the Acquisitions before any court or
arbitrator or any governmental body, agency or official that, if adversely
determined, could reasonably be expected to result in a Material Adverse
Effect; and no stop order shall have been issued by the Commission or any
governmental agency of any jurisdiction referred to in Section 5(f)
preventing the use of the Offering Memorandum, or any amendment or
supplement thereto, or which could reasonably be expected to have a
Material Adverse Effect.
(e) Since the dates as of which information is given in the Offering
Memorandum and other than as set forth in the Offering Memorandum, (i)
there shall not have been any Material Adverse Change, or any development
that is reasonably likely to result in a Material Adverse Change, or any
material change in the long-term debt, or material increase in the
short-term debt of the Company and the Subsidiaries, from that set forth or
described in the Offering Memorandum; (ii) no dividend or distribution of
any kind shall have been declared, paid or made by the Company on any class
of its capital stock; (iii) the Company, the Subsidiaries or any of the
assets or operations to be acquired in the Acquisitions shall not have
incurred any liabilities or obligations, direct or contingent for which the
Company or any Subsidiary may be liable, that are, or would be, material,
individually or in the aggregate, to the Company and its Subsidiaries,
taken as a whole, and that are, or would be, required to be disclosed on a
balance sheet or notes thereto in accordance with generally accepted
accounting principles and are not disclosed on the latest applicable
balance sheets or notes thereto included in the Offering Memorandum.
(f) The Initial Purchasers shall have received a certificate, dated
the Closing Date, signed on behalf of the Company by (i) Jeffrey H.
Brennan, Chief Executive Officer, and (ii) Richard Fritsche, Chief
Financial Officer, confirming that (A) such officers have participated in
conferences with other officers and representatives of the Company and
Subsidiaries, representatives of the independent public accountants of the
Company and representatives of counsel to the Company at which the contents
of the Offering Memorandum and related matters were discussed and (B) the
matters set forth in
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paragraphs (b), (c), (d) and (e) of this Section 7 are true and correct as
of the Closing Date.
(g) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Notes, the
Indenture, the Registration Rights Agreement, the Offering Memorandum, the
Bank Credit Facility, the Acquisition Agreements and all other legal
matters relating to this Agreement and the transactions contemplated
hereby, shall be satisfactory in all material respects to counsel for the
Initial Purchaser, and the Company shall have furnished to such counsel all
documents and information that they may reasonably request to enable them
to pass upon such matters.
(h)(1) Schulte Roth & Zabel LLP, special counsel for the Company,
shall have furnished to the Initial Purchasers its written opinion, as
counsel to the Company, addressed to the Initial Purchasers and dated the
Closing Date, in form and substance reasonably satisfactory to the Initial
Purchaser, to the effect that:
(i) Each of the Company and each of the Subsidiaries is and,
immediately after the Acquisitions, will be, validly existing and in
good standing under the laws of its jurisdiction of incorporation ,
and is and immediately after the Acquisitions, will be qualified to do
business and in good standing as a foreign corporation in each
jurisidiction which its ownership or leasing of property or the
conduct of its business requires such qualification (except where the
failure to be so qualified and in good standing would not have a
Material Adverse Effect), and has and, immediately after the
Acquisitions, will have corporate power and authority to own its
properties and conduct its business;
(ii) Assuming that the Senior Subordinated Notes are issued, sold
and delivered under the circumstances contemplated by the Final
Offering Memorandum, that the representations and warranties of the
Initial Purchasers contained in Section 3 hereof are true, correct and
complete and that the Company and Initial Purchasers comply with their
respective covenants in Sections 3 and 5 hereof, (A) registration
under the Securities Act of the Senior Subordinated Notes or
qualification of the Indenture under the Trust Indenture Act is not
required in connection with the offer and sale of the Senior
Subordinated Notes to the Initial Purchasers in the manner
contemplated by the Final Offering Memorandum and this Agreement, and
(B) initial resales of the Senior Subordinated Notes by the Initial
Purchasers on the terms and in the manner set forth in the Final
Offering Memorandum and Section 3 hereof are exempt from the
registration requirements of the Securities Act, it being understood,
however, that such counsel need not express any opinion as to any
subsequent resales of the Notes;
(iii) The Company has the corporate power and authority to
execute and deliver, and to consummate the transactions contemplated
by, this
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Agreement; the Company has the corporate power and authority to issue,
sell and deliver the Senior Subordinated Notes as contemplated by this
Agreement;
(iv) The execution and delivery of this Agreement have been duly
authorized by all requisite corporate action of the Company, and this
Agreement has been duly executed and delivered by the Company;
(v) The execution and delivery of the Indenture have been duly
authorized by all requisite corporate action of the Company; and the
Indenture has been duly executed and delivered by the Company, and
assuming due authorization, execution and delivery by the Trustee, is
a legal, valid and binding agreement of the Company, enforceable
against it in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally and to general equitable principles (whether
considered in a proceeding in equity or at law) and except that the
remedy of specific performance and other forms of equitable relief may
be subject to certain equitable defenses and to the discretion of the
court before which such proceedings may be brought;
(vi) The execution and delivery of the Senior Subordinated Notes
have been duly authorized by all requisite corporate action of the
Company; and the Senior Subordinated Notes have been duly executed and
delivered by the Company and, assuming due execution, authentication
by the Trustee, issuance and delivery as provided in the Indenture and
payment therefor as provided herein, are legal, valid and binding
obligations of the Company, entitled to the benefits of the Indenture,
enforceable against the Company in accordance with their terms,
subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating
to or affecting creditors' rights generally and to general equitable
principles (whether considered in a proceeding in equity or at law)
and except that the remedy of specific performance and other forms of
equitable relief may be subject to certain equitable defenses and to
the discretion of the court before which such proceedings may be
brought;
(vii) The execution and delivery of the New Senior Subordinated
Notes have been duly authorized by all requisite corporate action of
the Company; and, when duly executed and delivered by the Company and
duly authenticated by the Trustee, will be legal, valid and binding
obligations of the Company, entitled to the benefits of the Indenture,
enforceable against the Company in accordance with their terms,
subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating
to or affecting creditors' rights generally and to general equitable
principles (whether considered in a proceeding in equity or at law)
and except that the remedy of specific performance and other forms of
equitable relief may be subject to certain
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equitable defenses and to the discretion of the court before which
such proceedings may be brought;
(viii) The execution and delivery of the Registration Rights
Agreement have been duly authorized by all requisite corporate action
of the Company; the Registration Rights Agreement has been duly
executed and delivered by the Company and, assuming due authorization,
execution and delivery by the Initial Purchasers, the Registration
Rights Agreement (other than the indemnification and contribution
provisions thereof, as to which such counsel need express no opinion)
is a legal, valid and binding agreement of the Company, enforceable
against it in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally and to general equitable principles (whether
considered in a proceeding in equity or at law) and except that the
remedy of specific performance and other forms of equitable relief may
be subject to certain equitable defenses and to the discretion of the
court before which such proceedings may be brought;
(ix) The execution and delivery of the Bank Credit Facility have
been duly authorized by all requisite corporate action of the Company;
and the Bank Credit Facility has been duly executed and delivered by
the Company and, assuming the due authorization, execution and
delivery by the parties thereto other than the Company, is a legal,
valid and binding agreement of the Company, enforceable against it in
accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights
generally and to general equitable principles (whether considered in a
proceeding in equity or at law);
(x) The authorized capital stock of the Company is as set forth
under the caption "Capitalization" in the Offering Memorandum, and all
of the issued shares of capital stock of the Company have been duly
and validly authorized and issued, are fully paid and non-assessable;
all of the outstanding shares of capital stock of each Subsidiary,
have been duly authorized and validly issued, are fully paid and
nonassessable, and are or, upon consummation of the Acquisitions, will
be held of record by the Company free and clear, to the knowledge of
such counsel, of any adverse claim other than those arising from the
Bank Credit Facility; and, to the knowledge of such counsel, there are
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, any shares of capital stock of
any of the Subsidiaries;
(xi) The execution and delivery by the Company of this Agreement,
the Indenture, the Registration Rights Agreement, the Bank Credit
Facility and the Acquisition Agreements, the consummation by the
Company of the transactions contemplated hereby and thereby (including
the Acquisitions), and the issuance and sale of the Notes by the
Company will not (A) to the knowledge of such
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counsel, conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan or credit agreement, or other
agreement or instrument known to such counsel to which the Company or
any of the Subsidiaries is or, immediately after the Acquisitions,
will be a party or by which the Company or any of the Subsidiaries or
any of their property are or, immediately after the Acquisitions, will
be subject, which conflict, breach, violation or default has had or
would reasonably be expected to have a Material Adverse Effect, or (B)
result in any violation of the provisions of the charter or bylaws of
the Company or any of the Subsidiaries or, (C) to the knowledge of
such counsel, result in any violation of the provisions of any federal
or state statute, or any order, rule or regulation of any federal or
state court or governmental agency or body having jurisdiction over
the Company or any of the Subsidiaries or any of their properties or
assets, which violation has had or would reasonably be expected to
have a Material Adverse Effect; and, except for such consents,
approvals, authorizations, registrations or qualifications as may be
required under applicable state and foreign jurisdiction securities
laws in connection with the purchase and distribution of the Senior
Subordinated Notes by the Initial Purchasers and as set forth in the
Registration Rights Agreement, no consent, approval, authorization or
order of, or filing or registration with, any federal or state court
or governmental agency or body having jurisdiction over the Company or
any of the Subsidiaries or any of their properties or assets, is
required in connection with the execution and delivery by the Company
of this Agreement, the Indenture, the Registration Rights Agreement,
the Bank Credit Facility and the Acquisition Agreements, the
consummation by the Company of the transactions contemplated hereby
and thereby, and the issuance and sale of the Notes by the Company
which has not been obtained or made other than those which if not
obtained or made would not reasonably be expected to have a Material
Adverse Effect;
(xii) The descriptions of this Agreement, the Indenture, the
Notes, the Registration Rights Agreement, the Bank Credit Facility and
the Acquisition Agreements in the Offering Memorandum conform, as
applicable, in all material respects to the terms thereof;
(xiii) To the knowledge of such counsel and except as set forth
or referred to in the Offering Memorandum, no legal or governmental
proceedings are pending or threatened to which the Company or any of
the Subsidiaries is or, immediately after the Acquisitions, will be a
party or of which any property or assets of the Company or any of the
Subsidiaries is or, immediately after the Acquisitions, will be the
subject that, if determined adversely to the Company or any of the
Subsidiaries, would reasonably be expected to have a Material Adverse
Effect;
(xiv) Neither the Company nor any of the Subsidiaries is, or
immediately after the transactions contemplated hereby, will be (i) an
"investment
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company" within the meaning of the Investment Company Act of 1940, as
amended, or (ii) a "holding company" or a "subsidiary company" nor, to
the knowledge of such counsel, an "affiliate" of a holding company
within the meaning of the Public Utility Holding Company Act of 1935,
as amended;
(xv) No securities of the Company of the same class (within the
meaning of Rule 144A(d)(3) under the Securities Act) as the Senior
Subordinated Notes are listed on any national securities exchange
registered under Section 6 of the Exchange Act or quoted on an
automated inter-dealer quotation system; and
(xvi) The issuance or sale of the Senior Subordinated Notes and
the application by the Company of the net proceeds thereof as set
forth in the Offering Memorandum will not violate Regulation G, T, U
or X of the Board of Governors of the Federal Reserve System.
In addition, such counsel shall state that it acted as counsel to the
Company in connection with the Acquisitions and has participated in
conferences with officers and other representatives of the Company and
representatives of the sellers named in the Acquisition Agreements,
representatives of the independent public accountants of the Company and
the sellers named in the Acquisition Agreements, representatives of the
Initial Purchasers and representatives of counsel for the Initial
Purchasers at which the contents of the Offering Memorandum and related
matters were discussed and, although such counsel has not undertaken to
investigate or verify independently, and does not assume any responsibility
for, the accuracy, completeness or fairness of the statements contained in
the Offering Memorandum, on the basis of the foregoing no information has
come to the attention of such counsel that causes such counsel to believe
that the Offering Memorandum (except as to financial statements, including
the notes thereto and other financial and accounting data included therein
or omitted therefrom, as to which no belief need be expressed), as of its
date or the Closing Date, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the federal laws of the United States of
America, the General Corporation Law of the State of Delaware and the laws
of the State of New York. In rendering their opinion as aforesaid, counsel
may rely upon an opinion or opinions, each dated the Closing Date, of
Morgan, Lewis & Bockius with respect to matters concerning Federal
antitrust law, provided that (1) such reliance is expressly authorized by
the opinion of Morgan Lewis & Bockius so relied upon and a copy of such
opinion is delivered to the Initial Purchasers and is, in form and
substance, satisfactory to them and their counsel, and (2) counsel shall
state in their opinion that they believe that they and the Initial
Purchasers are justified in relying thereon.
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(h)(2) Darby & Darby, intellectual property counsel for the Company,
shall have furnished to the Initial Purchasers its written opinion, as
intellectual property counsel to the Company, addressed to the Initial
Purchasers and dated the Closing Date, in form and substance reasonably
satisfactory to the Initial Purchaser, to the effect that to the best of
such counsel's knowledge and other than as set forth in the Offering
Memorandum, upon consummation of the Acquisitions, the Company and each of
the Subsidiaries will own or possess all material patents, patent
applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights and licenses
necessary for the conduct of their respective businesses, as described in
the Offering Memorandum and have no reason to believe that the conduct of
their respective businesses will conflict with, and have not received any
notice of any claim of conflict with, any such rights of others which if
determined adversely to the Company would reasonably be expected to have a
Material Adverse Effect.
(h)(3) If the Initial Purchasers so request, the Initial Purchasers
shall have received a legal opinion as to certain matters relating to
Pulidos de Juarez, S.A. de C.V. from Bryan Gonzalez Vargas y Gonzalez Baz,
S.C., in form and substance reasonably satisfactory to the Initial
Purchasers.
(i) Willkie Farr & Gallagher shall have furnished to the Initial
Purchasers their written opinion, as counsel to the Initial Purchasers and
dated the Closing Date, in form and substance satisfactory to the Initial
Purchasers.
(j) With respect to the letters of Arthur Andersen LLP delivered to
the Initial Purchasers concurrently with the execution of this Agreement
(the "initial letters"), the Company shall have furnished to the Initial
Purchasers the letters (as used in this paragraph, the "bring-down
letters") of such accountant, addressed to the Initial Purchasers and dated
such Closing Date (i) confirming that they are independent public
accountants under the guidelines of the American Institute of Certified
Public Accountants, (ii) stating, as of the date of the bring-down letters
(or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in
the Offering Memorandum, as of a date not more than two days prior to the
date of the bring-down letter), the conclusions and findings of such firm
with respect to the financial information and other matters covered by the
initial letters and (iii) confirming in all material respects the
conclusions and findings set forth in the initial letter.
(k) The Company and the Trustee shall have entered into the Indenture
and the Initial Purchasers shall have received counterparts, conformed as
executed, thereof.
(l) The Company and the Initial Purchasers shall have entered into the
Registration Rights Agreement and the Initial Purchasers shall have
received counterparts, conformed as executed, thereof.
(m) The Company and each other party thereto shall have entered into
the Bank Credit Facility (the form and substance of which shall be
reasonably acceptable to
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the Initial Purchasers) and the Initial Purchasers shall have received
counterparts, conformed as executed, thereof and of all other documents and
agreements entered into in connection therewith and there shall be no
default or event of default thereunder. On the Closing Date the Bank Credit
Facility shall be in full force and effect.
(n) The Company and each other party thereto shall have entered into
the Acquisition Agreements (the form and substance of which shall be
reasonably acceptable to the Initial Purchaser) and the Initial Purchasers
shall have received counterparts, conformed as executed, thereof and of all
other documents and agreements entered into in connection therewith and all
of the conditions to the obligations of the parties to the Acquisition
Agreements other than payment of the purchase prices thereunder shall have
been satisfied or waived.
(o) The consummation of the Acquisitions shall have occurred
concurrently with the purchase and sale hereunder.
(p) (i) None of the Company, any of the Subsidiaries or any of the
assets or operations being acquired in the Acquisitions shall have
sustained since the date of the latest audited financial statements of the
class ring business of CJC Holdings, Inc. and L.G. Balfour Company, Inc.
included in the Offering Memorandum losses or interferences with their
businesses, taken as a whole, from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Offering Memorandum or (ii) since such date there
shall not have been any change in the capital stock or long-term debt of
the Company or any of the Subsidiaries or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and the Subsidiaries, taken as a whole, otherwise
than as set forth or contemplated in the Offering Memorandum, the effect of
which, in any such case described in clause (i) or (ii), is, in the
reasonable judgment of the Initial Purchasers, so material and adverse as
to make it impracticable or inadvisable to proceed with the offering or the
delivery of the Senior Subordinated Notes being delivered on the Closing
Date on the terms and in the manner contemplated herein and in the Offering
Memorandum.
(q) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or The Nasdaq Stock Market's
National Market or in the over-the-counter market shall have been suspended
or materially limited, or minimum prices shall have been established on
such exchange by the Commission, or by such exchange or by any other
regulatory body or governmental authority having jurisdiction, (ii) a
banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have occurred
such a material adverse
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<PAGE>
change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the United
States shall be such) as to make it, in the reasonable judgment of a
majority in interest of the Initial Purchasers, impracticable or
inadvisable to proceed with the offering or delivery of the Senior
Subordinated Notes being delivered on the Closing Date on the terms and in
the manner contemplated herein and in the Offering Memorandum.
(r) Subsequent to the execution and delivery of this Agreement, (i) no
downgrading shall have occurred in the rating accorded the Senior
Subordinated Notes by a nationally recognized statistical rating
organization, as that term is defined by the Commission for purposes of
Rule 436(g)(2) under the Securities Act, and (ii) no such organization
shall have publicly announced that it has under surveillance or review,
with possible negative implications, its rating of any of the Company's
debt securities.
(s) Willkie Farr & Gallagher shall have been furnished with such
documents, in addition to those set forth above, as they may reasonably
require for the purpose of enabling them to review or pass upon the matters
referred to in this Section 7 and in order to evidence the accuracy,
completeness or satisfaction in all material respects of any of the
representations, warranties or conditions herein contained.
(t) Prior to the Closing Date, the Company shall have furnished to the
Initial Purchasers such further information, certificates and documents as
the Initial Purchasers may reasonably request.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchasers.
Section 8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Initial
Purchaser and each person, if any, who controls any Initial Purchaser
within the meaning of the Securities Act, and each director, officer,
employee or agent of such Initial Purchaser or such controlling person,
from and against any loss, claim, damage or liability, joint or several, or
any action in respect thereof (including, but not limited to, any loss,
claim, damage, liability or action relating to purchases and sales of
Senior Subordinated Notes), to which that Initial Purchaser or controlling
person may become subject, under the Securities Act or otherwise, insofar
as such loss, claim, damage, liability or action arises out of, or is based
upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Offering Memorandum or Final Offering
Memorandum or in any amendment or supplement thereto, (ii) the omission or
alleged omission to state in any Preliminary Offering Memorandum or Final
Offering Memorandum or in any amendment or supplement thereto any material
fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any act or failure to act or any alleged
act or failure to act by any Initial Purchaser in connection with, or
relating in any manner to, the Notes or the offering contemplated
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hereby, and which is included as part of or referred to in any loss, claim,
damage, liability or action arising out of or based upon matters covered by
clause (i) or (ii) above (provided that the Company shall not be liable
under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim,
damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Initial Purchaser
through its negligence or willful misconduct), and shall reimburse each
Initial Purchaser and each such controlling person promptly upon demand for
any legal or other expenses reasonably incurred by that Initial Purchaser
or controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of, or is based upon, any
untrue statement or alleged untrue statement or omission or alleged
omission made in the Preliminary Offering Memorandum or Final Offering
Memorandum or in any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of any Initial Purchaser specifically for inclusion therein; and
provided further that with respect to any such untrue statement or omission
made in the Preliminary Offering Memorandum, the indemnity agreement
contained in this Section 8(a) shall not inure to the benefit of any such
Initial Purchaser which sold the Senior Subordinated Notes to the person
asserting any such loss, claim, damage, liability or action, to the extent
that such sale was an initial resale by such Initial Purchaser and any such
loss, claim, damage, liability or action of such Initial Purchaser is
demonstrated by the Company to be a result of the fact that both (i) to the
extent required by applicable law, a copy of the Final Offering Memorandum
was not sent or given to such person at, prior or promptly following the
written confirmation of the sale of such Senior Subordinated Notes to such
person, and (ii) the untrue statement or omission in the Preliminary
Offering Memorandum was corrected in the Final Offering Memorandum unless,
in either case, such failure to deliver the Final Offering Memorandum was a
result of non-compliance by the Company with Section 5(c) hereof. The
foregoing indemnity agreement is in addition to any liability which the
Company may otherwise have to any Initial Purchaser or to any controlling
person of that Initial Purchaser.
(b) Each Initial Purchaser, severally and not jointly, shall indemnify
and hold harmless the Company and each of its directors and officers
(including, without limitation, each person who was an officer or director
prior to consummation of the Acquisitions or who is appointed or elected a
director or officer of the Company upon consummation of the Acquisitions)
and each person, if any, who controls the Company within the meaning of the
Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof, to which the Company or
any such director, officer or controlling person may become subject, under
the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Offering Memorandum or Final Offering Memorandum or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state
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in any Preliminary Offering Memorandum or Final Offering Memorandum, or any
amendment or supplement thereto any material fact required to be stated
therein or necessary to make the statements therein not misleading, but in
each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of that Initial Purchaser specifically for inclusion therein, and
shall reimburse the Company and any such director, officer or controlling
person for any legal or other expenses reasonably incurred by the Company
or any such director, officer or controlling person in connection with
investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred. The
foregoing indemnity agreement is in addition to any liability which any
Initial Purchaser may otherwise have to the Company or any such director,
officer or controlling person.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however,
that the failure to notify the indemnifying party shall not relieve it from
any liability which it may have under this Section 8 except to the extent
it has been materially prejudiced by such failure and, provided further,
that the failure to notify the indemnifying party pursuant to this Section
8 shall not relieve it from any liability which it may have to an
indemnified party otherwise than under this Section 8. If any such claim or
action shall be brought against an indemnified party, and it shall notify
the indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any
other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice
from the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying party shall
not be liable to the indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that any indemnified party shall have the
right to employ separate counsel in any such action and to participate in
the defense thereof but the fees and expenses of such counsel shall be at
the expense of such indemnified party unless (i) the employment thereof has
been specifically authorized by the indemnifying party in writing, (ii)
such indemnified party shall have been advised by such counsel that there
may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party and in the
reasonable judgment of such counsel it is advisable for such indemnified
party to employ separate counsel or (iii) the indemnifying party has failed
to reasonably and promptly assume the defense of such action and employ
counsel reasonably satisfactory to the indemnified party, in which case, if
such indemnified party notifies the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying party,
the indemnifying party shall not have the right to assume the defense of
such action on behalf of such indemnified party, it being understood,
however, that the
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indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate
firm of attorneys (in addition to no more than one local counsel) at any
time for all such indemnified parties, which firm shall be designated in
writing by the Initial Purchasers, if the indemnified parties under this
Section 8 consist of the Initial Purchasers or any of their respective
controlling persons, or by the Company if the indemnified parties under
this Section 8 consist of the Company or any of their respective directors,
officers or controlling persons. No indemnifying party shall be liable for
any settlement of any such action effected without its written consent, but
if settled with its written consent or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees to indemnify
and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment. No indemnifying party
shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which
any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from
all liability on claims that are subject matter of such proceeding.
(d) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a) or 8(b) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein,
then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate
to reflect the relative benefits received by the Company on the one hand
and the Initial Purchasers on the other from the offering of the Senior
Subordinated Notes or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the Initial
Purchasers on the other with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Initial
Purchasers on the other with respect to such offering shall be deemed to be
in the same proportion as the total net proceeds from the offering of the
Senior Subordinated Notes purchased under this Agreement (before deducting
expenses) received by the Company, on the one hand, and the total discounts
and commissions received by the Initial Purchasers with respect to the
Senior Subordinated Notes purchased under this Agreement, on the other
hand, bear to the total gross proceeds from the offering of the Senior
Subordinated Notes under this Agreement, in each case as set forth in the
table on the cover page of the Final Offering Memorandum. The relative
fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company, on
the one hand, or the
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Initial Purchasers, on the other hand, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Initial Purchasers
agree that it would not be just and equitable if contributions pursuant to
this Section 8(d) were to be determined by pro rata allocation or by any
other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 8(d) shall be
deemed to include, for purposes of this Section 8(d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), no Initial Purchaser shall be required to
contribute any amount in excess of the amount by which the total discounts
and commissions with respect to the Senior Subordinated Notes purchased by
it and distributed to the public was offered to the public exceeds the
amount of any damages which such Initial Purchaser has otherwise paid or
become liable to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11 of the Securities Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
(e) The Initial Purchasers severally confirm that the statements with
respect to the offering of the Notes set forth on the cover page of, and
under the caption "Plan of Distribution" in, the Offering Memorandum are
correct and constitute the only information furnished in writing to the
Company by or on behalf of the Initial Purchasers specifically for
inclusion, in the Offering Memorandum.
Section 9. Termination. The obligations of the Initial Purchasers hereunder
may be terminated by the Initial Purchasers by notice given to and received by
SBI prior to delivery of and payment for the Senior Subordinated Notes if, prior
to that time, any of the events described in Sections 7(e), 7(p) or (q) shall
have occurred or if the Initial Purchasers shall decline to purchase the Senior
Subordinated Notes for any reason permitted under this Agreement.
Section 10. Reimbursement of Initial Purchasers' Expenses. If (a) the
Company shall fail to tender the Senior Subordinated Notes for delivery to the
Initial Purchasers otherwise than for any reason permitted under this Agreement
or (b) the Initial Purchasers shall decline to purchase the Senior Subordinated
Notes for any reason permitted under this Agreement (other than termination of
this Agreement pursuant to Section 7(q), but including termination of this
Agreement pursuant to Section 9 as a result of events described in Section 7(e)
or 7(p)), the Company shall reimburse the Initial Purchasers for the reasonable
fees and expenses of its counsel and for such other out-of-pocket expenses as
shall have been incurred by them in connection with this Agreement and the
proposed purchase of the Senior Subordinated Notes, and upon demand the Company
shall pay the full amount thereof to the Initial Purchasers.
Section 11. Notices. All statements, requests, notices and agreements
hereunder shall be in writing, and:
-30-
<PAGE>
(a) if to the Initial Purchasers, shall be delivered or sent by mail,
telex or facsimile transmission c/o Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate Department
(Fax: 212-528-8822), with a copy to Willkie Farr & Gallagher, 153 E. 53rd
Street, New York, New York 10022, Attention: John S. D'Alimonte (Fax:
212-821-8111).
(b) if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the Final
Offering Memorandum, Attention: Jeffrey H. Brennan (Fax: 512-443-5213) and
David B. Pittaway (Fax: 212-207-8042), with a copy to Schulte Roth & Zabel
LLP, 900 Third Avenue, New York, New York 10022, Attention: Janet C. Walden
(Fax: 212-593- 5955).
Any such statements, requests, notices or agreements shall take effect at
the time of receipt thereof. The Company shall be entitled to act and rely upon
any request, consent, notice or agreement given or made on behalf of the Initial
Purchasers.
Section 12. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Initial Purchasers, the Company
and their respective successors. This Agreement and the terms and provisions
hereof are for the sole benefit of only those persons, except that (a) the
representations, warranties, indemnities and agreements of the Company contained
in this Agreement shall also be deemed to be for the benefit of the person or
persons, if any, who control the Initial Purchasers within the meaning of
Section 15 of the Securities Act and each director, officer, employee or agent
of the Initial Purchasers and (b) the indemnity agreement of the Initial
Purchasers contained in Section 8(b) of this Agreement shall be deemed to be for
the benefit of directors of the Company, officers of the Company and any person
controlling the Company within the meaning of Section 15 of the Securities Act.
Nothing in this Agreement is intended or shall be construed to give any person,
other than the persons referred to in this Section 12, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
contained herein.
Section 13. Survival. The respective indemnities, representations,
warranties and agreements of the Company and the Initial Purchasers contained in
this Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Senior Subordinated
Notes and shall remain in full force and effect, regardless of any investigation
made by or on behalf of any of them or any person controlling any of them.
Section 14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
the principles of conflicts of laws thereof.
Section 15. Definition of Terms. For purposes of this Agreement and except
as otherwise defined herein, (a) "business day" means any day on which the New
York Stock Exchange, Inc. is open for trading, and (b) "subsidiary" has the
meaning set forth in Rule 405 under the Securities Act.
-31-
<PAGE>
Section 16. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
Section 17. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
[Signature page follows on next page]
-32-
<PAGE>
If the foregoing correctly sets forth the agreement between the Company and
the Initial Purchasers, please indicate your acceptance in the space provided
for that purpose below.
Very truly yours,
SCHOLASTIC BRANDS, INC.
By: /s/ David B. Pittaway
------------------------
Name: David B. Pittaway
Title: President
Accepted:
LEHMAN BROTHERS INC.
By: /s/ Robert D. Redmond
------------------------
Name: Robert D. Redmond
Title: Managing Director
BT SECURITIES CORPORATION
By: /s/ Amelia Silver
------------------------
Name: Amelia Silver
Title: Vice President
-33-
<PAGE>
Schedule 1
Principal Amount of Notes to
Initial Purchaser be Purchased
- - ----------------- ------------
Lehman Brothers Inc. $ 63,000,000
BT Securities Corporation $ 27,000,000
-------------
$ 90,000,000
=============
<PAGE>
Exhibit A
Registration Rights Agreement
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of this 16th
day of December, 1996, by and between COMMEMORATIVE BRANDS, INC. and any
successors thereto (collectively referred to as the "Company") and JEFFREY H.
BRENNAN ("Executive").
The parties hereby agree as follows:
1. Employment. Executive will serve the Company in an executive capacity as
Chief Executive Officer and will perform, faithfully and diligently, the
services and functions performed and will carry out the functions of his office
and furnish his best advice, information, judgment and knowledge with respect to
the business of the Company. Executive agrees to perform such duties as
hereinabove described and to devote full-time attention and energy to the
business of the Company. Executive will not, during the term of employment under
this Agreement, engage in any other business activity if such business activity
would impair Executive's ability to carry out his duties under this Agreement.
2. Term. This Agreement shall be effective upon the consummation of the
acquisition by the Company of substantially all of the assets and businesses of
CJC Holdings, Inc. and L.G. Balfour Company Inc. on December 16, 1996, and shall
thereafter terminate on December 15, 2000; provided that the term of this
Agreement may be automatically extended for an additional year on December 15,
2000 and each anniversary of December 15, 2000, unless at least 60 days prior to
December 15, 2000 or such anniversary date, the Company shall give notice to the
Executive that the termination date shall not be so extended.
3. Compensation and Other Benefits.
3.1 Salary. The salary compensation to be paid by the Company to Executive
and which Executive agrees to accept from the Company for services performed and
to be performed by Executive hereunder shall be an annual gross amount, before
applicable withholding and other payroll deductions, of $190,000, payable in
equal bi-weekly installments of $7,307.69, subject to such changes as the Board
of Directors of the Company may, in its sole discretion, from time to determine.
3.2 Benefits. Executive shall be entitled to participate in such employee
benefit programs, plans and policies (including incentive bonus plans and
incentive stock option plans) as are maintained by the Company and as may be
established for the employees of the Company from time to time on the same basis
as other executive employees are entitled thereto. It is understood that the
establishment, termination or change in any such Executive employee benefit
programs, plans or policies shall be at the instance of the Company in the
exercise of its sole discretion, from time to time, and any such termination or
change in such program, plan or policy will not affect this Agreement so long as
Executive is treated on the same basis as other executive employees
participating in such program, plan or policy, as the case may be. Upon
termination of employment under this Agreement, without regard to the manner in
which the termination was brought about, Executive's rights in such employee
benefit programs, plans or policies shall be governed solely by the terms of the
program, plan or policy itself and not this Agreement. Executive shall be
entitled to an annual paid vacation in accordance with the Company's personnel
policy for his years of service completed as an employee of the Company (and, if
applicable, the Company's predecessors).
<PAGE>
4. Working Facilities. During the term of his employment under this Agreement,
Executive shall be furnished with a private office, stenographic services and
such other facilities and services as are commensurate with his position with
the Company and adequate for the performance of his duties under this Agreement.
5. Expenses. During the term of his employment under this Agreement, Executive
is authorized to incur reasonable out-of-pocket expenses for the discharge of
his duties hereunder and the promotion of business of the Company, including
expenses for entertainment, travel and related items. The Company shall
reimburse Executive for all such expenses upon presentation by Executive from
time to time of itemized accounts of expenditures incurred in accordance with
customary Company policies.
6. Termination. Executive's employment under this Agreement may be terminated
with or without cause or reason by either Company or Executive upon the
following terms and conditions.
6.1 Termination by Company for Cause. If any of the following events or
circumstances occur, the Company may terminate Executive's employment under this
Agreement at any time during or at the end of the initial or any extended term
of this Agreement for any of the following causes (each a "Cause").
(i) Executive's conviction of a felony;
(ii) Executive's intentional failure to observe or perform material
provisions of this Agreement required to be observed or performed by
him; or
(iii) Executive's intentional substantial wrongful damage to property of
the Company.
Upon payment by the Company to Executive of all salary payable, accrued
and unused vacation, and any accrued bonus to the date of such termination, the
Company shall have no further liability to Executive for compensation in
accordance herewith, and Executive will not be entitled to receive the
Termination Payment or Termination Benefits (as such terms are defined below)
except aforesaid vacation and any accrued bonus.
6.2 Termination by Company Without Cause. In the event of the termination
of Executive's employment under this Agreement by the Company at any time during
or at the end of the initial or any extended term of this Agreement without
Cause as defined in Paragraph 6.1 above, Executive will be entitled to receive
52 bi-weekly payments equal to the average of his bi-weekly compensation in
effect within the two years preceding the termination (including, for these
purposes, average bi-weekly compensation of Executive from the Company's
predecessors) ("Termination Payments"), less legally required withholdings. In
addition to the Termination Payments, Executive will be entitled to elect the
continuation of health benefits under COBRA and the Company will pay the COBRA
premiums for an 18-month period, beginning on the date that Executive's health
coverage ceases due to his termination, accrued but unused vacation, and any
accrued bonus ("Termination Benefits"). If Executive obtains employment while he
is entitled to receive the Termination Payments and the Termination Benefits,
each Termination Payment shall be reduced by the amount of his average bi-weekly
compensation to be received in connection with his new employment and the
payment of the Termination Benefits shall cease upon Executive becoming covered
under the new employer's health coverage plan at no cost to Executive. The
combination of the
2
<PAGE>
Termination Payments and the Termination Benefits constitute the sole amount to
which Executive is entitled if termination is without Cause.
6.3 Termination by Executive Without Good Reason. Executive may terminate
his employment under this Agreement without Good Reason as defined in Paragraph
6.4 below upon the giving of 90 days written notice of termination. In the event
of such termination, the Company may elect to pay Executive six months of
compensation including unused accrued vacation and any accrued bonus in lieu of
90 days notice, in which event Executive's services to the Company will be
terminated immediately. No Termination Payments or Termination Benefits other
than as set forth in Section 6.3 shall be payable upon Executive's termination
of this Agreement without Good Reason.
6.4 Termination by Executive With Good Reason. Executive may terminate his
employment under this Agreement for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean:
(i) Without Executive's consent, the assignment to Executive of
substantial duties inconsistent with Executive's then-current
position, duties, responsibilities and status with the Company, or
any removal of Executive from his titles and offices, except in
connection with the termination of Executive's employment under this
Agreement by Company or as a result of Executive's death or
permanent disability (as defined in the Company's or Executive's
disability insurance policies);
(ii) The Company requiring Executive to relocate anywhere other than
Austin, Texas, except for required travel on the Company's business
to an extent substantially consistent with Executive's business
travel obligations, or, in the event Executive consents to such
relocation out of Austin, Texas, the failure by the Company to pay
or reimburse Executive for all reasonable moving expenses incurred
by Executive relating to a change of Executive's principal residence
in connection with such relocation and to indemnify Executive
against any loss (defined as the difference between the actual bona
fide sale price of such residence and the fair market value of such
residence as determined by a member of the Society of Real Estate
Appraisers designated by Executive and satisfactory to the Company)
realized in the sale of Executive's principal residence in
connection with any such change in residence; or
(iii) A decrease in Executive's salary from the salary in effect upon the
date hereof that is inconsistent with or not commensurate with
Executive's then current position with the Company.
In the event of termination under this Section 6.4, the Company shall pay
to Executive the same Termination Payments and Termination Benefits to which
Executive would have been entitled had he been terminated by the Company without
Cause.
6.5 Death or Permanent Disability. Executive's employment under this
Agreement shall terminate upon Executive's death or permanent disability (as
defined in the Company's or Executive's disability insurance policies). Other
than accrued but unused vacation and any accrued but unpaid bonus, no
Termination Payments or Termination Benefits shall be payable upon Executive's
death or permanent disability.
3
<PAGE>
6.6 Release Agreement. The Termination Payments and Termination Benefits
pursuant to Section 6 are contingent upon Executive executing a Release
Agreement after termination, a copy of which is attached to this Agreement. It
is understood that Executive may preserve all rights and causes of action in the
event of termination by the Company and evidence of release of same will only be
by execution of said Release Agreement after termination.
7. Confidentiality. During and after the term of employment under this
Agreement, Executive agrees that he shall not, without the express written
consent of Company, directly or indirectly communicate or divulge to, or use for
his own benefit or for the benefit of any other person, firm, association or
corporation, any of Company's trade secrets, proprietary data or other
confidential information, which trade secrets, proprietary data or other
confidential information were communicated to or otherwise learned or acquired
by Executive during his employment relationship with Company ("Confidential
Information"), except that Executive may disclose such matters to the extent
that disclosure is required (a) at Company's direction or (b) by a court or
other governmental agency of competent jurisdiction. As long as such matters
remain trade secrets, proprietary data or other confidential information,
Executive shall not use such trade secrets, proprietary data or other
confidential information in any way or in any capacity other than as expressly
consented to by Company.
8. Covenant not to Compete or Solicit.
8.1 Executive agrees to refrain for one year after the termination of his
employment under this Agreement for any reason, without written permission of
the Company, from becoming involved in any way, within the boundaries of the
United States, in the business of manufacturing, designing, servicing or
selling, the type of jewelry or fine paper or other scholastic, licensed sports,
insignia, recognition or affinity products manufactured or sold (or then
contemplated to be manufactured or sold) by the Company, its divisions,
subsidiaries and/or other affiliated entities, including but not limited to, as
an employee, consultant, independent representative, partner or proprietor.
8.2 Executive also agrees to refrain during his employment under this
Agreement, and in the event of the termination of his employment under this
Agreement for any reason, for one year thereafter, without written permission
from the Company, from diverting, taking, soliciting and or accepting on his own
behalf or on the behalf of another person, firm, or company, the scholastic,
licensed sports, insignia, recognition or affinity business of any customer of
the Company, its divisions, subsidiaries and/or affiliated entities, or any
potential customer of the Company, its divisions, subsidiaries and/or affiliated
entities whose identity became known to Executive through his employment by the
Company and to which the Company has made a written business proposal or
provided written pricing information before the termination of Executive's
employment under this Agreement.
8.3 Executive agrees to refrain during his employment under this
Agreement, and in the event of the termination of his employment under this
Agreement for any reason for a period of one year thereafter, from inducing or
attempting to influence any employee or independent representative of the
Company, its divisions, subsidiaries, and/or affiliated entities to terminate
his or her employment or association with the Company or such other entity.
8.4 Executive further agrees that the covenants in Sections 8.1 and 8.2
are made to protect the legitimate business interests of the Company, including
interests in the Company's "Confidential Information," as defined in Section 7
of this Agreement, and not to restrict his mobility or to prevent him from
utilizing his skills. Executive understands as a part of these covenants that
the
4
<PAGE>
Company intends to exercise whatever legal recourse against him for any breach
of this Agreement and in particular for breach of these covenants.
9. Controlling Law and Performability. The execution, validity, interpretation
and performance of this Agreement will be governed by the law of the State of
Texas.
10. Separability. If any provision of this Agreement is rendered or declared
illegal or unenforceable, all other provisions of this Agreement will remain in
full force and effect.
11. Notices. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by certified mail (return receipt
requested) addressed as follows:
If to Executive: Jeffrey H. Brennan
1318 Thousand Oaks
San Marcos, TX 78666
If to the Company: Chairman of the Board
Commemorative Brands, Inc.
7211 Circle S Road
Austin, TX 78745
12. Assignment. The rights and obligations of the Company under this Agreement
shall inure to the benefit of and be binding upon its successors and assigns.
The rights and obligations of Executive under this Agreement are of a personal
nature and shall neither be transferred or assigned in whole or in part by
Executive.
13. Non-Waiver. No waiver of or failure to assert any claim, right, benefit or
remedy hereunder shall operate as a waiver of any other claim, right, benefit or
remedy of the Company or Executive.
14. Review and Consultation. Executive acknowledges that he has had a reasonable
time to review and consider this Agreement and has been given the opportunity to
consult with an attorney.
15. Entire Agreement and Amendments. This Agreement contains the entire
agreement of Executive and the Company relating to the matters contained in this
Agreement and supersedes all prior agreements and understandings, oral or
written, between Executive and the Company with respect to the subject matter in
this Agreement. This Agreement may be changed only by an agreement in writing by
Executive and the Company.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
COMMEMORATIVE BRANDS, INC.
By: /s/ David B. Pittaway
--------------------------------
Name: David B. Pittaway
Title: Director
EXECUTIVE
/s/ Jeffrey H. Brennan
--------------------------------
Jeffrey H. Brennan
6
<PAGE>
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement ("Agreement"), dated
___________________________, between COMMEMORATIVE BRANDS, INC. and any
successor thereto (collectively, the "Company") and JEFFREY H. BRENNAN
("Employee").
Employee and Company agree as follows:
1. The employment relationship between Employee and Company terminated on
__________________________________ (the "Termination Date").
2. In accordance with Employee's Employment Agreement, the Company has
agreed to pay Employee, after the Termination Date, 52 bi-weekly payments less
required withholdings and certain other benefits.
3. In consideration of the above, the sufficiency of which Employee hereby
acknowledges, Employee, on behalf of Employee and his heirs, executors and
assigns, hereby releases and forever discharges the Company and its members,
parents, affiliates, subsidiaries, divisions, any and all current and former
directors, officers, employees, agents, and contractors and their heirs and
assigns, from all claims, charges, or demands, in law or in equity, whether
known or unknown, which may have existed or which may now exist from the
beginning of time to the date of this letter agreement, including, without
limitation, any claims Employee may have arising from or relating to Employee's
employment or termination from employment with the Company, including a release
of any rights or claims Employee may have under Title VII of the Civil Rights
Act of 1964, as amended, and the Civil Rights Act of 1991 (which prohibit
discrimination in employment based upon race, color, sex, religion, and national
origin); the Americans with Disabilities Act of 1990, as amended, and the
Rehabilitation Act of 1973 (which prohibit discrimination based upon
disability); the Family and Medical Leave Act of 1993 (which prohibits
discrimination based on requesting or taking a family or medical leave); Section
1981 of the Civil Rights Act of 1866 (which prohibits discrimination based upon
race); Section 1985(3) of the Civil Rights Act of 1871 (which prohibits
conspiracies to discriminate); the Employee Retirement Income Security Act of
1974, as amended (which prohibits discrimination with regard to benefits); any
other federal, state or local laws against discrimination; or any other federal,
state, or local statute, or common law relating to employment, wages, hours, or
any other terms and conditions of employment. This includes a release by
Employee of any claims for wrongful discharge, breach of contract, torts or any
other claims in any way related to Employee's employment with or resignation or
termination from the Company. This release also includes a release of any claims
for age discrimination under the Age Discrimination in Employment Act, as
amended ("ADEA"). The ADEA requires that Employee be advised to consult with an
attorney before Employee waives any claim under ADEA. In addition, the ADEA
provides Employee with at least 21 days to decide whether to waive claims under
ADEA and seven days after Employee signs the Agreement to revoke that waiver.
Additionally, the Company agrees to discharge and release Employee and his
heirs from any claims, demands, and/or causes of action whatsoever, presently
known or unknown, that are based upon facts occurring prior to the date of this
Agreement, including, but not limited to, any claim, matter or action related to
Employee's employment and/or affiliation with, or termination and separation
from Company.
<PAGE>
4. This Agreement is not an admission by either Employee or Company of any
wrongdoing or liability.
5. Employee agrees that he waives any right to reinstatement or future
employment with Company following his separation from Company on the Termination
Date.
6. Employee further agrees that he shall engage in no act after execution
of the Separation and Release Agreement that is intended, or may reasonably be
expected to harm the reputation, business, prospects or operations of the
Company, its officers, directors, stockholders or employees. Company further
agrees that it will engage in no act which is intended, or may reasonably be
expected to harm the reputation, business or prospects of Employee.
7. Employee agrees that he shall continue to be bound by Sections 7 and 8
of his Employment Agreement.
8. The parties agree to keep the substantive terms of this Agreement,
including the amount of consideration mentioned therein, confidential and agree
not to disclose the substantive contents of the Agreement. Notwithstanding the
above provisions, the parties may disclose the terms and provisions of the
Agreement to their spouses and to taxing authorities, including the Internal
Revenue Service, regulatory bodies, and/or governmental agencies having a valid,
legal right to the information contained therein and making a valid and proper
request therefor. The parties may also disclose the terms and provisions of the
Agreement to their attorneys, accountants, bankers and/or investment advisors.
The Company may disclose the terms and provisions of the Agreement to
individuals within the corporate organization where such disclosure is necessary
for the business operations of the corporation. Any party may disclose the terms
and provisions of the agreement with the written consent of the opposing party,
or as may be otherwise required by law.
9. Employee shall return all Company property in his possession,
including, but not limited to, Company keys, credit cards, and originals or
copies of books, records, or other information pertaining to Company business.
10. The execution, validity, interpretation and performance of this
Agreement shall be determined and governed exclusively by the laws of the State
of Texas, without reference to the principles of conflict of laws. Exclusive
jurisdiction with respect to any legal proceeding brought concerning any subject
matter contained in this Agreement may be settled by arbitration in Austin,
Texas, in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. In reaching his or
her decision, the arbitrator shall have no authority to change or modify any
provision of this Agreement. In addition, any and all charges which may be made
for the cost of the arbitration and the fees and expenses of the arbitrator
shall be borne equally by the parties.
Jurisdiction with respect to any legal proceeding brought by Company or
Employee, concerning any subject matter contained in this Agreement shall rest
in state or federal courts sitting in the State of Texas. Also, Company or
Employee, at its election, may submit any dispute it has with the other party
under this Agreement to arbitration in accord with the procedures set forth in
this section.
11. This Agreement represents the complete agreement between Employee and
Company concerning the subject matter of this Agreement and supersedes all prior
agreements or understandings,
<PAGE>
written or oral. No attempted modification or waiver of any of the provisions of
this Agreement shall be binding on either party unless in writing and signed by
both Employee and Company.
12. Each of the sections contained in this Agreement shall be enforceable
independently of every other section in this Agreement, and the invalidity or
nonenforceability of any section shall not invalidate or render unenforceable
any other section contained in this Agreement.
13. It is further understood that for a period of 7 days following the
execution of this Agreement in duplicate originals, Employee may revoke the
Agreement, and the Agreement shall not become effective or enforceable until the
revocation period has expired. No revocation of this Agreement by Employee shall
be effective unless Company has received within the 7-day revocation period,
written notice of any revocation, all monies received by Employee under this
Agreement and all originals and copies of this Agreement.
14. This Agreement has been entered into voluntarily and not as a result
of coercion, duress, or undue influence. Employee acknowledges that he has read
and fully understands the terms of this Agreement and has been advised to
consult with an attorney before executing this Agreement. Additionally, Employee
acknowledges that he has been afforded the opportunity of at least 21 days to
consider this Agreement.
The parties to this Agreement have executed this Agreement as of the day
and year first written above.
COMMEMORATIVE BRANDS, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
EXECUTIVE
/s/ Jeffrey H. Brennan
------------------------------------
Jeffrey H. Brennan
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of this 16th
day of December, 1996, by and between COMMEMORATIVE BRANDS, INC. and any
successors thereto (collectively referred to as the "Company") and RICHARD H.
FRITSCHE ("Executive").
The parties hereby agree as follows:
1. Employment. Executive will serve the Company in an executive capacity in such
office as from time to time shall be determined by the Board of Directors of the
Company, and will perform, faithfully and diligently, the services and functions
performed and will carry out the functions of his office and furnish his best
advice, information, judgment and knowledge with respect to the business of the
Company. Executive agrees to perform such duties as hereinabove described and to
devote full-time attention and energy to the business of the Company. Executive
will not, during the term of employment under this Agreement, engage in any
other business activity if such business activity would impair Executive's
ability to carry out his duties under this Agreement.
2. Term. This Agreement shall be effective upon consummation of the acquisition
by the Company of substantially all of the assets and businesses of L.G. Balfour
Company, Inc. and CJC Holdings, Inc. on December 16, 1996 and shall thereafter
terminate on December 15, 1999; provided that the term of this Agreement may be
automatically extended for an additional year on December 15, 1999 and each
anniversary of December 15, 1999, unless at least 60 days prior to December 15,
1999 or such anniversary date, the Company shall give notice to Executive that
the termination date shall not be so extended.
3. Compensation and Other Benefits.
3.1 Salary; Bonus. The salary compensation to be paid by the Company to
Executive and which Executive agrees to accept from the Company for services
performed and to be performed by Executive hereunder shall be an annual gross
amount, before applicable withholding and other payroll deductions, of $115,000,
payable in equal bi-weekly installments of $4,423.08, subject to such changes as
the Board of Directors of the Company may, in its sole discretion, from time to
determine. In addition, the Company agrees to pay Executive a $50,000 bonus if
Executive remains employed by the Company during the period from December 16,
1996 through December 15, 1997, or if Executive's employment is earlier
terminated by the Company without Cause (as defined in paragraph 6.1 below) or
by Executive with Good Reason (as defined in paragraph 6.4 below), in each case,
subject to approval by the Board of Directors of the Company based on
Executive's performance during such period.
3.2 Benefits. Executive shall be entitled to participate in such employee
benefit programs, plans and policies (including incentive bonus plans and
incentive stock option plans) as are maintained by the Company and as may be
established for the employees of the Company from time to time on the same basis
as other executive employees are entitled thereto. It is understood that the
establishment, termination or change in any such Executive employee benefit
programs, plans or policies shall be at the instance of the Company in the
exercise of its sole discretion, from time to time, and any such termination or
change in such program, plan or policy will not affect this Agreement so long as
Executive is treated on the same basis as other executive employees
participating in such program, plan or policy, as the case may be. Upon
termination of employment under this Agreement, without regard to
<PAGE>
the manner in which the termination was brought about, Executive's rights in
such employee benefit programs, plans or policies shall be governed solely by
the terms of the program, plan or policy itself and not this Agreement.
Executive shall be entitled to an annual paid vacation in accordance with the
Company's personnel policy for his years of service completed as an employee of
the Company (and, to the extent applicable, the Company's predecessors).
4. Working Facilities. During the term of his employment under this Agreement,
Executive shall be furnished with a private office, stenographic services and
such other facilities and services as are commensurate with his position with
the Company and adequate for the performance of his duties under this Agreement.
5. Expenses. During the term of his employment under this Agreement, Executive
is authorized to incur reasonable out-of-pocket expenses for the discharge of
his duties hereunder and the promotion of business of the Company, including
expenses for entertainment, travel and related items. The Company shall
reimburse Executive for all such expenses upon presentation by Executive from
time to time of itemized accounts of expenditures incurred in accordance with
customary Company policies.
6. Termination. Executive's employment under this Agreement may be terminated
with or without cause or reason by either Company or Executive upon the
following terms and conditions.
6.1 Termination by Company for Cause. If any of the following events or
circumstances occur, the Company may terminate Executive's employment under this
Agreement at any time during or at the end of the initial or any extended term
of this Agreement for any of the following causes (each a "Cause").
(i) Executive's conviction of a felony;
(ii) Executive's intentional failure to observe or perform material
provisions of this Agreement required to be observed or performed by
him; or
(iii) Executive's intentional substantial wrongful damage to property of
the Company.
Upon payment by the Company to Executive of all salary payable, accrued
and unused vacation, and any accrued bonus to the date of such termination, the
Company shall have no further liability to Executive for compensation in
accordance herewith, and Executive will not be entitled to receive the
Termination Payment or Termination Benefits (as such terms are defined below)
except aforesaid vacation and any accrued bonus.
6.2 Termination by Company Without Cause. In the event of the termination
of Executive's employment under this Agreement by the Company at any time during
or at the end of the initial or any extended term of this Agreement without
Cause as defined in Paragraph 6.1 above, Executive will be entitled to receive
39 bi-weekly payments equal to the average of his bi-weekly compensation in
effect within the two years preceding the termination (including, for these
purposes, average bi-weekly compensation of Executive from the Company's
predecessors) ("Termination Payments"), less legally required withholdings. In
addition to the Termination Payments, Executive will be entitled to elect the
continuation of health benefits under COBRA and the Company will pay the COBRA
premiums for an 18-month period, beginning on the date that Executive's health
coverage ceases due to his termination, accrued but unused vacation, and any
accrued bonus ("Termination
-2-
<PAGE>
Benefits"). If Executive obtains employment while he is entitled to receive the
Termination Payments and the Termination Benefits, each Termination Payment
shall be reduced by the amount of his average bi-weekly compensation to be
received in connection with his new employment and the payment of the
Termination Benefits shall cease upon Executive becoming covered under the new
employer's health coverage plan at no cost to Executive. The combination of the
Termination Payments and the Termination Benefits constitute the sole amount to
which Executive is entitled if termination is without Cause.
6.3 Termination by Executive Without Good Reason. Executive may terminate
his employment under this Agreement without Good Reason as defined in Paragraph
6.4 below upon the giving of 90 days written notice of termination. In the event
of such termination, the Company may elect to pay Executive six months of
compensation including unused accrued vacation and any accrued bonus in lieu of
90 days notice, in which event Executive's services to the Company will be
terminated immediately. No Termination Payments or Termination Benefits other
than as set forth in Section 6.3 shall be payable upon Executive's termination
of this Agreement without Good Reason.
6.4 Termination by Executive With Good Reason. Executive may terminate his
employment under this Agreement for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean:
(i) Without Executive's consent, the assignment to Executive of
substantial duties inconsistent with Executive's then-current
position, duties, responsibilities and status with the Company, or
any removal of Executive from his titles and offices, except in
connection with the termination of Executive's employment under this
Agreement by Company or as a result of Executive's death or
permanent disability (as defined in the Company's or Executive's
disability insurance policies);
(ii) The Company requiring Executive to relocate anywhere other than to
Austin, Texas, except for required travel on the Company's business
to an extent substantially consistent with Executive's business
travel obligations, or, in the event Executive consents to
relocation from Attleboro, Massachusetts other than to Austin, Texas
or any further relocation out of Austin, Texas, the failure by the
Company to pay or reimburse Executive for all reasonable moving
expenses incurred by Executive relating to a change of Executive's
principal residence in connection with such relocation and to
indemnify Executive against any loss (defined as the difference
between the actual bona fide sale price of such residence and the
fair market value of such residence as determined by a member of the
Society of Real Estate Appraisers designated by Executive and
satisfactory to the Company) realized in the sale of Executive's
principal residence in connection with any such change in residence;
or
(iii) A decrease in Executive's salary from the salary in effect upon the
date hereof that is inconsistent with or not commensurate with
Executive's then current position with the Company.
In the event of termination under this Section 6.4, the Company shall pay
to Executive the same Termination Payments and Termination Benefits to which
Executive would have been entitled had he been terminated by the Company without
Cause.
-3-
<PAGE>
6.5 Death or Permanent Disability. Executive's employment under this
Agreement shall terminate upon Executive's death or permanent disability (as
defined in the Company's or Executive's disability insurance policies). Other
than accrued but unused vacation and any accrued but unpaid bonus, no
Termination Payments or Termination Benefits shall be payable upon Executive's
death or permanent disability.
6.6 Release Agreement. The Termination Payments and Termination Benefits
pursuant to Section 6 are contingent upon Executive executing a Release
Agreement after termination, a copy of which is attached to this Agreement. It
is understood that Executive may preserve all rights and causes of action in the
event of termination by the Company and evidence of release of same will only be
by execution of said Release Agreement after termination.
7. Confidentiality. During and after the term of employment under this
Agreement, Executive agrees that he shall not, without the express written
consent of Company, directly or indirectly communicate or divulge to, or use for
his own benefit or for the benefit of any other person, firm, association or
corporation, any of Company's trade secrets, proprietary data or other
confidential information, which trade secrets, proprietary data or other
confidential information were communicated to or otherwise learned or acquired
by Executive during his employment relationship with Company ("Confidential
Information"), except that Executive may disclose such matters to the extent
that disclosure is required (a) at Company's direction or (b) by a court or
other governmental agency of competent jurisdiction. As long as such matters
remain trade secrets, proprietary data or other confidential information,
Executive shall not use such trade secrets, proprietary data or other
confidential information in any way or in any capacity other than as expressly
consented to by Company.
8. Covenant not to Compete or Solicit.
8.1 Executive agrees to refrain for one year after the termination of his
employment under this Agreement for any reason, without written permission of
the Company, from becoming involved in any way, within the boundaries of the
United States, in the business of manufacturing, designing, servicing or
selling, the type of jewelry or fine paper or other scholastic, licensed sports,
insignia, recognition or affinity products manufactured or sold (or then
contemplated to be manufactured or sold) by the Company, its divisions,
subsidiaries and/or other affiliated entities, including but not limited to, as
an employee, consultant, independent representative, partner or proprietor.
8.2 Executive also agrees to refrain during his employment under this
Agreement, and in the event of the termination of his employment under this
Agreement for any reason, for one year thereafter, without written permission
from the Company, from diverting, taking, soliciting and or accepting on his own
behalf or on the behalf of another person, firm, or company, the scholastic,
licensed sports, insignia, recognition or affinity business of any customer of
the Company, its divisions, subsidiaries and/or affiliated entities, or any
potential customer of the Company, its divisions, subsidiaries and/or affiliated
entities whose identity became known to Executive through his employment by the
Company and to which the Company has made a written business proposal or
provided written pricing information before the termination of Executive's
employment under this Agreement.
8.3 Executive agrees to refrain during his employment under this
Agreement, and in the event of the termination of his employment under this
Agreement for any reason for a period of one year thereafter, from inducing or
attempting to influence any employee or independent representative of the
Company, its divisions, subsidiaries, and/or affiliated entities to terminate
his or her employment or association with the Company or such other entity.
-4-
<PAGE>
8.4 Executive further agrees that the covenants in Sections 8.1 and 8.2
are made to protect the legitimate business interests of the Company, including
interests in the Company's "Confidential Information," as defined in Section 7
of this Agreement, and not to restrict his mobility or to prevent him from
utilizing his skills. Executive understands as a part of these covenants that
the Company intends to exercise whatever legal recourse against him for any
breach of this Agreement and in particular for breach of these covenants.
9. Controlling Law and Performability. The execution, validity, interpretation
and performance of this Agreement will be governed by the law of the State of
Texas.
10. Separability. If any provision of this Agreement is rendered or declared
illegal or unenforceable, all other provisions of this Agreement will remain in
full force and effect.
11. Notices. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by certified mail (return receipt
requested) addressed as follows:
If to Executive: Richard H. Fritsche
46 Ledgetree Road
Medfield, MA 02052
If to Company: Chief Executive Officer
Commemorative Brands, Inc.
7211 Circle S Road
Austin, TX 78745
12. Assignment. The rights and obligations of the Company under this Agreement
shall inure to the benefit of and be binding upon its successors and assigns.
The rights and obligations of Executive under this Agreement are of a personal
nature and shall neither be transferred or assigned in whole or in part by
Executive.
13. Non-Waiver. No waiver of or failure to assert any claim, right, benefit or
remedy hereunder shall operate as a waiver of any other claim, right, benefit or
remedy of the Company or Executive.
14. Review and Consultation. Executive acknowledges that he has had a reasonable
time to review and consider this Agreement and has been given the opportunity to
consult with an attorney.
15. Entire Agreement and Amendments. This Agreement contains the entire
agreement of Executive and the Company relating to the matters contained in this
Agreement and supersedes all prior agreements and understandings, oral or
written, between Executive and the Company with respect to the subject matter in
this Agreement. This Agreement may be changed only by an agreement in writing by
Executive and the Company.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
COMMEMORATIVE BRANDS, INC.
By: /s/ Jeffrey H. Brennan
---------------------------------
Name: Jeffrey H. Brennan
Title: Chief Executive Officer
EXECUTIVE
/s/ Richard H. Fritsche
------------------------------------
Richard H. Fritsche
-6-
<PAGE>
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement ("Agreement"), dated
___________________________, between COMMEMORATIVE BRANDS, INC. and any
successor thereto (collectively, the "Company") and RICHARD H. FRITSCHE
("Employee").
Employee and Company agree as follows:
1. The employment relationship between Employee and Company terminated on
__________________________________ (the "Termination Date").
2. In accordance with Employee's Employment Agreement, the Company has
agreed to pay Employee, after the Termination Date, 39 bi-weekly payments less
required withholdings and certain other benefits.
3. In consideration of the above, the sufficiency of which Employee hereby
acknowledges, Employee, on behalf of Employee and his heirs, executors and
assigns, hereby releases and forever discharges the Company and its members,
parents, affiliates, subsidiaries, divisions, any and all current and former
directors, officers, employees, agents, and contractors and their heirs and
assigns, from all claims, charges, or demands, in law or in equity, whether
known or unknown, which may have existed or which may now exist from the
beginning of time to the date of this letter agreement, including, without
limitation, any claims Employee may have arising from or relating to Employee's
employment or termination from employment with the Company, including a release
of any rights or claims Employee may have under Title VII of the Civil Rights
Act of 1964, as amended, and the Civil Rights Act of 1991 (which prohibit
discrimination in employment based upon race, color, sex, religion, and national
origin); the Americans with Disabilities Act of 1990, as amended, and the
Rehabilitation Act of 1973 (which prohibit discrimination based upon
disability); the Family and Medical Leave Act of 1993 (which prohibits
discrimination based on requesting or taking a family or medical leave); Section
1981 of the Civil Rights Act of 1866 (which prohibits discrimination based upon
race); Section 1985(3) of the Civil Rights Act of 1871 (which prohibits
conspiracies to discriminate); the Employee Retirement Income Security Act of
1974, as amended (which prohibits discrimination with regard to benefits); any
other federal, state or local laws against discrimination; or any other federal,
state, or local statute, or common law relating to employment, wages, hours, or
any other terms and conditions of employment. This includes a release by
Employee of any claims for wrongful discharge, breach of contract, torts or any
other claims in any way related to Employee's employment with or resignation or
termination from the Company. This release also includes a release of any claims
for age discrimination under the Age Discrimination in Employment Act, as
amended ("ADEA"). The ADEA requires that Employee be advised to consult with an
attorney before Employee waives any claim under ADEA. In addition, the ADEA
provides Employee with at least 21 days to decide whether to waive claims under
ADEA and seven days after Employee signs the Agreement to revoke that waiver.
Additionally, Company agrees to discharge and release Employee and his
heirs from any claims, demands, and/or causes of action whatsoever, presently
known or unknown, that are based upon facts occurring prior to the date of this
Agreement, including, but not limited to, any claim, matter or action related to
Employee's employment and/or affiliation with, or termination and separation
from Company.
4. This Agreement is not an admission by either Employee or Company of any
wrongdoing or liability.
<PAGE>
5. Employee agrees that he waives any right to reinstatement or future
employment with Company following his separation from Company on the Termination
Date.
6. Employee further agrees that he shall engage in no act after execution
of the Separation and Release Agreement that is intended, or may reasonably be
expected to harm the reputation, business, prospects or operations of the
Company, its officers, directors, stockholders or employees. Company further
agrees that it will engage in no act which is intended, or may reasonably be
expected to harm the reputation, business or prospects of Employee.
7. Employee agrees that he shall continue to be bound by Sections 7 and 8
of his Employment Agreement.
8. The parties agree to keep the substantive terms of this Agreement,
including the amount of consideration mentioned therein, confidential and agree
not to disclose the substantive contents of the Agreement. Notwithstanding the
above provisions, the parties may disclose the terms and provisions of the
Agreement to their spouses and to taxing authorities, including the Internal
Revenue Service, regulatory bodies, and/or governmental agencies having a valid,
legal right to the information contained therein and making a valid and proper
request therefor. The parties may also disclose the terms and provisions of the
Agreement to their attorneys, accountants, bankers and/or investment advisors.
The Company may disclose the terms and provisions of the Agreement to
individuals within the corporate organization where such disclosure is necessary
for the business operations of the corporation. Any party may disclose the terms
and provisions of the agreement with the written consent of the opposing party,
or as may be otherwise required by law.
9. Employee shall return all Company property in his possession,
including, but not limited to, Company keys, credit cards, and originals or
copies of books, records, or other information pertaining to Company business.
10. The execution, validity, interpretation and performance of this
Agreement shall be determined and governed exclusively by the laws of the State
of Texas, without reference to the principles of conflict of laws. Exclusive
jurisdiction with respect to any legal proceeding brought concerning any subject
matter contained in this Agreement may be settled by arbitration in Austin,
Texas, in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. In reaching his or
her decision, the arbitrator shall have no authority to change or modify any
provision of this Agreement. In addition, any and all charges which may be made
for the cost of the arbitration and the fees and expenses of the arbitrator
shall be borne equally by the parties.
Jurisdiction with respect to any legal proceeding brought by Company or
Employee, concerning any subject matter contained in this Agreement shall rest
in state or federal courts sitting in the State of Texas. Also, Company or
Employee, at its election, may submit any dispute it has with the other party
under this Agreement to arbitration in accord with the procedures set forth in
this section.
11. This Agreement represents the complete agreement between Employee and
Company concerning the subject matter of this Agreement and supersedes all prior
agreements or understandings, written or oral. No attempted modification or
waiver of any of the provisions of this Agreement shall be binding on either
party unless in writing and signed by both Employee and Company.
-2-
<PAGE>
12. Each of the sections contained in this Agreement shall be enforceable
independently of every other section in this Agreement, and the invalidity or
nonenforceability of any section shall not invalidate or render unenforceable
any other section contained in this Agreement.
13. It is further understood that for a period of 7 days following the
execution of this Agreement in duplicate originals, Employee may revoke the
Agreement, and the Agreement shall not become effective or enforceable until the
revocation period has expired. No revocation of this Agreement by Employee shall
be effective unless Company has received within the 7-day revocation period,
written notice of any revocation, all monies received by Employee under this
Agreement and all originals and copies of this Agreement.
14. This Agreement has been entered into voluntarily and not as a result
of coercion, duress, or undue influence. Employee acknowledges that he has read
and fully understands the terms of this Agreement and has been advised to
consult with an attorney before executing this Agreement. Additionally, Employee
acknowledges that he has been afforded the opportunity of at least 21 days to
consider this Agreement.
The parties to this Agreement have executed this Agreement as of the day
and year first written above.
COMMEMORATIVE BRANDS, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
EXECUTIVE
/s/ Richard H. Fritsche
------------------------------------
Richard H. Fritsche
-3-
<PAGE>
Schedule 6.3(e) (Special Severance Obligations)
The Buyer has agreed to assume certain obligations in connection with the
employment of Mr. George E. Agle ("Agle"). The Buyer shall offer employment to
Agle on the terms described below, and if Agle accepts such offer, the Buyer
shall be obligated to perform its obligations in a manner consistent with the
terms described below.
Terms of the employment offer:
(A) Salary: $300,000 per annum.
(B) Bonus: No bonus will be paid except for a $50,000 stay bonus
which will be paid if Agle is employed by Buyer through the
transition period and subject to the approval of the Board of
Directors of the Buyer based on Agle's performance during such
transition period.
(C) Benefits: Agle will be eligible for all benefits Buyer
provides to the Transferred Employees, including life
insurance coverage, medical and dental plans and 401K plan.
(D) Severance: If Agle is employed by Buyer on the earlier of the
date on which Buyer completes the move of the ring plant in
Attleboro, MA to an out of state location or June 30, 1997, or
is dismissed, without cause, by the Buyer prior to that date,
Agle will be entitled (commencing on his termination date) to
receive a severance payment equal to eighteen (18) months of
his yearly salary paid on a monthly basis. Agle will only not
receive severance payments if he voluntarily leaves the employ
of the Buyer prior to the earlier of the date on which Buyer
completes the move of the ring plant in Attleboro, MA to an
out of state location or June 30, 1997, is terminated by Buyer
at any time for cause, or is employed by any of the Sellers
during the twelve (12) month period following his termination.
This schedule amends, as of the Closing Date, the September 2, 1994
employment agreement (including all addenda) as listed on Schedules 3.13 and
3.16(b).
<PAGE>
EXHIBIT 12
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in thousands, except ratios)
(Unaudited)
ArtCarved (Historical)
Fiscal Year Ended Three Months Ended
August 31, August 31, August 27, August 26, August 31, November 25, November 30,
1992 1993 1994 1995 1996 1995 1996
-------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings available for fixed charges:
Income (loss) before income tax expense $ (3,231) $ (684) $ 1,124 $ (5,966) $ (1,831) $ 875 $1,724
Fixed charges $ 15,205 $ 14,356 $ 12,994 $ 15,368 $ 13,122 $3,566 $2,845
-------- -------- -------- -------- -------- ------ ------
Total earnings $ 11,974 $ 13,672 $ 14,118 $ 9,402 $ 11,291 $4,441 $4,569
======== ======== ======== ======== ======== ====== ======
Fixed charges:
Interest expense (including capitalized
interest and amortization of deferred
debt issuance cost) $ 15,040 $ 14,122 $ 12,733 $ 15,176 $ 12,931 $3,507 $2,788
Interest element of rent expense $ 165 $ 234 $ 261 $ 192 $ 191 $ 59 $ 57
-------- -------- -------- -------- -------- ------ ------
Total fixed charges $ 15,205 $ 14,356 $ 12,994 $ 15,368 $ 13,122 $3,566 $2,845
======== ======== ======== ======== ======== ====== ======
Ratio of Earnings to Fixed Charges(1) -- -- 1.1x -- -- 1.3x 1.6x
</TABLE>
(1) For ArtCarved's fiscal years ended August 31, 1992, August 31, 1993, August
26, 1995 and August 31, 1996, earnings before fixed charges were
insufficient to cover fixed charges by approximately $3.2 million,
$0.7 million, $6.0 million and $1.8 million, respectively.
<PAGE>
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in thousands, except ratios)
(Unaudited)
Balfour (Historical)
Fiscal Year Ended Nine Months Ended
February 29, February 28, February 27, February 26, February 25, November 26, November 24,
1992 1993 1994 1995 1996 1995 1996
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings available for fixed charges:
Income (loss) before income tax expense $(15,896) $(31,283) $ 4,738 $(10,877) $ 55 $ (1,011) $ (1,226)
Fixed charges $ 9,480 $ 9,788 $ 1,417 $ 1,957 $ 2,880 $ 2,075 $ 2,105
-------- -------- -------- -------- -------- -------- --------
Total earnings $ (6,416) $(21,495) $ 6,155 $ (8,920) $ 2,935 $ 1,064 $ 879
======== ======== ======== ======== ======== ======== ========
Fixed charges:
Interest expense (including capitalized
interest and amortization of deferred
debt issuance cost) $ 9,457 $ 9,741 $ 1,356 $ 1,796 $ 2,573 $ 1,851 $ 1,816
Interest element of rent expense $ 23 $ 47 $ 61 $ 161 $ 307 $ 224 $ 289
-------- -------- -------- -------- -------- -------- --------
Total fixed charges $ 9,480 $ 9,788 $ 1,417 $ 1,957 $ 2,880 $ 2,075 $ 2,105
======== ======== ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges(1) -- -- 4.3x -- 1.0x -- --
</TABLE>
(1) For Balfour's fiscal years ended February 29, 1992, February 28, 1993 and
February 26, 1995, Balfour's earnings before fixed charges were
insufficient to cover fixed charges by approximately $15.9 million,
$31.3 million and $10.9 million, respectively. For the nine months ended
November 26, 1995 and November 24, 1996, Balfour's earnings before fixed
charges were insufficient to cover fixed charges by approximately $1.0
million and $1.2 million, respectively.
<PAGE>
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in thousands, except ratios)
(Unaudited)
Historical Statements Historical Statements
-------------------------------- ------------------------------
ArtCarved Year Balfour Twelve ArtCarved Three Balfour Three
Ended Aug. 31, Months Ended Proforma Months Ended Months Ended Proforma
1996 Aug. 25, 1996 Combined Nov. 30, 1996 Nov. 24, 1996 Combined
----------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings available for fixed charges:
Income (loss) before income tax expense $ (1,831) $ 663 $ 3,026 $ 1,724 $ (382) $ 2,222
Fixed charges $ 13,122 $ 2,972 $ 14,807 $ 2,845 $ 716 $ 3,699
-------- -------- -------- -------- -------- --------
Total earnings $ 11,291 $ 3,635 $ 17,833 $ 4,569 $ 334 $ 5,921
======== ======== ======== ======== ======== ========
Fixed charges:
Interest expense (including capitalized
interest and amortization of deferred
debt issuance cost) $ 12,931 $ 2,601 $ 14,616 $ 2,788 $ 619 $ 3,642
Interest element of rent expense $ 191 $ 371 $ 191 $ 57 $ 97 $ 57
-------- -------- -------- -------- -------- --------
Total fixed charges $ 13,122 $ 2,972 $ 14,807 $ 2,845 $ 716 $ 3,699
======== ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges(1) -- 1.2x 1.2x 1.6x -- 1.6x
</TABLE>
(1) For ArtCarved's fiscal year ended August 31, 1996, ArtCarved's earnings
before fixed charges were insufficient to cover fixed charges by
approximately $1.8 million. For Balfour's three months ended
November 24, 1996, Balfour's earnings before fixed charges were
insufficient to cover fixed charges by approximately $0.4 million.
<PAGE>
COMPUTATION OF RATIO OF EBITDA TO CASH INTEREST EXPENSE
(Amounts in thousands, except ratios)
(Unaudited)
Pro Forma Combined
Twelve Months Ended Three Months Ended
Aug. 25, 1996 Nov. 30, 1996
-----------------------------------------
Income before income tax expense $ 3,026 $ 2,222
Add:
Interest expense $13,739 $ 3,435
Depreciation and amortization $ 6,067 $ 1,517
------- -------
EBITDA $22,832 $ 7,174
======= =======
Interest expense $13,739 $ 3,435
Less:
Amortization of deferred financing costs $ 608 $ 152
------- -------
Cash interest expense $13,131 $ 3,283
======= =======
Ratio of EBITDA to Cash Interest Expense 1.7x 2.2x
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
January 28, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 28, 1997
<PAGE>
Conformed Copy
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)
COMMEMORATIVE BRANDS, INC.
(Exact name of obligor as specified in its charter)
Delaware 13-3915801
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7211 Circle S Road
Austin, Texas 78745
(512) 444-0571 (Zip Code)
(Address of principal executive offices)
11% SENIOR SUBORDINATED NOTES DUE 2007
(Title of Indenture Securities)
<PAGE>
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>
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 (September 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>
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 28th day of January, 1997.
MARINE MIDLAND BANK
By: /s/ Peter S. Wolfrath
---------------------------------
Peter S. Wolfrath
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
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 1999
- - -------------------------------------------------------------------------------
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 SEPTEMBER 30, 1996
(950630)
------------
(RCRI 9999)
This report is required by law; 12 U.S.C. Section 324 (State member banks); 12
U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161 (National
banks).
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
10/28/96
- - -----------------------------
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/ James H. Cleave
- - -------------------------------------
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>
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
September 30, 1996
<TABLE>
<CAPTION>
ASSETS
Thousands
of dollars
Cash and balances due from depository
institutions:
<S> <C> <C>
Noninterest-bearing balances
currency and coin............... $924,069
Interest-bearing balances ........... 1,269,750
Held-to-maturity securities.......... 0
Available-for-sale securities........ 3,096,772
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................... 785,600
Securities purchased under
agreements to resell................. 306,969
Loans and lease financing receivables:
Loans and leases net of unearned
income............................... 14,428,376
LESS: Allowance for loan and lease
losses............................... 440,075
LESS: Allocated transfer risk reserve 0
Loans and lease, net of unearned
income, allowance, and reserve....... 13,988,301
Trading assets....................... 791,225
Premises and fixed assets (including
capitalized leases).................. 180,892
Other real estate owned................. 5,104
Investments in unconsolidated
subsidiaries and associated companies... 0
Customers' liability to this bank on
acceptances outstanding................. 19,791
Intangible assets....................... 161,326
Other assets............................ 459,739
Total assets............................ 21,989,538
</TABLE>
<PAGE>
<TABLE>
LIABILITIES
<S> <C> <C>
Deposits:
In domestic offices.................. 14,736,857
Noninterest-bearing.................. 3,198,971
Interest-bearing..................... 11,537,886
In foreign offices, Edge, and Agreement
subsidiaries, and IBFs.................. 3,676,395
Noninterest-bearing.................. 0
Interest-bearing..................... 3,676,395
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.............. 385,430
Securities sold under agreements to
repurchase........................... 212,177
Demand notes issued to the U.S. Treasury 300,000
Trading Liabilities..................... 293,523
Other borrowed money:
With original maturity of one year
or less.............................. 28,701
With original maturity of more than
one year............................. 0
Mortgage indebtedness and obligations
under capitalized leases................ 33,613
Bank's liability on acceptances
executed and outstanding................ 19,791
Subordinated notes and debentures....... 100,000
Other liabilities....................... 305,078
Total liabilities....................... 20,091,565
Limited-life preferred stock and
related surplus......................... 0
EQUITY CAPITAL
Perpetual preferred stock and related
surplus................................. 0
Common Stock............................ 185,000
Surplus................................. 1,633,279
Undivided profits and capital reserves.. 77,442
Net unrealized holding gains (losses)
on available-for-sale securities........ 2,252
Cumulative foreign currency translation
adjustments............................. 0
Total equity capital.................... 1,897,973
Total liabilities, limited-life
preferred stock, and equity capital..... 21,989,538
</TABLE>
<PAGE>
FORM OF LETTER OF TRANSMITTAL EXHIBIT 99.1
THE EXCHANGE OFFER WILL EXPIRE AT 5 P.M., EASTERN STANDARD TIME, ON
________________________, 1996, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS
MAY BE WITHDRAWN PRIOR TO 5 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE.
ISSUER:
COMMEMORATIVE BRANDS, INC.
7211 Circle S Roade
Austin, Texas 78745
Telephone: (512) 444-0571
Attention: Jeffrey H. Brennan, President and Chief Executive Officer
LETTER OF TRANSMITTAL
FOR 11% SENIOR SUBORDINATED NOTES DUE 2007
EXCHANGE AGENT:
MARINE MIDLAND BANK
By Facsimile:
Corporate Trust Administration
Confirm by telephone:
(212) 658______
By Registered or Certified Mail:
40 Broadway
New York, New York 10005
Attention: Corporate Trust Administration
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY.
-1-
<PAGE>
The undersigned acknowledges receipt of the Prospectus dated _________ __,
1997 (the "Prospectus") of Commemorative Brands, Inc. (the "Company" or the
"Issuer") and this Letter of Transmittal for 11% Senior Subordinated Notes Due
2007, which may be amended from time to time (this "Letter"). The Prospectus and
Letter together constitute the Issuer's offer to exchange $1,000 in principal
amount of its 11% Senior Subordinated Notes Due 2007 ("Exchange Notes"), for
each $1,000 in principal amount of its outstanding 11% Senior Subordinated Notes
Due 2007 that were issued and sold in a transaction exempt from registration
under the Securities Act of 1933, as amended ("Senior Notes").
The undersigned has completed, executed and delivered this Letter to
indicate the action he or she desires to take with respect to the Exchange
Offer.
All holders of Senior Notes who wish to tender their Senior Notes must,
prior to the Expiration Date: (1) complete, sign, date and mail or otherwise
deliver this Letter to the Exchange Agent, in person or to the address set forth
above; and (2) tender his or her senior Notes or, if a tender of Senior Notes is
to be made by book-entry transfer to the account maintained by the Exchange
Agent at The Depository Trust Company (the "Book-Entry Transfer Facility"),
confirm such book-entry transfer (a "Book-Entry Confirmation"), in each case in
accordance with the procedures for tendering described in the Instructions to
this Letter. Holders of Senior Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or Book-Entry
Confirmation and all other documents required by this Letter to be delivered to
the Exchange Agent on or prior to the Expiration Date, must tender their Senior
Notes according to the guaranteed delivery procedures set forth under the
caption "The Exchange Offer - How to Tender" in the Prospectus. (See Instruction
1).
The Instructions included with this Letter must be followed in their
entirety. Questions and requests for assistance or for additional copies of the
Prospectus or this Letter may be directed to the Exchange Agent, at the address
listed above, or Jeffrey H. Brennan, President and Chief Executive Officer of
the Company, at (512) 444-0571, 7211 Circle S Road, Austin, Texas 78745.
-2-
<PAGE>
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING
THE INSTRUCTIONS TO THIS LETTER, CAREFULLY
BEFORE CHECKING ANY BOX BELOW
Capitalized terms used in this Letter and not defined herein shall have
the respective meanings ascribed to them in the Prospectus.
List in Box 1 below the Senior Notes of which you are the holder. If the
space provided in Box 1 is inadequate, list the certificate numbers and
principal amount of Senior Notes on a separate SIGNED schedule and affix that
schedule to this Letter.
BOX 1
TO BE COMPLETED BY ALL TENDERING HOLDERS
<TABLE>
<CAPTION>
Name(s) and Address(es) of
Registered Holder(s) Principal Amount of
(Please Fill in if Blank) Certificate Principal Amount of Senior Notes
Numbers(s) (1) Senior Notes Tendered (2)
- - ------------------------------- ------------------ ----------------------- -----------------------
<S> <C> <C> <C>
Totals:
</TABLE>
(1) Need not be completed if Senior Notes are being tendered by book-entry
transfer.
(2) Unless otherwise indicated, the entire principal amount of Senior Notes
represented by a certificate or Book-Entry Confirmation delivered to the
Exchange Agent will be deemed to have been tendered.
-3-
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned tenders to the Issuer the principal amount of Senior Notes indicated
above. Subject to, and effective upon, the acceptance for exchange of the Senior
Notes tendered with this Letter, the undersigned exchanges, assigns and
transfers to, or upon the order of, the Issuer all right, title and interest in
and to the Senior Notes tendered.
The undersigned constitutes and appoints the Exchange Agent as his or her
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Issuer) with respect to the tendered Senior Notes, with
full power of substitution, to: (a) deliver certificates for such Senior Notes;
(b) deliver Senior Notes and all accompanying evidence of transfer and
authenticity to or upon the order of the Issuer upon receipt by the Exchange
Agent, as the undersigned's agent, of the Exchange Notes to which the
undersigned is entitled upon the acceptance by the Issuer of the Senior Notes
tendered under the Exchange Offer; and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Senior Notes, all in
accordance with the terms of the Exchange Offer. The power of attorney granted
in this paragraph shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, exchange, assign and transfer the Senior Notes
tendered hereby and that the Issuer will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim. The undersigned will, upon request, execute
and deliver any additional documents deemed by the Issuer to be necessary or
desirable to complete the assignment and transfer of the Senior Notes tendered.
The undersigned agrees that acceptance of any tendered Senior Notes by the
Issuer and the issuance of Exchange Notes in exchange therefor shall constitute
performance in full by the Issuer of its obligations under the Registration
Rights Agreement (as defined in the Prospectus) and that, upon the issuance of
the Exchange Notes, the Issuer will have no further obligations or liabilities
thereunder (except in certain limited circumstances). By tendering Senior Notes,
the undersigned certifies (a) that it is not an "affiliate" of the Issuer within
the meaning of Rule 405 under the Securities Act, that it is not a broker-dealer
that owns Senior Notes acquired directly from the Issuer or an affiliate of the
Issuer, that is acquiring the Exchange Notes in the ordinary course of the
undersigned's business and that the undersigned has not arrangement with any
person to participate in the distribution of the Exchange Notes or (b) that it
is an "affiliate" (as so defined) of the Issuer or of the initial purchasers in
the original offering of the Senior Notes, and that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable to it.
The undersigned acknowledges that, if it is a broker-dealer that will
receive Exchange Notes for its own account, 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.
The undersigned understands that the Issuer may accept the undersigned's
tender by delivering written notice of acceptance to the Exchange Agent, at
which time the undersigned's right to withdraw such tender will terminate.
All authority conferred or agreed to be conferred by this Letter shall
survive the death or incapacity of the undersigned, and every obligation of the
undersigned under this Letter shall be binding upon the undersigned's heirs,
personal representatives, successors and assigns. Tenders may be withdrawn only
in accordance with the procedures set forth in the Instructions contained in
this Letter.
-4-
<PAGE>
Unless otherwise indicated under "Special Delivery
Instructions" below, the Exchange Agent will deliver Exchange Notes (and, if
applicable, a certificate for any Senior Notes not tendered but represented by a
certificate also encompassing Senior Notes which are tendered) to the
undersigned at the address set forth in Box 1.
-5-
<PAGE>
The undersigned acknowledges that the Exchange Offer is subject to the
more detailed terms set forth in the Prospectus and, in case of any conflict
between the terms of the Prospectus and this Letter, the Prospectus shall
prevail.
[_] CHECK HERE IF TENDERED SENIOR NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:____________________________________________
Account Number:___________________________________________________________
Transaction Code Number:__________________________________________________
[_] CHECK HERE IF TENDERED SENIOR NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s):___________________________________________
Date of Execution of Notice of Guaranteed Delivery:_______________________
Window Ticket Number (if available):______________________________________
Name of Institution which Guaranteed Delivery:____________________________
-6-
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
BOX 2
PLEASE SIGN HERE
WHETHER OR NOT SENIOR NOTES ARE BEING
PHYSICALLY TENDERED HEREBY
X _________________________________________________ _______________
X _________________________________________________ _______________
SIGNATURE(S) OF OWNER(S) OR AUTHORIZED DATE
SIGNATORY
Area Code and Telephone Number:____________________________________________
This box must be signed by registered holder(s) of Senior Notes as their name(s)
appear(s) on certificates(s) for Senior Notes, or by person(s) authorized to
become registered holder(s) by endorsement and documents transmitted with this
Letter. If signature is by a trustee, executor, administrator, guardian, officer
or other person acting in a fiduciary or representative capacity, such person
must set forth his or her full title below. (See Instruction 3)
Name(s)_________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT)
Capacity________________________________________________________________________
Address_________________________________________________________________________
______________________________________________________________(INCLUDE ZIP CODE)
Signature(s) Guaranteed ________________________________________
by an Eligible Institution: (AUTHORIZED SIGNATURE)
(If required by Instruction 3) ________________________________________
(TITLE)
________________________________________
(NAME OF FIRM)
-7-
<PAGE>
BOX 3
TO BE COMPLETED BY ALL TENDERING HOLDERS
PAYOR'S: NAME: MARINE MIDLAND BANK
SUBSTITUTE PART 1 - Please provide your TIN Social Security Number or
FORM W-9 in the space at right and certify Employer Identification
DEPARTMENT OF by signing and dating below. Number
THE TREASURY _________________________
INTERNAL REVENUE
SERVICE
=============================================================
PAYOR'S REQUEST PART 2 - Check the box if you are NOT subject to backup
FOR TAXPAYER withholding under the provisions of Section 2406(a) (1) (C)
IDENTIFICATION of the Internal Revenue Code because (1) you have not been
NUMBER (TIN) notified that you are subject to back-up withholding as a
result of failure to report all interest or dividends or (2)
the Internal Revenue Service has notified you that you are
no longer subject to back-up withholding.
[_]
=============================================================
CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I CERTIFY
THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT,
AND COMPLETE
SIGNATURE____________________________DATE_______________
=============================================================
PART 3 - Check if Awaiting TIN [_]
-8-
<PAGE>
BOX 4
To be completed ONLY if certificates for Senior Notes in a principal amount not
exchanged, or Exchange Notes, are to be issued in the name of someone other than
the person whose signature appears in Box 2, or if Senior Notes delivered by
book-entry transfer which are not accepted for exchange are to be returned by
credit to an account maintained at the Book-Entry Transfer Facility other than
the account indicated above.
Issue and deliver: (check appropriate boxes)
[_] Senior Notes not tendered
[_] Exchange Notes to: Name ________________________________________
(PLEASE PRINT)
Address______________________________________
_____________________________________________
Please complete the Substitute Form W-9 at Box 3
________________________________________________
(TAX I.D. or SOCIAL SECURITY NUMBER)
BOX 5
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Senior Notes in a principal amount not
exchanged, or Exchange Notes, are to be sent to someone other than the person
whose signature appears in Box 2 or to an address other than that shown in Box
1.
Deliver: (check appropriate boxes)
[_] Senior Notes not tendered
[_] Exchange Notes, to: Name_________________________________________
(PLEASE PRINT)
Address______________________________________
_____________________________________________
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Senior Notes
or a Book-Entry Confirmation, as the case may be, as well as a properly
completed and duly executed copy of this Letter and any other documents required
by this Letter, must be received by the Exchange Agent at one of its addresses
set forth herein on or before the Expiration Date. The method of delivery of
this Letter, certificates for Senior Notes or a Book-Entry Confirmation, as the
case may be, and any other required documents is at the election and risk of the
tendering holder, but except as otherwise provided below, tile delivery will be
deemed
-9-
<PAGE>
made when actually received by the Exchange Agent. If delivery is by mail, the
use of registered mail with return receipt requested, properly insured, is
suggested.
Holders whose Senior Notes are not immediately available or who cannot
deliver their Senior Notes or Book-Entry Confirmation, as the case may be, and
all other required documents to the Exchange Agent on or before the Expiration
Date may tender their Senior Notes pursuant to the guaranteed delivery
procedures set forth in the Prospectus. Pursuant to such procedure: (i) tender
must be made by or through an Eligible Institution (as defined in the Prospectus
under the caption "The Exchange Offer"); (ii) prior to the Expiration Date, the
Exchange Agent must have received from the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by telegram, telex,
facsimile transmission, mail or hand delivery) (x) setting forth the name and
address of the holder, the description of the Senior Notes and the principal
amount of Senior Notes tendered, (y) stating that the tender is being made
thereby and (z) guaranteeing that, within three New York Stock Exchange trading
dates after the date of execution of such Notice of Guaranteed Delivery, this
Letter together with the certificates representing the Senior Notes or a
Book-Entry Confirmation, as the case may be, and any other documents required by
this Letter will be deposited by the Eligible Institution with the Exchange
Agent; and (iii) the certificates for all tendered Senior Notes or a Book-Entry
Confirmation, as the case may be, as well as all other documents required by
this Letter, must be received by the Exchange Agent within five New York Stock
Exchange trading days after the date of execution of such Notice of Guaranteed
Delivery, all as provided in the Prospectus under the caption "The Exchange
Offer - How to Tender."
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Senior Notes will be determined
by the Issuer, whose determination will be final and binding. The Issuer
reserves the absolute right to reject any or all tenders that are not in proper
form or the acceptance of which, in the opinion of the Issuer's counsel, would
be unlawful. The Issuer also reserves the right to waive any irregularities or
conditions of tender as to particular Senior Notes. All tendering holders, by
execution of this Letter, waive any right to receive notice of acceptance of
their Senior Notes.
None of the Issuer, the Exchange Agent or any other person shall be
obligated to give notice of defects or irregularities in any tender, nor shall
any of them incur any liability for failure to give any such notice.
2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount
of any Senior Note evidenced by a submitted certificate or a Book-Entry
Confirmation is tendered, the tendering holder must fill in the principal amount
tendered in the fourth column in Box 1 above. All of the Senior Notes
represented by a Book-Entry Confirmation delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated. A certificate for
Senior Notes not tendered will be sent to the holder, unless otherwise provided
in Box 5, as soon, as practicable after the Expiration Date, in the event that
less than the entire principal amount of Senior Notes represented by a submitted
certificate is tendered (or, in the case of Senior Notes tendered by book-entry
transfer, such non-exchanged Senior Notes will be credited to an account
maintained by the holder with the Book-Entry Transfer Facility).
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date. To be effective with respect to the
tender of Senior Notes, a notice of withdrawal must: (i) be received by the
Exchange Agent before the Issuer notifies the Exchange Agent that it has
accepted the tender of Senior Notes pursuant to the Exchange Offer; (ii) specify
the name of the person who tendered the Senior Notes; (iii) contain a
description of the Senior Notes to be withdrawn, the certificate numbers shown
on the particular certificates evidencing such Senior Notes and the principal
amount of Senior Notes represented by such certificates; and (iv) be signed by
the holder in the same manner as the original signature on this Letter
(including any required signature guarantee).
-10-
<PAGE>
3. SIGNATURES ON THIS LETTER; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If
this Letter is signed by the holder(s) of Senior Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the
certificate(s) for such Senior Notes, without alteration, enlargement or any
change whatsoever.
If any of the Senior Notes tendered hereby are owned by two or more joint
owners, all owners must sign this Letter. If any tendered Senior Notes are held
in different names on several certificates, it will be necessary to complete,
sign and submit as many separate copies of this Letter as there are names in
which certificates are held.
If this Letter is signed by the holder of record and (i) the entire
principal amount of the holder's Senior Notes are tendered; and/or (ii)
untendered Senior Notes, if any, are to be issued to the holder of record, then
the holder of record need not endorse any certificates for tendered Senior
Notes, nor provide a separate bond power. If any other case, the holder of
record must transmit a separate bond power with this Letter.
If this Letter or any certificate or assignment is 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 proper evidence satisfactory to the
Issuer of their authority to so act must be submitted, unless waived by the
Issuer.
Signatures on this Letter must be guaranteed by an Eligible Institution,
unless Senior Notes are tendered: (i) by a holder who has not completed the Box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
this Letter; or (ii) for the account of an Eligible Institution. In the event
that the signatures in this Letter or a notice of withdrawal, as the case may
he, are required to be guaranteed, such guarantees must be by an eligible
guarantor institution which is a member of The Securities Transfer Agents
Medallion Program (STAMP), The New York Stock Exchanges Medallion Signature
Program (MSP) or The Stock Exchanges Medallion Program (SEMP) (collectively,
"Eligible Institutions"). If Senior Notes are registered in the name of a person
other than the signer of this Letter, the Senior Notes surrendered for exchange
must be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Issuer, in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in Box 4 or 5, as applicable, the name and address to which the
Exchange Notes or certificates for Senior Notes not exchanged are to be issued
or sent, if different from the name and address of the person signing this
Letter. In the case of issuance in a different name, the Tax Identification
Number ("TIN") of the person named must also be indicated. Holders tendering
Senior Notes by book-entry transfer may request that Senior Notes not exchanged
be credited to such account maintained at the Book-Entry Transfer Facility as
such holder may designate.
5. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder whose tendered Senior Notes are accepted for exchange must provide the
Exchange Agent (as payor) with his or her correct TIN, which, in the case of a
holder who is an individual, is his or her social security number. If the
Exchange Agent is not provided with the correct TIN, the holder may be subject
to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery
to the holder of the Exchange Notes pursuant to the Exchange Offer may be
subject to back-up withholding. (If withholding results in overpayment of taxes,
a refund may be obtained.) Exempt holders (including, among others, all
corporations and certain foreign individuals) are not subject to these back-up
withholding and reporting requirements. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
-11-
<PAGE>
Under federal income tax laws, payments that may be made by the Issuer on
account of Exchange Notes issued pursuant to the Exchange Offer may be subject
to back-up withholding at a rate of 31%. In order to prevent back-up
withholding, each tendering holder must provide his or her correct TIN by
completing the "Substitute Form W-9" referred to above, certifying that the TIN
provided is correct (or that the holder is awaiting a TIN) and that: (i) the
holder has not been notified by the Internal Revenue Service that he or she is
subject to back-up withholding as a result of failure to report all interest or
dividends; or (ii) the Internal Revenue Service has notified the holder that he
or she is no longer subject to back-up withholding; or (iii) certify in
accordance with the Guidelines that such holder is exempt from back-up
withholding. If the Senior Notes are in more than one name or are not in the
name of the actual owner, consult the enclosed guidelines for information on
which TIN to report.
6. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the transfer of Senior Notes to the Issuer or its order pursuant
to the Exchange Offer. If, however, the Exchange Notes or certificates for
Senior Notes not exchanged are to be delivered to, or are to be issued in the
name of, any person other than the record holder, or if tendered certificates
are recorded in the name of any person other than the person signing this
Letter, or if a transfer tax is imposed by any reason other than the transfer of
Senior Notes to the Issuer or its order pursuant to the Exchange Offer, then the
amount of such transfer taxes (whether imposed on the record holder or any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of taxes or exemption from taxes is not submitted with this Letter, the
amount of transfer taxes will be billed directly to the tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter.
7. WAIVER OF CONDITIONS. The Issuer reserves the absolute right to amend
or waive any of the specified conditions in the Exchange Offer in the case of
any Senior Notes tendered.
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificates for Senior Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above, for further
instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus or this Letter, may be directed to the Exchange Agent.
IMPORTANT: This Letter (together with certificates representing tendered
Senior Notes or a Book-Entry Confirmation and all other required documents) must
be received by the Exchange Agent on or before the Expiration Date (as defined
in the Prospectus).
-12-
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
TO
TENDER 11% SENIOR SUBORDINATED NOTES DUE 2007
OF
COMMEMORATIVE BRANDS, INC.
As set forth in the Offer to Purchase described below, this instrument or
one substantially equivalent hereto must be used to accept the Offer (as defined
below) if certificates for Notes (as defined below) are not immediately
available or the certificates for Notes and all other required documents cannot
be delivered to the Depositary prior to the Expiration Date (as defined in
Section 1 of the Offer to Purchase) or if the procedure for delivery by
book-entry transfer cannot be completed on a timely basis. This instrument may
be delivered by hand or transmitted by facsimile transmission or mail to the
Depositary.
THE DEPOSITARY FOR THE OFFER IS:
MARINE MIDLAND BANK
<TABLE>
<CAPTION>
BY HAND OR OVERNIGHT
BY MAIL: BY FACSIMILE TRANSMISSION: DELIVERY:
<S> <C> <C>
40 Broadway (212) 658-6425 40 Broadway
New York, New York, 10005 Attn: Corporate Trust New York, New York 10005
Attn: Corporate Trust Administration Attn: Corporate Trust
Administration CONFIRM FACSIMILE BY Administration
TELEPHONE:
(212)
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box in the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tender(s) to Commemorative Brands, Inc., a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated , 1997 (the "Offer to Purchase"),
and in the related Letter of Transmittal (which, as amended from time to time,
together constitute the "Offer"), receipt of which is hereby acknowledged, the
aggregate principal amount of $ of the 11% Senior Subordinated Notes due
2007 (the "Notes") of the Company pursuant to the guaranteed delivery procedure
set forth in Section of the Offer to Purchase.
Signature(s)....................................................................
Name(s) of Record Holders
...............................................................................
PLEASE TYPE OR PRINT
Principal Amount ...............................................................
Certificate Nos. (If Available)
...............................................................................
...............................................................................
Dated ..........................................................................
, 1997
Address(es).....................................................................
...............................................................................
ZIP CODE
Area Code(s) and Tel. No(s) ....................................................
Check one box (if Notes will be tendered by book-entry transfer):
/ / The Depository Trust Company
Account Number .................................................................
...............................................................................
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a bank, broker, dealer, credit union,
savings association or other entity which is a member in good standing of the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program,
hereby (a) represents that the above named person(s) "own(s)" the Shares and/or
Rights tendered hereby within the meaning of Rule 14e-4 under the Securities
Exchange Act of 1934, as amended ("Rule 14e-4"), (b) represents that such tender
of Notes complies with Rule 14e-4, (c) guarantees to deliver to the Depositary
either the certificates evidencing all tendered Notes, in proper form for
transfer, or to deliver Notes pursuant to the procedure for book-entry transfer
into the Depositary's account at the Depository Trust Company (a "Book-Entry
Transfer Facility"), in either case together with the Letter of Transmittal (or
a facsimile thereof), properly completed and duly executed, with any required
signature guarantees or an Agent's Message (as defined in the Offer to Purchase)
in the case of a book-entry delivery, and any other required documents, all
within three Nasdaq National Market trading days after the date hereof.
<TABLE>
<S> <C>
- - -------------------------------------------- --------------------------------------------
NAME OF
FIRM AUTHORIZED SIGNATURE
Name
- - ---------------------------------------------
ADDRESS PLEASE TYPE OR PRINT
Title
- - ---------------------------------------------
ZIP
CODE AUTHORIZED SIGNATURE
Dated
--------------------------------------- ,
AREA CODE AND TEL NO. 1997
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR NOTES WITH THIS NOTICE. CERTIFICATES SHOULD
BE SENT WITH YOUR LETTER OF TRANSMITTAL.
